CASE OF OAO NEFTYANAYA KOMPANIYA YUKOS v. RUSSIA

Preliminary objection dismissed (non-exhaustion of domestic remedies);Violation of Art. 6-1+6-3-b;Violation of P1-1;No violation of P1-1;No violation of Art. 14+P1-1;No violation of Art. 18+P1-1;Just satisfaction reserved

Christos Rozakis;Dean Spielmann;Giorgio Malinverni;Khanlar Hajiyev;Sverre Erik Jebens

The applicant , ORG , was a publicly - traded private open joint - stock company incorporated under the laws of GPE . It was registered in GPE , GPE , and at the relevant time was managed by its subsidiary , ORG ” GPE , registered in GPE .

The applicant was a holding company established by ORG in DATE to own and control a number of stand - alone entities specialised in oil production . The company remained fully ORG - owned until DATE when , through a series of tenders and auctions , it was privatised .

DATE and DATE ORG of the town of GPE ( “ the Tax Office ” ) conducted a tax inspection of the applicant company .

As a result of the inspection , on DATE ORG drew up a report indicating a number of relatively minor errors in the company ’s tax returns and served it on the company .

Following the company ’s objections , on DATE ORG adopted a decision in which it found the company liable for having filed incomplete returns in respect of certain taxes .

The decision of ORG was accepted and complied with by the company on DATE .

On DATE ORG ( “ the Ministry ” ) , acting as a reviewing body within the meaning of section CARDINAL ( CARDINAL ) of LAW , carried out an additional tax inspection of the applicant company .

On DATE the ORG issued a report indicating that the applicant company had a large tax liability for DATE . The detailed report came to over CARDINAL pages and had CARDINAL supporting documents in annex . The report was served on the applicant company on DATE .

The Ministry established that in DATE the applicant company had carried out its activities through a network of CARDINAL trading companies registered in low - tax areas of GPE ( “ GPE , the town of ORG in ORG , GPE , the town of GPE in LOC , the town of GPE in GPE and the GPE ” ) . For all legal purposes , most of these entities were set up as entirely independent from the applicant , i.e. as belonging and being controlled by third persons , although their sole activity consisted of commissioning the applicant company to buy crude oil on their behalf from the company ’s own oil - producing subsidiaries and either putting it up for sale on the domestic market or abroad , or first handing it over to the company ’s own oil - processing plants and then selling it . There were no real cash transactions between the applicant company , its oil - processing and oil - producing subsidiaries and the trading entities , and the company ’s own promissory notes and mutual offsetting were used instead . All the money thus accumulated from sales was then transferred unilaterally to the “ ORG of the Production Development of OAO ORG ” , a commercial entity founded , owned and run by the applicant company . Since at all relevant times the applicant company took part in all of the transactions of the trading companies , but acted as the ORG agent and never as an owner of the goods produced and processed by its own subsidiaries and since the compensation paid by the trading entities for its services was negligible , the applicant company ’s real turnover was never reflected in any tax documents and , consequently , in its tax returns . In addition , most of the trading companies were in fact sham entities , as they were neither present nor operated in the place of their registration . In addition , they had no assets and no employees of their own .

The ORG found it established , among other things , that :

( a ) the actual movement of the traded oil was from the applicant company ’s production sites to its own processing or storage facilities ;

( b ) the applicant company acted as an exporter of goods for the purpose of customs clearance , even though the goods had formally been owned and sold by sham companies ;

( c ) through the use of various techniques , the applicant company indirectly established and , at all relevant times de facto , controlled and owned the sham entities ;

( d ) all accounting operations of the companies were carried out by the same CARDINAL entities , ORG ” ORG and ORG , both dependant on or belonging to the applicant company ;

( e ) the network of sham companies was officially managed by ORG ” RM , all official correspondence , including tax documents , being sent from the postal address of ORG ” GPE , the applicant company ’s managing subsidiary ;

( f ) the sham companies and the applicant company ’s subsidiaries entered into transactions with lowered prices for the purpose of reducing the taxable base of their operations ;

( g ) NORP all revenues perceived by the sham companies were thereafter unilaterally transferred to the applicant company ;

( h ) statements by the owners and directors of the trading entities , who confessed that they had signed documents that they had been required to sign by the officials of the applicant company , and had never conducted any independent activity on behalf of their companies , were true ;

( i ) and , lastly , that the sham companies received tax benefits unlawfully .

Having regard to all this , the Ministry decided that the activities of the sham companies served the purpose of screening the real business activity of the applicant company , that the transactions of these companies were sham and that it had been the applicant company , and not the sham entities , which conducted the transactions and became the owner of the traded goods . In view of the above , and also since neither the sham entities nor the applicant company qualified for the tax exemptions in question , the report concluded that the company , having acted in bad faith , had failed properly to reflect these transactions in its tax declarations , thus avoiding the payment of GPE , motorway tax , corporate property tax , tax for improvement of the housing stock and socio - cultural facilities , tax in respect of sales of fuels and lubricants and profit tax .

The report also noted specifically that the tax authorities had requested the applicant company to facilitate reciprocal tax inspections of several of its important subsidiaries . CARDINAL of the CARDINAL subsidiary companies refused to comply , CARDINAL failed to answer , whilst CARDINAL entities filed incomplete documents . It also specified that during the on - site inspection the applicant company failed to provide the documents requested by ORG concerning the transportation of oil .

The report referred , inter alia , to Articles CARDINAL ( CARDINAL ) , CARDINAL , DATE ( CARDINAL ) and CARDINAL of LAW , LAW no . DATE - CARDINAL of GPE ) of DATE “ On Value - Added Tax ” , sections CARDINAL and CARDINAL ( CARDINAL ) of RF PERSON no . DATE of DATE “ On motorway funds in the GPE ” , section CARDINAL ( “ PERSON ” ) of RF PERSON no . CARDINAL - CARDINAL of DATE “ On the basics of the tax system ” , LAW ( CARDINAL - CARDINAL ) of LAW , LAW no . CARDINAL of DATE “ On corporate property tax ” , section CARDINAL ( CARDINAL - CARDINAL ) of RF PERSON no . DATE “ On corporate profit tax ” , Decision no . CARDINAL-O of ORG DATE and LAW .

On DATE the applicant company filed its detailed CARDINAL - page objections to the report . The company admitted that for a very short period of time it had partly owned CARDINAL out of the CARDINAL organisations mentioned in the report , but denied its involvement in the ownership and management of the remaining CARDINAL companies . They maintained this position about their lack of involvement in the companies in question throughout the proceedings .

During a meeting between the representatives of ORG and the company on DATE , the applicant company ’s counsel were given an opportunity to state orally their arguments against the report .

Having considered the company ’s objections , on DATE the Ministry adopted a decision establishing that the applicant company had a large outstanding tax liability for DATE . As the applicant company had failed properly to declare the above - mentioned operations in its tax declarations and to pay the corresponding taxes , in accordance with LAW ( CARDINAL ) of LAW the Ministry found that the company had underreported its tax liability for DATE and ordered it to pay MONEY ( “ RUB ” ) ( approximately CARDINAL euros , ( “ EUR ” ) ) in tax arrears , RUB MONEY ( approximately EUR CARDINAL,CARDINAL,CARDINAL ) in default interest and RUB CARDINAL,CARDINAL,CARDINAL,CARDINAL as a PERCENT penalty ( approximately ORG CARDINAL ) , totalling RUB MONEY ( approximately EUR CARDINAL ) . The arguments contained in the decision were identical to those of the report of CARDINAL DATE . In addition , the decision responded in detail to each of the counter - arguments advanced by the company in its objections of CARDINAL DATE .

