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. Last Updated: 07/27/2016

Putin Backs 'Orderly' Tax Probes

President Vladimir Putin said Tuesday Russia needs to simplify its system of tax inspections, which analysts say is arbitrary and disruptive and has badly damaged the country's investment climate.

Putin was speaking at a meeting where Deputy Prime Minister Alexander Zhukov, the man charged with bringing order to Russia's baffling tax system, laid out proposals for reform.

"I agree that procedures for tax inspections should be simplified and the inspections themselves should be made more orderly," Putin said in televised comments.

The choice of Cabinet liberal Zhukov to handle the politically sensitive tax issue is being seen as a sign Putin might be prepared to clip the wings of the tax inspectorate.

But some cautioned proposals may only be for foreign consumption and might make little difference in practice.

The tax inspectorate played a key part in pushing oil firm Yukos to the brink of collapse, rattling business leaders who fear they could face predatory inspections if they fall foul of the Kremlin.

Last year mobile phone company VimpelCom was also hit with a surprise claim of $158 million for 2001 -- although fears that it might meet the same fate as Yukos receded when the bill was cut to $17.6 million.

"The package of measures ... allows us to improve the investment climate in Russia and strengthen relations of trust between business and the authorities," Zhukov said.

He criticized current legislation as open to conflicting interpretation and said firms should not be subjected to repeated inspections.

Companies should also be given the chance to pay back tax claims in installments to allow them to stay in business.

Flexible payment terms should be allowed "so that the demands of the tax authorities do not lead to liquidation of businesses that are capable of functioning normally."

"It needs to be established that a repeat inspection can only be conducted if there is a special reason to think that there was a shady deal between the tax authorities and the taxpayer during the first inspection," Zhukov said.

Yukos was hammered by multiple tax inspections and faced back tax demands of some $28 billion, far more than the company's annual turnover. Authorities refused to allow the firm to stagger payments and forced the auction of its main unit, Yuganskneftegaz, in December to raise funds to meet the demands.

Zhukov said a different department from the one that carries out initial inspections should handle any complaints.

Unnecessary paperwork should also be cut back by clearly defining the documentation that firms have to hand over to the authorities, Zhukov said. An executive of a major foreign company said recently that his firm had filed more than 100,000 pages of documents to support routine tax returns last year.