The taxman takes control of Russneft

Jun 21, 2007 02:00 AM

The Moscow Arbitration Court confirmed that stock in Mikhail Gutseriev's Russneft has been frozen in connection with the suit filed by the Federal Tax Service. Sources say that the tax service is claiming a controlling share in the company.
Experts note that the situation is looking more and more like a repeat of Yukos, but Gutseriev still has a chance to avoid the fate of Mikhail Khodorkovsky.

The Moscow Arbitration Court confirmed that stock in Russneft oil company has been frozen. ZAO Servis, the company's registrar, has been prohibited to perform transfer operations with the disputed stock. The court ruled to freeze the stock in question in seven cases involving firms that own it.
There is another case in which the respondent is Russneft shareholders. No stock has been frozen in it yet. The court was unable to say what quantity of stock was frozen.

The Federal Tax Service is claiming that the resale of Russneft stock through a chain of 11 firms constitutes an antisocial transaction. The stock was sold to affiliated parties at its nominal price, which is lower than its market price, and, as a result, tax payments were evaded, according to the tax service.
The claimant makes reference to article 169 of the Civil Code of the Russian Federation, which permit the annulment of transactions found to be “contrary to the bases of lawfulness and morals” with the full amount of money received through the transaction receivable by the state.

Russneft is the youngest oil company in Russia, founded late in 2003. Its main owner and beneficiary is former Slavneft president Mikhail Gutseriev, who has stated that he owns 70 % of the stock in the company, with the rest belonging to his relatives. The company produces 17 mm tons of oil per year and owns two refineries and about 300 filling stations.
According to a Russneft report, at the end of the first quarter of the year, the Russian companies Evangelika and Spektr and Cypriote Shaddock Trading each own 20 % of the stock in the company. Another 15.2 % belonged to ZAO Milanfo, 15.1 % to Mlada, and 9.7 % to IK Nadezhnost.
Stock has not been frozen in the case involving Nadezhnost. Evangelika is not listed as a respondent in any of the tax service suits. All of the other co-owners of Russneft are mentioned. Thus, up to 70.3 % of the stock in the company has been frozen.

Tatyana Bicheva, senior jurist at the Lidings law firm, explained that in order to freeze stock, it has to be established that a respondent still owns it, which can be confirmed by the registrar. Stock belonging to parties that did not take part in the transaction cannot be frozen. A source familiar with the contents of the suits says, however, that the tax service is trying to claim “just over 50 % of the stock” in Russneft.
Managing partner of the Pepelyaev, Goltsblat and Partners law firm Sergey Pepelyaev noted that, if the court rules for the tax service, the stock will go to the state as damages without recompense, as will the money paid in the course ofthe transaction.

The legal expert also expressed surprise that the tax service chose to use Civil Code article 169. The Tax Code specifies the consequences of non-market sales and methods for charging the correct tax.
“Open bias can be seen when the tax service practically refuses to charge for taxes to the budget,” he commented. In his opinion, the notion of “goals contrary to the bases of lawfulness” has not been made clear and so the court will define it at its discretion.
“But the court is no longer independent and society is too often witness to the most cynical of decisions,” he added.

Industry experts think it possible that the authorities' attack is not directed against Russneft, but rather against Gutseriev personally.
“I don't think Rosneft or Gazprom needs that asset. Russneft works on complex deposits and their profitability is low,” commented KIT Finance analyst Dmitry Tsaregorodtsev. He thinks that it is Gutseriev who has fallen from grace and the chance to “draw off” Russneft is simply “a pleasant collateral bonus.”

An Interior Ministry investigative committee has already made charges against Gutseriev. Analysts note that the fall of Yukos began as a consequence of a conflict between company chief Mikhail Khodorkovsky and Russian authorities. (Yukos stock was also frozen from late 2004 until outside management was imposed on the company on March 28, 2006, as part of its bankruptcy proceedings.)
Alexander Blokhin of Ak Bars Finance thinks, however, that Gutseriev can escape Khodorkovsky's fate by relinquishing control over Russneft. The first preliminary hearings in the cases on annulling the transactions with the company's stock are scheduled for June 29. There are already ten volumes of documents in those cases, a source reports. Therefore, the court's ruling, and the freezing of the stock, may last several months.

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