The decision was served on the applicant company on DATE .

The company was given until DATE to pay voluntarily the amounts due .

NORP The applicant company alleged that it had requested the Ministry to clarify the report of DATE and that the Ministry had failed to respond to this request .

Under a rule which made it unnecessary to wait until the end of the grace period if there was evidence that the dispute between the tax authority and the taxpayer was insoluble , the Ministry did not wait until DATE .

On DATE it applied to ORG ( “ the ORG ” ) and requested the court to attach the applicant company ’s assets as a security for the claim .

By decision of DATE ORG initiated proceedings and prohibited the applicant company from disposing of some of its assets pending the outcome of litigation . The injunction did not concern goods produced by the company and related cash transactions .

By the same decision the court fixed the date of the preliminary hearing for DATE and invited the applicant company to respond to the ORG ’s claims .

On DATE the applicant company filed a motion in which it argued that ORG had no territorial jurisdiction over the company ’s legal headquarters and requested that the case be referred to a court in GPE , where it was registered .

On DATE the ORG filed a motion inviting the court to call the applicant company ’s managing subsidiary ORG ” GPE as a co - defendant in the case .

At the hearing ORG examined and dismissed the applicant company ’s motion of DATE . Having regard to the fact that the applicant company was operated by its own subsidiary ORG ” GPE , registered and located in GPE , the court established that the applicant company ’s real headquarters were in GPE and not in GPE . In view of the above , the court concluded that it had jurisdiction to deal with the case .

On DATE the applicant company appealed against this decision . The appeal was examined and dismissed by ORG of ORG ( “ the Appeal Court ” ) on DATE .

ORG also examined and granted the ORG ’s motion of DATE . The court ordered ORG ” GPE to join the proceedings as a co - defendant and adjourned the hearing until DATE .

At the hearing of CARDINAL May CARDINAL the applicant company lodged with ORG a separate action against the tax assessment of DATE , seeking to have the assessment decision declared unlawful . The applicant company ’s brief came to CARDINAL pages and had CARDINAL supporting documents in annex . This action was examined separately and dismissed as unsubstantiated by ORG on DATE . The judgment of CARDINAL DATE was upheld on appeal on DATE . On DATE ORG upheld the decisions of the lower courts .

In the meantime the tax assessment case continued . On DATE ORG rejected the applicant company ’s request to adjourn the proceedings , having found that the applicant company ’s counterclaim did not require such adjournment of the proceedings concerning the ORG ’s action .

OOO “ YUKOS ” GPE also requested that the hearing be adjourned as , it claimed , it was not ready to participate in the proceedings .

This request was rejected by the court as unfounded on DATE .

At the hearing the respondent companies also requested ORG to vary their procedural status to that of interested parties .

The court rejected this request and , on the applicant company ’s motion of DATE , ordered the Ministry to disclose its evidence . The company ’s motion contained a lengthy list of specific documents which , it alleged , should have been in the possession of the Ministry in support of its tax claims .

NORP The court then decided that the merits of the case would be heard on DATE .

On DATE the Ministry invited the applicant company to examine the evidence in the case file at its LOC . CARDINAL company lawyers went to the Ministry on DATE and CARDINAL lawyers went on DATE .

According to the applicant company , the supporting material underlying the case was first provided to the company on CARDINAL DATE , when ORG filed CARDINAL pages of documents . On DATE the Ministry allegedly disclosed approximately a further CARDINAL pages , and a further CARDINAL pages on DATE of the hearing before ORG , that is , on DATE .

Relying on a record dated DATE , drawn up and signed by ORG and ORG representative PERSON allegedly refused to sign it ) , the applicant company submitted that the documents in question had been presented in an indiscriminate fashion , in unpaginated and unsorted piles placed in CARDINAL plastic crates ( QUANTITY of which contained CARDINAL pages each , with CARDINAL others containing CARDINAL pages each ) . All of the documents were allegedly crammed in a room measuring QUANTITY , with CARDINAL chairs and a desk . No toilet facilities or means of refreshment were provided .

According to the Government , the documents in question ( CARDINAL pages - and not CARDINAL pages as claimed by the applicant- filed on CARDINAL DATE , and a further CARDINAL - and not CARDINAL pages as claimed by the applicant company , filed on DATE ) were well - known to the applicant company ; moreover , it had already possessed these accounting and legal documents prior to the beginning of the proceedings . The documents allegedly reflected the relations between the applicant company and its network of sham entities , and the entirety of the management and accounting activities of these entities had been conducted by the applicant company from the LOC of its executive body ORG , located in GPE . All of the documents were itemised in the ORG ’s document dated CARDINAL DATE and filed in execution of the court ’s order to disclose the evidence .

The Government also submitted that the applicant company ’s lawyers could have studied the evidence both in court and at the ORG ’s premises throughout DATE .

The hearings on the merits of the case commenced on DATE and lasted until DATE . It appears that the applicant company requested the court repeatedly to adjourn the proceedings , relying , among other things , on the lack of sufficient time to study the case file .

The Government submitted that DATE of the hearings , CARDINAL DATE , was devoted to hearing and resolving various motions brought by the applicant company and PERSON . On DATE , after hearing further motions by PERSON , the court proceeded to the evidence phase of the trial . ORG then explained the evidence that it had submitted to the court . During this phase of the trial , which continued on DATE , the applicant company ’s representatives were able to ask questions , and the defendants made various motions . According to the Government , where the court found that the applicant company had not had an opportunity to review a particular document that the ORG wished to refer to , the court refused to allow the document to be entered in the record . On DATE the applicant company was afforded an opportunity to explain its evidence and to submit additional evidence . The applicant company chose instead to address questions to the Ministry . The applicant company concluded the first - instance hearing of the case with over TIME of pleadings , whilst the Ministry limited its pleadings to brief references to its own tax inspection report , the decision dated DATE and the statement of claim .

On DATE , at the end of the hearings , ORG gave its judgment in which , for the most part , it reached the same findings and came to the same conclusions as in the ORG ’s decision of DATE . Having confirmed the factual findings of the decision of DATE in respect of the relations and transactions between the sham companies and the applicant company with reference to sundry pieces of evidence , including the statements by the nominal owners of the trading companies , acknowledging to the true nature of their relations with the applicant company , the court then reasoned as follows :

“ ... Under section CARDINAL of RF Law no . DATE of DATE ‘ On value - added tax’ , part CARDINAL of section CARDINAL and section CARDINAL of RF Law no . DATE of DATE ‘ On motorway funds in GPE , subpart ‘ ch’ of section CARDINAL of RF Law no . CARDINAL - CARDINAL of CARDINAL DATE ‘ On the basics of the tax system’ , the sale of goods ( works and services ) gives rise to an obligation to pay ORG , motorway users’ tax , tax on the sale of oil and oil products and tax for the maintenance of the housing stock and socio - cultural facilities .

