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. Last Updated: 07/27/2016

Moscow Refinery in Tax Battle

VedomostiMoscow Refinery is challenging back tax claims of $135 million for 2000 to 2002.
Moscow Refinery is facing back tax claims of $135 million for the use of tax optimization schemes from 2000 to 2002, shareholder Sibir Energy said Thursday.

Sibir Energy said the claims, which were levied in January, were being challenged in court on the grounds that the schemes were legal and that current shareholders were not the ultimate beneficiary of the schemes and therefore held no liability.

Sibir Energy owns 45 percent in Moscow Oil and Gas Co., or MOGC, while City Hall holds a 55 percent stake. MOGC, in turn, has a 38 percent stake and 51 percent voting interest in the refinery. Sibir Energy made the disclosure in accordance to British regulatory rules. Executives from the company declined to comment further Thursday.

In its statement, the company indicated that if the court challenge failed, MOGC would seek compensation from the actual beneficiaries of the tax optimization schemes.

"The covenants of the beneficiaries are such that they are well able to meet such sums if they are levied," Sibir Energy said, but it did not name the companies behind the optimization schemes.

Sibir Energy's joining of MOGC in 2002 effectively means the company, which has both upstream and downstream interests in Russia, became a shareholder after the alleged tax violations occurred.

Other shareholders in Moscow Refinery include Sibneft with 38.5 percent and Tatneft with 7.7 percent. Minority shareholders hold the remaining 15.8 percent. MOGC, tax officials and Sibneft refused to comment on Sibir Energy's disclosure Thursday.

The tax claim is comparable to the refinery's year revenues. Unlike most other refining facilities in Russia, Moscow Refinery is not part of a vertically integrated oil company. It has throughput of about 11 million tons of crude per year and controls about a 4 percent share of the domestic gasoline market.

Analysts refrained from speculating on what could have prompted the tax bill but warned that the size of the bill was big enough to cause disruptions in the enterprise's operations.

"It is a serious problem," said Valery Nesterov, oil and gas analyst with Troika Dialog. Nesterov, however, noted that the bill is not the first of its kind in the refining sector.

A number of refineries have in the past used the so-called Baikonur scheme, in which equipment leases and sales were handled through firms registered in the tax-exempt territory of Russia's Baikonur Cosmodrome in Kazakhstan. Earlier this year, three refineries in Bashkortostan were ruled by the Supreme Arbitration Court to be liable for more than $400 million in back taxes in original tax reports based on the Baikonur scheme.