Under part CARDINAL of LAW , objects of taxation may consist of the sale of goods ( works and services ) , assets , profit , value of sold goods ( works and services ) or other objects having value , quantity or physical characteristics on the presence of which the tax legislation bases the obligation to pay tax .

Under part CARDINAL of LAW , sales are defined as the transfer of property rights in respect of goods . Under subpart CARDINAL and CARDINAL of Article CARDINAL of LAW ( taking into account LAW ) the owner of goods is the person who has the rights of ownership , use and disposal of his property , that is , the person who is entitled to carry out at his own discretion in respect of this property any actions which are not against the law and other legal acts and do not breach the rights and protected interests of other persons ...

The court established that the owner of the oil sold under contracts concluded with organisations registered in low - tax territories had been OAO Yukos . The respondents’ arguments about the unlawfulness of the use of the notion of de facto owner ( фактический собственник ) on the basis that , according to LAW ... there existed a presumption of good faith on the part of parties involved in civil - law transactions and that therefore the persons indicated as owners in the respective contracts should be regarded as the owners , are baseless , because the above - mentioned organisations never acquired any rights of ownership , use and disposal in respect of oil and oil products ( поскольку прав владения , пользования и распоряжения нефтью и нефтепродуктами у данных организаций не возникало ) .

ORG Yukos was therefore under an obligation to pay [ the taxes ] , and this obligation has not been complied with in good time .

Article CARDINAL of LAW establishes that profit is an economic gain in monetary form or in kind , which is taken into account if it is possible to evaluate it and in so far as it can be assessed . Under subparts CARDINAL and CARDINAL of section CARDINAL of RF PERSON no . DATE of DATE ‘ On profit tax of enterprises and ORG which was then in force , the object of taxation is the gross profit of the enterprise , decreased ( or increased ) in accordance with the provisions of the present section . The gross profit is the total of revenues ( receipts ) from the sale of products ( works and services ) , main assets ( including plots of land ) , other property belonging to the enterprise and the profit derived from operations other than sales , less the sum of expenses in respect of these operations . Since it follows from the case file that the economic profit from the sale of oil and oil products was perceived by OAO NK Yukos , it was incumbent on [ the applicant company ] to comply with the obligation to pay profit tax .

Section CARDINAL of RF Law no . DATE of DATE ‘ On corporate property tax’ taxes the main assets , non - material assets , reserves and receipts which are indicated on the taxpayer ’s balance sheet . It follows that the obligation to pay property tax was incumbent on the person who was legally responsible for reflecting the main assets , non - material assets , reserves and receipts on its balance sheet . Since it follows from the materials of the case that OAO NK Yukos was under such an obligation , this taxpayer was also under an obligation to pay property tax .

The court does not accept the respondent ’s arguments that the tax authorities lacked the power to levy taxes from OAO NK Yukos in respect of the sums ... perceived by other organisations . The power of the tax authorities to bring proceedings in courts to ensure the payment of taxes to the budget in cases of bad - faith taxpayers is confirmed by decision no . CARDINAL-O of ORG of GPE , dated DATE . At the same time the bad faith of taxpayer OAO NK Yukos and the fact that the proceeds from transactions in oil and oil products were remitted to it is confirmed by the materials of the case file .

The court has also established that the use of tax benefits by organisations which were dependent on OAO NK Yukos and participated in the tax - evasion scheme set up by that company was unlawful .

Pursuant to LAW , tax benefits are recognised as preferences provided for in the tax legislation for certain groups of taxpayers in comparison with other taxpayers , including the possibility of not paying a tax or of paying it at a lower rate .

The court believes that tax payers must use their right to such benefits in good faith .

Meanwhile , it follows from the materials of the case that the taxpayers [ concerned ] used their right in bad faith .

The entities registered on the territory of the Republic of GPE ( PERSON ... , PERSON ... , ORG ... , PERSON ... , PERSON ... ) applied benefits governed by PERSON of the Republic of Mordoviya no . CARDINAL of DATE ‘ On conditions for the efficient use of the socio - economic potential of GPE , which sets out a special taxation procedure for entities , for the purpose of creating beneficial conditions for attracting capital to the territory of GPE , developing the securities market and creating additional jobs . Under LAW of that law , this special taxation procedure applies in respect of entities ( including foreign entities operating through permanent representative offices established in the territory of GPE ) , established after the entry into force of the law ( with the exception of entities conducting leasing activities , banks and other credit institutions ) and whose business meets CARDINAL of the following conditions : export operations , with the resulting DATE earnings totalling PERCENT of the whole of the entity ’s earnings ; wholesale trading of combustibles and lubricants and other kinds of hydrocarbons with the resulting DATE earning totalling PERCENT of the whole of the entity ’s earnings ; and other conditions enumerated in that law . Pursuant to sections CARDINAL and CARDINAL of the PERSON , the Government of the Republic of GPE passed resolutions on the application of the special taxation procedure in respect of the mentioned entities and , consequently , on the application of the following tax rates : at the rate of PERCENT in respect of profit tax in so far as it is credited to the NORP and local budgets of the Republic of GPE ; at the rate of PERCENT on motorway LOC tax in so far as it is credited to ORG of the Republic of GPE ; and at the rate of PERCENT on corporate property tax . Moreover , the above - mentioned entities were exempted by local government resolutions from payment of tax for the maintenance of the housing stock and socio - cultural facilities .

However , the special taxation procedure is provided for [ by this law ] for the purposes of creating favourable conditions in order to attract capital to the territory of GPE , develop the securities market and create additional jobs . The entities which used those benefits did not actually carry out their activities on the territory of this subject of GPE , did not attract capital and did not facilitate the strengthening of the Republic ’s socio - economic potential , but , on the contrary , inflicted material damage through non - payment of taxes to the budget of the Republic , the local budget and the federal budget . Thus , the use of the tax benefits in respect of these entities was not aimed at improving the economy of GPE but pursued the aim of evading taxes on the production , refining and sales operations in respect of oil and oil products by OAO NK Yukos and is , as a consequence , unlawful .

The entity registered on the territory of GPE ( OOO Sibirskaya PERSON ... ) did not pay profit tax , property tax , motorway users’ tax , tax on the acquisition of vehicles and other taxes , under PERSON no . CARDINALP-CARDINAL of GPE DATE ‘ On tax benefits to enterprises investing in the economy of GPE , which establishes advantages in respect of taxes and duties for the ... taxpayers that invest in the economy of GPE and are registered as such enterprises with ORG . Moreover , the entity in question was exempt from the payment of local taxes and ... of profit tax to the consolidated budget .

At the same time , it follows from the presumption of good faith on the part of taxpayers ( Decisions no . CARDINAL-O of ORG , no . CARDINAL of DATE and no . CARDINAL of DATE , Rulings of the Presidium of ORG no . CARDINAL/CARDINAL dated DATE , no . CARDINAL of DATE , no . CARDINAL/CARDINAL of CARDINAL DATE and no . CARDINAL of DATE and letter no . СCARDINAL - CARDINAL/уп-CARDINAL of the Deputy President of ORG of DATE ) that , for the use of tax advantages to become lawful , the amount of advantages provided and the sum of investments made by the entity should be commensurate . Since the amounts of benefits declared for tax purposes by the above - mentioned entities and the sums of investment made are obviously not commensurate , application of the advantages is unlawful . The application of tax advantages by the given entity is not aimed at improving the economy of GPE but pursues the aim of tax evasion by OAO NK Yukos in respect of the operations of production , refining and sales of oil and oil products and , consequently , is unlawful .

The entity registered in the closed administrative territorial formation ( ‘ PERSON ) town of ORG in ORG ( OOO Yuksar ... ) concluded a tax agreement on the provision of tax concessions with the NORP municipal administration . The granting of additional tax advantages on the territory of the NORP ZATO ( ORG ) in DATE was regulated by the norms of Articles CARDINAL and CARDINAL of LAW , LAW no . CARDINAL of DATE ‘ On the federal budget for the DATE CARDINAL’ , section CARDINAL of Law no . CARDINAL - CARDINAL ‘ On closed administrative territorial ORG of DATE , PERSON of Decree no . CARDINAL of ORG of DATE ‘ On measures for implementation of LAW On ORG for CARDINAL’ and Regulations ‘ On the investment zone of the town of GPE , approved by a Resolution of the Sarov Duma on DATE . According to the tax agreement , the ORG administration confers advantages in respect of taxes payable into the PERSON budget to the entity in question in the form of a reduction in the share of taxes and other compulsory payments to the budget , PERCENT of the sums due in GPE , property tax , tax on the sale of fuel and lubricants , motorway users’ tax , tax on vehicle owners , tax on the acquisition of vehicles , profit tax , tax on operations with securities and excise duties ; in exchange , the entity undertakes to participate in investment projects ( programmes ) implemented in the NORP investment zone or with its participation , aimed at raising additional budget receipts and solving the problems of ORG ’s socio - economic development by transferring DATE PERCENT of the sum of the tax advantages .

At the same time , according to LAW no . ORG ‘ On closed administrative territorial ORG of DATE , additional benefits on taxes and duties are granted by the appropriate local government authorities to entities registered as taxpayers with the authorities of the closed administrative territorial formations in compliance with the above - mentioned law . Entities possessing PERCENT of their capital assets and conducting PERCENT of their activities on the territories of the closed administrative territorial formations ( including the requirement that PERCENT of the average number of employees on the payroll must be made up of persons who permanently reside on the territory of the formation in question and that PERCENT of the labour remuneration fund must be paid to employees who permanently reside on the territory of the formation in question ) enjoy the right to obtain the benefits in question . Given that PERSON did not actually carry out any activity on the territory of ORG , was not actually present on the territory of PERSON and that there were no assets and production facilities necessary for the procurement and storage of oil on the territory of ORG , GPE Novgorod Region , the given entity applied the tax advantages unlawfully .

Thus , the use of tax advantages by the given entity is not aimed at improving the economy of the ORG ZATO but pursued the aimed of tax evasion by OAO NK Yukos in respect of its obligation to pay taxes on production and refining operations and the sale of oil and oil products and is , consequently , unlawful .

Entities registered in the Trekhgornyy ZATO in LOC ( PERSON ... , PERSON ... , OOO Nortex ... , PERSON ... and PERSON ... ) concluded tax agreements with the administration of the town of GPE , according to which entities were granted advantages in respect of profit tax , tax for the maintenance of the housing stock and socio - cultural facilities , property tax , land tax , tax on the sale of fuel and lubricants , motorway users’ tax , tax on vehicle users , and tax on the acquisition of vehicles , provided that the entities remitted the sum of PERCENT of the total amount of tax advantages conferred , for implementation of the town ’s socio - economic programmes , to the NORP administration ... Reasoning from the contents and meaning of the tax agreements , it follows that their purpose was implementation of the particularly important socio - economic task of developing the educational , medical and housing spheres in the Trekhgornyy ZATO . At the same time , the sums which were transferred to the budget by the taxpayers in question were many times lower than the sums of the declared tax advantages ( the sum of investments is PERCENT of the sum of the advantages for each taxpayer ) . Thus , the investments made by the taxpayers did not influence the development of GPE ’s economy . On the contrary , since the above - mentioned organisations did not in fact carry out any activities , were never located on the territory of GPE , had no assets and none of the production facilities necessary to buy and store oil on the territory of GPE , the application of tax advantages by the above - mentioned organisations is contrary to part QUANTITY of section CARDINAL of RF Law no . CARDINAL - CARDINAL of DATE ‘ On closed administrative territorial ORG .

The organisations registered in the ORG ZATO in GPE ( OOO Mitra ... , PERSON ... , PERSON ... ) concluded tax agreements on the granting of a targeted tax concession under which organisations were granted the concession in respect of profit tax , land tax , tax on the sales of fuel and lubricants , motorway ORG tax , vehicle DATE tax , tax on the acquisition of vehicles , tax for the maintenance of the housing stock and socio - cultural facilities and property tax , whilst the organisations [ in question ] were under an obligation to transfer to ... the ORG municipal administration sums amounting to PERCENT of the sums of the granted tax concessions , but MONEY DATE , for implementation of the town ’s socio - economic programmes . [ However ] , the amounts received from the taxpayers are many times lower than the totals of the declared tax advantages . Accordingly , the investments made by the taxpayers did not influence the development of the economy of the town of GPE because the above - mentioned organisations never carried out any activities on the territory of GPE , were never in fact located on the territory of GPE and had no assets and none of the production facilities required to sell and store oil on the territory of GPE , [ and thus ] the application of the tax advantages in respect of the above - mentioned organisations is contrary to part CARDINAL of section CARDINAL of RF Law no . CARDINAL - CARDINAL of CARDINAL DATE ‘ On closed administrative territorial ORG .

The organisation registered in LOC ( OOO Petroleum - Treiding ) without in fact carrying out any activity on the territory of the district in question and without in fact being located on the territory of LOC , abused its right granted by PERSON no . CARDINAL of GPE of DATE ‘ On specific features of the tax system in the GPE District’ . The mentioned organisation was registered in the given district solely for the purpose of acquiring the right to the tax concession that could be granted in LOC . The use of the tax benefits by the organisation in question is not aimed at strengthening of economy of LOC , but is instead aimed at tax evasion by OAO NK Yukos in respect of extraction and processing transactions and the sale of oil and oil products and is thus unlawful .

Thus , the use of tax concessions by the above - mentioned organisations is not aimed at strengthening the economy of the regions in which they were registered but is aimed at evading the taxes due in respect of the operations of extraction and processing transactions and the sale of oil and oil products by OAO NK Yukos and is thus unlawful . ... ”

The first - instance judgment also responded to the applicant company ’s submissions . As regards the argument that the ORG ’s calculations were erroneous in that they led to double taxation and the failure to take account of the right to a refund of ORG for export operations , the court noted that , contrary to the applicant company ’s allegations , both the revenues and expenses of the sham entities had been taken into account by ORG so as to avoid double taxation . In addition , under PERSON no . DATE of DATE “ On value - added tax ” , in order to claim a refund of the ORG paid during export operations a taxpayer had to justify the claim in accordance with a special procedure and the applicant company had failed to apply for a refund either in DATE or at any later date . As to the argument that the ORG ’s claim was time - barred , the court refuted it with reference to LAW no . CARDINAL-O of ORG of DATE . The court held that the rules on limitation periods were inapplicable in the case at issue as the applicant company had acted in bad faith . In response to the company ’s argument that the interdependency within the meaning of LAW was only relevant for the purposes of price correction under LAW , the court observed that the interdependency of the sham companies and the applicant company was one of the circumstances on the basis of which the tax authorities had proved that the tax offence had been committed by the applicant company in bad faith .

Accordingly , by the judgment of CARDINAL DATE the court upheld the decision of DATE , albeit slightly reducing the payable amounts by reference to the ORG ’s failure to prove the relations of the applicant company with CARDINAL of the entities mentioned in the decision of DATE . The court ordered the applicant company to pay RUB PERSON ( approximately ORG CARDINAL,CARDINAL,CARDINAL,CARDINAL ) in taxes , RUB MONEY ( approximately EUR CARDINAL,CARDINAL,CARDINAL ) in default interest and RUB MONEY ( approximately EUR CARDINAL,CARDINAL,CARDINAL ) in penalties , totalling RUB PERSON ( approximately ORG CARDINAL,CARDINAL,CARDINAL,CARDINAL ) and ordered its managing subsidiary ORG ” GPE to comply with this decision . The judgment could be appealed against by the parties within a DATE time - limit .

At the hearings of CARDINAL to CARDINAL DATE the applicant company and its managing subsidiary were represented by CARDINAL counsel . The reasoned copy of the judgment of CARDINAL DATE was produced and became available to the parties on CARDINAL May CARDINAL .

On DATE OOO “ YUKOS ” GPE filed an appeal against the judgment of CARDINAL DATE .

The Ministry appealed against the judgment on DATE .

On DATE ORG listed the appeals of ORG ” GPE and ORG to be heard on DATE .

On DATE the applicant company filed its appeal against the judgment of CARDINAL DATE . The brief came to CARDINAL pages and contained CARDINAL documents in annex . The company complained , in particular , that the time for filing an appeal had been unlawfully abridged , in breach of its rights to fair and adversarial proceedings , that the first - instance judgment was ungrounded and unlawful , that the evidence in the case was unlawful , that the first - instance court had erred in interpretation and application of the domestic law , in that it had lacked legal authority to “ assign ” the tax liabilities of CARDINAL company to another , and that the court ’s interpretation of the legislation on tax concessions had been erroneous . The company also argued that the lower court had wrongly assessed the evidence in the case and had come to erroneous factual conclusions in respect of the relationships between the applicant company and the sham companies , that in any event some of the operations of the sham companies had been unrelated to the alleged tax evasion and that the respective sums should not be “ assigned ” to the applicant company , and also that the case should have been tried in the town of GPE , where the company was registered .

The Government submitted that the applicant company attempted to delay the examination of the case by dispatching the appeal brief to an erroneous address . According to the applicant , the above allegation was unsubstantiated .

The appeal hearing in the case lasted from DATE .

At the beginning of the hearing on DATE the applicant company requested ORG to adjourn the proceedings . The company considered that the hearing had been fixed for too DATE , before the expiry of the statutory time - limit for lodging appeals .

The court refused this request as unfounded .

At the hearings of CARDINAL and DATE the applicant company filed CARDINAL supplements to its appeal . The company and its managing subsidiary were represented by CARDINAL counsel .

Under LAW the court fully re - examined the case presented by the Ministry rather than simply reviewing the first - instance judgment .

At the end of the hearing of DATE the court delivered its judgment , in which it reached largely similar findings and came to the same conclusions as the first - instance judgment . The court dismissed the company ’s appeals as unfounded , but decided to alter the first - instance judgment in part . In particular , it declared the ORG ’s claims in respect of ORG partly unfounded , reduced the amount of the LOC arrears by RUB MONEY ( approximately EUR CARDINAL ) and quashed the corresponding penalty of RUB MONEY ( approximately EUR CARDINAL ) .

The court judgment , in its relevant parts , read as follows :

“ ... The parties declared under part CARDINAL of LAW that there was a need to verify the lawfulness and grounds of the first - instance judgment and to hold a fresh hearing of the case in full .

ORG has checked the lawfulness and grounds of the first - instance judgment pursuant to ... LAW . ...

ORG does not accept the arguments of the respondents concerning erroneous interpretation and application of the norms of the substantive law by the first - instance court and concerning the factual incorrectness of that court ’s conclusions .

[ The court went on to review and confirm all factual findings made by ORG and the first - instance court in respect of the tax - evasion scheme set up by the applicant company . ]

... Bearing in mind the above - mentioned circumstances , ORG has established that the de facto owner of the oil was [ the applicant company ] . The acquisition of the oil and its transfer and subsequent sale was in reality carried out by [ the applicant company ] as the owner , which is proved by the control of [ the applicant company ] over all operations , and the actual movement of the oil from the extracting entities to processing entities or oil facilities controlled by [ the applicant company ] , which is proved by the materials of the case .

The [ applicant company ’s ] ownership of the oil is confirmed by the interdependence of the contracting parties , by the control that [ the applicant company ] had over them , by the registration of the contracting parties on territories with a low - tax regime , by the lack of activities by these entities at their place of registration , by the fact that the accounting operations for these entities was carried out by ORG or PERSON , companies officially dependant on [ the applicant company ] , by the fact that the accounting for these entities was filed from the addresses of [ the applicant company ] and PERSON , by the fact that their bank accounts were opened in the same banks owned by [ the applicant company ] , by the presence and character of commercial relations between [ the applicant company ] and the dependent entities , and by the use of promissory notes and mutual offsetting between them .

Under the legislation then in force , such as section CARDINAL of RF Law no . DATE - CARDINAL of DATE ‘ On value - added tax’ , part CARDINAL of LAW and section CARDINAL of RF Law no . DATE of DATE ‘ On motorway funds in GPE , subpart ‘ ch’ of section CARDINAL of RF Law no . CARDINAL of DATE ‘ On the basics of the tax system’ , the sale of goods ( works and services ) gives rise to an obligation to pay ORG , motorway users’ tax , tax on the sale of oil and oil products and the tax for the maintenance of the housing stock and socio - cultural facilities .

Under part CARDINAL of LAW , sales are defined as the transfer of property rights in respect of goods . Under subpart CARDINAL and CARDINAL of Article CARDINAL of LAW ( taking into account LAW ) the owner of goods is the person who has the rights of ownership , use and disposal of his property , that is , the person who is entitled to carry out at his own discretion in respect of this property any actions which are not against the law and other legal acts and do not breach the rights and protected interests of other persons ...

It follows that the person who in fact has the rights of ownership , use and disposal of the property and who , in view of these rights , exercises in reality and at his discretion in respect of his property any actions , including transfers of property to other persons ... is the owner of this property .

Therefore , OAO NK Yukos , being the de facto owner of the oil , was under an obligation to pay [ the taxes ] , which has not been complied with in good time .

As was previously established , LAW sets out that profit is an economic gain in monetary form or in kind , which is taken into account if it is possible to evaluate it and in so far as it can be assessed , and determined in accordance with the chapters ‘ Taxes in respect of the profits of natural ORG , ‘ Taxes in respect of the profits of ORG , and ‘ Taxes in respect of the capital ORG of LAW of GPE . Under subparts CARDINAL and CARDINAL of section CARDINAL of RF PERSON no . DATE ‘ On profit tax of enterprises and ORG which was then in force , the object of taxation is the gross profit of the enterprise , decreased ( or increased ) in accordance with the provisions of the present section . The gross profit is the total of revenues ( receipts ) from the sale of products ( works and services ) , main assets ( including land parcels ) , other property of the enterprise and the profit derived from operations other than sales , less the sum of expenses in respect of these operations . The court established that the economic profit from the sale of oil and oil products was perceived by OAO NK Yukos , [ and ] it was incumbent on [ the applicant company ] to comply with the obligation to pay profit tax .

Section CARDINAL of RF Law no . DATE of DATE ‘ On corporate property tax’ taxes the main assets , non - material assets , reserves and receipts which are indicated on the taxpayer ’s balance sheet . It follows that the obligation to pay property tax was incumbent on the person who was legally responsible for reflecting the main assets , non - material assets , reserves and receipts on its balance sheet . Since it follows from the materials of the on - site tax inspection that OAO NK Yukos was under such an obligation , this taxpayer was also under an obligation to pay property tax .

ORG in its decision of DATE no . CARDINAL - CARDINAL stated that it followed from the meaning of the norm contained in part CARDINAL of LAW of the ORG that there is a presumption of good faith on the part of taxpayers . In order to refute this and establish the taxpayer ’s bad faith , the tax authorities have the right – in order to strike a balance between public and private interests – to carry out necessary checks and bring subsequent claims in commercial courts in order to guarantee the payment of taxes to the budget .

In view of the above , the tax authorities ... have the right to carry out checks with a view to establishing the de facto owner of sold property and the de facto recipient of the economic profit , and also with a view to establishing [ the owner ’s ] bad faith as expressed in use of the tax - evasion scheme . At the same time , the tax authorities establish the de facto owner with regard to the actual relations between the parties to the transaction , irrespective of whether the persons were declared as owners of the property in the documents submitted during the tax inspections .

The circumstances indicating that OAO NK Yukos had in fact the rights of ownership , use and disposal of its oil and oil products and , at its discretion , carried out in this connection any actions , including the sale , transfer for processing , etc . , through specially registered organisations dependant on OAO NK Yukos is confirmed by the materials of the case .

In view of the above , the court does not accept the respondent ’s arguments about the unlawfulness and the lack of factual basis of the decision to levy additional taxes from ORG Yukos as the de facto owner of the oil and oil products .

The respondent ’s argument that OAO NK Yukos had not perceived any economic profit from the application of benefits by the entities mentioned in the decision of ORG contradicts the materials of the case . The court had established that OAO NK Yukos received economic profit in the form of unilateral transfers of cash . OAO NK Yukos set up ORG of ORG Yukos [ to this end ] .

The argument of OAO NK Yukos that ORG is levying taxes in respect of transactions “ within the same owner ” is unsupported , since the calculations of additional taxes ( except for the property tax in respect of which [ this is inapplicable ] ) also take into account the expenses connected with the acquisition of the oil and oil products .

The court does not accept the respondent ’s arguments that the tax authorities lacked the power to levy taxes from OAO NK Yukos in respect of the sums ... perceived by other organisations . The power of the tax authorities to bring proceedings in courts to ensure the payment of taxes to the budget in cases of bad - faith taxpayers is confirmed by decision no . CARDINAL-O of ORG of GPE , dated DATE . At the same time the bad faith of taxpayer OAO NK Yukos and the fact that the proceeds from transactions involving oil and oil products belonged to it is confirmed by the materials of the case file .

The circumstances of the ... acquisition and sale of the oil and oil products , taken in their entirety , as established by ORG , indicate the presence of bad faith in the actions of OAO NK Yukos , which was expressed in intentional actions aimed at tax evasion by the use of unlawful schemes . In accordance with part CARDINAL of LAW of the ORG the tax offence is considered intentional if the person who has committed it knew about the unlawful character of the actions ( inactions ) , wished them or knowingly accepted the possibility of the harmful consequences of such actions ( inactions ) .

Since ORG Yukos intentionally committed actions aimed at tax evasion , and its officers were aware of the unlawful character of such actions , wished or knowingly accepted the possibility of harmful consequences due to such actions , OAO NK Yukos must be held liable under part CARDINAL of LAW for the non - payment or incomplete payment of taxes due to the lowering of the taxable base or incorrect calculation of the tax or other unlawful actions ( inactions ) committed intentionally , in the form of a fine equivalent to PERCENT of the unpaid taxes .

Having re - examined the case and verified the lawfulness and grounds of the first - instance judgment in full , having examined the evidence and having heard the arguments of the parties , ORG has come to the conclusion that the decision of the ORG dated DATE ... is in compliance with LAW as well as with Federal laws and other laws on taxes ...

The claims for payment of taxes , interest surcharges and fines made in the decision of ORG DATE ... are grounded , lawful and confirmed by the primary documents of the materials of the inspection submitted in justification to the court . ... ”

The appeal judgment also responded to the applicant company ’s other arguments . As regards the alleged breaches of procedure and the lack of time for the preparation of the defence at first instance , the court noted that it had examined this allegation and that there had been no violation of procedure at first instance and that , in any event , the applicant company had had ample opportunities to study the evidence relied on by the ORG both at the ORG ’s premises and in court . As regards the argument that the evidence used by ORG was inadmissible , the court noted that the materials of the case had been collected in full compliance with the requirements of the domestic legislation . The court also agreed with the first - instance court that the DATE statutory time - limit had been inapplicable in the applicant company ’s case since the company had been acting in bad faith .

The first - instance judgment , as upheld on appeal , came into force on DATE .

The applicant company had DATE from the date of the delivery of the appeal judgment to challenge it in third - instance cassation proceedings ( кассация ) .

On DATE the applicant company filed a cassation appeal against the judgments of CARDINAL May and of DATE with ORG of ORG ( “ the ORG ” ) . The applicant company ’s brief came to CARDINAL pages and had CARDINAL documents in annex . The arguments in the brief were largely similar to those raised by the applicant company on appeal , namely that the judgment was unlawful and unfounded , that the entities mentioned in the report ought to have taken part in the proceedings , that the trial court had had insufficient evidence to conclude that the applicant company and other entities were interrelated , that the evidence used by the trial court was unlawful , that the trial proceedings had not been adversarial and that the principle of equality of arms had been breached . In addition , the company alleged that it had had insufficient time to study the evidence and had been unable to contest the evidence in the case , that ORG had unlawfully applied to a court before the applicant company had had an opportunity to comply voluntarily with the decision of DATE , that the entities mentioned in the report had in fact been eligible for the tax exemptions , that the rules governing tax exemption had been wrongly interpreted , that the ORG ’s claims had been time - barred , that the company had had insufficient time for the preparation of the appeal , and that the case ought to have been examined by a court in GPE .

DATE . A copy of the reasoned version of the appeal judgment of CARDINAL DATE was attached to the brief .

It appears that on an unspecified date the ORG also challenged the judgments of CARDINAL May and DATE .

On DATE ORG examined the cassation appeals and upheld in substance the judgments of CARDINAL May and DATE .

In respect of the applicant company ’s allegations of unfairness in the appeal proceedings , the court noted that both defendant companies had had ample opportunities to avail themselves of their right to bring appeals within the statutory time - limit , as the appeal decision was not taken until DATE , which was DATE after the date of delivery of the judgment of CARDINAL DATE . Furthermore , the court observed that the evidence presented by ORG and examined by the lower courts was lawful and admissible , and that it had been fully available to the defendant companies before the commencement of the trial hearings . The court also noted that on DATE ORG specifically ordered the Ministry to disclose all the evidence in the case , that this order had been complied with by ORG and that , despite the fact that the evidence was voluminous , the applicant company had had sufficient time to examine and challenge it repeatedly throughout the proceedings DATE .

As regards the applicant company ’s complaint that ORG had brought proceedings before the expiry of the time - limit for voluntary compliance with the decision of DATE , the court noted that the ORG and lower courts had acted in compliance with LAW , as there were irreconcilable differences between the parties and , throughout the proceedings , the applicant company had had insufficient funds to satisfy the ORG ’s claims .

In respect of the applicant company ’s argument that the case should have been tried by a court in GPE , the court noted that ORG had had jurisdiction over the case under LAW and decision no . CARDINAL of LAW of ORG and ORG of DATE .

On the merits of the case , the court noted that the lower courts had reached reasoned conclusions that the applicant company was the effective owner of all goods traded by the sham companies registered in low - tax areas , that the transactions of these entities were in fact those of the applicant company , that neither the applicant company nor the sham entities were eligible for the tax exemptions and that the applicant company had perceived the entirety of the resulting profits . The court upheld the lower courts’ conclusion that , acting in bad faith , the applicant company had failed properly to declare its transactions for DATE and to pay corresponding taxes , including ORG , profit tax , motorway users’ tax , property tax , the tax for the maintenance of the housing stock and socio - cultural facilities and tax on the sale of fuel and lubricants .

The court noted some arithmetical mistakes in the appeal judgment of DATE , increasing the penalty by RUB CARDINAL,CARDINAL,CARDINAL.CARDINAL ( approximately ORG CARDINAL,CARDINAL ) and reducing the default interest by RUB MONEY ( approximately ORG CARDINAL,CARDINAL ) accordingly .

DATE . On an unspecified date the applicant company lodged a complaint against the domestic courts’ decisions in its case with ORG . It specifically raised the question of the lower ORG refusal to apply the statutory time - limit set out in LAW .

By decision of DATE ORG declared the complaint inadmissible for lack of jurisdiction . The court noted that the applicant company did not in fact challenge the constitutionality of LAW but rather insisted that this provision was constitutional and should be applied in its case . Therefore , the applicant company was not complaining about the breach of its rights by the above - mentioned provision and , accordingly , the court had no competence to examine the applicant company ’s claims .

Simultaneously to bringing the cassation appeal , on DATE the applicant company also challenged the judgments of CARDINAL May and DATE by way of supervisory review before ORG of GPE .

On DATE the applicant company ’s case was accepted for examination by ORG .

By a decision of CARDINAL DATE ORG , sitting as a bench of CARDINAL judges , decided to relinquish jurisdiction in favour of the Presidium of ORG . Addressing one of the applicant company ’s arguments , the court noted that the lower courts had decided that the DATE statutory time - bar was inapplicable in the case at issue since the applicant company had been acting in bad faith . It further noted that such an interpretation of the rules governing the time - limits was not in line with the existing legislation and case - law and that therefore the issue should be resolved by the Presidium of ORG .

On DATE the Presidium of ORG referred the above - mentioned issue to ORG and adjourned the examination of the applicant company ’s supervisory review appeal pending a ruling by ORG .

By a decision of DATE ORG decided that it was competent to examine the question of the compatibility of LAW with LAW , having cited the application of an individual , CARDINAL PERSON , and the referral by ORG . At the same time , it noted specifically that it had no competence to decide individual cases and its ruling would only deal with the points of law in abstracto .

It appears that the legal issues raised by PERSON and the applicant company were different . PERSON was dissatisfied with the established court practice which required the tax authorities , rather than the courts , to hold a taxpayer liable for a tax offence within the DATE time - limit set out in LAW . On the facts of her individual case , the decision of the tax authorities was taken on time , whilst later the final decision by the courts was taken outside the specified time - limit . As regards the applicant company , it raised the same point which had been previously declared inadmissible by ORG in its decision dated DATE , namely the refusal of the courts in its case to follow the established practice and to declare the claims of the authorities time - barred , as they related to DATE and were set out in the decision to hold the applicant liable for a tax offence on DATE , that is , outside the DATE time - limit laid down by LAW .

As a result of its examination , ORG upheld LAW as compatible with the LAW , having ruled that the legal provisions on the statutory time - limits ought to be applied in all cases without exception . The court made an abstract review of the provision in question and mentioned the “ principles of justice ” , “ legal equality ” and “ proportionality ” in giving its own “ constitutional interpretation ” of LAW . The court noted that the rule set out in LAW was too strict and failed to take into account various relevant circumstances and the actions of taxpayers , including those aimed at hindering tax control and delaying the proceedings . It further ruled that :

“ ... the provisions of LAW of GPE in their constitutional and legal sense and in the present legal context do not exclude [ the possibility ] that , where the taxpayer impedes tax supervision and the conduct of tax inspections , the court may excuse the tax authorities’ failure to bring the proceedings in time ... ”

“ ... In their constitutional and legal sense in the context of the present legal regulation ... [ these provisions ] mean that the running of the statutory time - bar in respect of a person prosecuted for tax offences stops on DATE of the production of the tax audit report in which the supported facts of the tax offences revealed during the inspection are mentioned and in which there are reference to the relevant articles of LAW or - in cases where there was no need to produce such a report - from the moment on which the respective decision of the tax authority , holding a taxpayer liable for a tax offence , was taken . ... ”

CARDINAL out of the CARDINAL judges filed separate opinions in this case .

Judge PERSON disagreed with the majority , having noted that ORG acted ultra vires and openly breached the principle of lawfulness by creating an exception from the rule set out in LAW where there had previously been none .

Judge PERSON concurred with the conclusions of the majority but would have preferred to quash , rather than uphold , LAW as unconstitutional and breaching the principle of equality .

Judge PERSON dissented from the majority ruling , having considered that the Constitutional Court clearly had no competence to decide the matter and that indeed there had been no constitutional issue to resolve as , among other things , there had been no prior difficulties in application of LAW and the contents of this provision had been quite clear . He also criticised the “ inexplicable ” way in which ORG had first rejected the application by the applicant company and had then decided to examine the matter again . Judge PERSON further noted that the decision of ORG was vague , unclear and generally questionable .

The case was then returned to the ORG of ORG .

On DATE the ORG of ORG examined and dismissed the applicant company ’s appeal . In respect of the company ’s argument that the ORG ’s claims were time - barred , the court noted that during the tax proceedings the company had been actively impeding the tax inspections . In view of this and given ORG ruling , the court concluded that since the ORG ’s tax audit report in the applicant ’s case had been completed on DATE , that is , within the statutory DATE time - limit as interpreted in ORG decision of DATE , the case was not time - barred .

Simultaneously with the determination of the case before the courts in respect of the applicant company ’s tax liability for DATE , the parties also took part in various enforcement proceedings .

On DATE ORG accepted for consideration the ORG ’s action in respect of DATE and attached certain of the applicant company ’s assets , excluding goods produced by the company and related cash transactions , as a security for the claims . The court also issued writs of execution in this respect ( see paragraph CARDINAL ) . This decision was upheld by ORG on DATE .

By a decision of DATE the bailiffs instituted enforcement proceedings in connection with the attachment .

On DATE they executed the attachment order by informing the applicant company and the holder of its corporate register , ZAO ‘ M - Reestr’ , of the decision of DATE .

According to the ORG , the applicant company impeded the execution of the writs issued by the court by hiding its corporate register from the bailiffs . In particular , they alleged that TIME prior to the bailiffs’ visit , the applicant company had cancelled its contracts with ORG ‘ MReestr’ . The register was then dispatched by ordinary post to a location in GPE so that , over DATE , it could not be physically found and the execution writs could not be enforced .

On DATE the applicant company filed its first court request to have the attachment of the entirety of its assets replaced by the attachment of shares belonging to it in ORG neftyanaya kompaniya ( “ the GPE company ” , a major NORP oil company which had attempted unsuccessfully to merge with the applicant company in DATE ) , which were allegedly worth CARDINAL times as much as the then liability . The applicant company also alleged that the attachment order adversely affected its proper functioning and invited the authorities to opt for less intrusive measures , insisting on the lack of any risk of asset - stripping .

By a decision of DATE ORG examined and dismissed this request as unfounded . The court found no evidence that the interim measures affected any of the company ’s production activities .

On DATE the applicant company appealed against the decision of DATE .

The outcome of court proceedings in respect of the applicant company ’s appeal of CARDINAL DATE is unclear .

The Government provided the following background information in connection with the company ’s offer of shares in GPE . The applicant company had attempted to merge with GPE in DATE . As a result of the initial stages of the merger , the applicant company acquired PERCENT of GPE : PERCENT of these shares were bought for cash , whilst PERCENT were exchanged for PERCENT of the applicant company ’s newly issued shares and PERCENT were swapped for PERCENT of the applicant company ’s existing shares . In DATE it was announced publicly that , at the request of the former GPE owners , the parties had decided not to go ahead with the merger . In DATE the owners of GPE sued the applicant company in this connection , demanding cancellation of the operation whereby the applicant had issued PERCENT of shares . Among other things , on DATE they obtained an attachment order in respect of the GPE shares remaining in the possession of the applicant company pending the proceedings . On DATE ORG decided to cancel the issue of PERCENT shares by the applicant company . The ORG submitted that it was clear from the above - mentioned account that on DATE , the date on which the applicant company first made the offer of GPE shares , the owners of GPE already anticipated suing the applicant company again , this time demanding back the PERCENT of GPE shares swapped for the cancelled PERCENT of the applicant company ’s shares . At the same time , the fate of the remaining issues of GPE shares still in the possession of the applicant company was also uncertain .

On DATE ORG also examined the applicant company ’s request for an injunction order against the attachment and rejected it . The court noted that the attachment did not interfere with the company ’s day - to - DATE operations and it was a reasonable measure aimed at securing the ORG ’s claims .

On DATE ORG rejected the company ’s appeal and upheld the judgment .

It does not appear that the applicant company brought cassation proceedings in this respect .

In the meantime , on DATE the applicant company applied to ORG with a separate action against the tax assessment of DATE , seeking its invalidation ( see paragraph CARDINAL and DATE above ) . The company also requested interim measures in this connection .

Following the applicant company ’s request for interim measures , on DATE ORG stayed the enforcement of ORG decision of DATE , having noted that ORG could have enforced the decision in the part relating to taxes and default interests even without waiting for the outcome of ORG claim ( LAW ) . The court decided , however , that this might be detrimental to the applicant company and stayed the decision of DATE accordingly .

On DATE the applicant company made a public announcement that :

“ ... it [ was ] under an injunction prohibiting it from selling any of its property , including the shares owned by the company . Until the injunction is lifted , the ORG is unable to sell its assets in order to obtain liquid funds . Consequently , if ORG efforts continue , we are very likely to enter a state of bankruptcy before DATE ” .

It appears that ORG decision of CARDINAL DATE to stay the enforcement was appealed against by ORG . Having examined the ORG ’s arguments at the hearing of DATE , ORG quashed the first - instance decision of CARDINAL DATE as unlawful and rejected the applicant company ’s request for interim measures as unfounded .

It does not appear that the applicant company appealed against this decision before ORG .

As mentioned above ( paragraphs CARDINAL - CARDINAL ) , by a judgment of CARDINAL DATE ORG found in favour of ORG , upholding LAW of DATE . ORG was upheld by ORG with minor reductions and became enforceable on DATE .

On DATE ORG issued the writ of enforcement in this respect . The applicant company was to pay RUB CARDINAL,CARDINAL,CARDINAL,CARDINAL ( approximately EUR CARDINAL,CARDINAL,CARDINAL,CARDINAL ) in reassessed taxes , RUB MONEY ( approximately EUR CARDINAL,CARDINAL,CARDINAL ) in interest surcharges and RUB MONEY ( approximately ORG CARDINAL,CARDINAL,CARDINAL ) in penalties .

On DATE the bailiffs instituted enforcement proceedings based on the above judgment and gave the applicant company DATE to pay . The applicant company was informed that it would be liable to pay enforcement fees of PERCENT , totalling RUB CARDINAL ( approximately EUR CARDINAL,CARDINAL,CARDINAL ) , in the event of failure to honour the debt voluntarily . Upon the Ministry ’s application , the bailiffs issued CARDINAL orders freezing the cash held by the applicant company in its NORP bank accounts . The orders did not concern cash added to the accounts after DATE .

On DATE the applicant company challenged the bailiffs’ decision of DATE .

It argued that the decision to open enforcement proceedings had been unlawful as it was in breach of the rules of bailiffs’ territorial competence as the enforcement ought to have taken place in GPE and not in GPE , that the DATE term for voluntary compliance with the court decisions had been too short and that the cash - freezing orders had made such compliance impossible .

On DATE ORG examined and dismissed these claims as groundless . The court ruled that the bailiffs had acted lawfully and that the cash - freezing orders did not interfere with its ability or inability to honour its debts , as the applicant company had been free to dispose of any cash not in the frozen accounts and any cash added to those accounts after DATE .

It does not appear that the company brought appeal proceedings against this judgment .

NORP In the meantime , on DATE the bailiffs decided to seize CARDINAL subsidiary companies belonging to the applicant company .

The applicant appealed against the decision in court .

By a first - instance judgment of CARDINAL DATE the appeal was dismissed as unfounded . The judgment was produced on DATE .

The applicant did not appeal against the judgment before ORG , though it did bring further appeal proceedings before ORG .

On DATE the judgment was upheld by ORG .

In addition to the above attempts to stay the enforcement of the judgments concerning the DATE Tax Assessment , the applicant company , by a letter dated DATE and filed on DATE , suggested to the bailiffs for the second time that it repay its debts by using PERCENT of GPE stock allegedly worth MONEY ( “ ORG ” , or QUANTITY ) , citing its vertically integrated structure as a possible reason for seeking to find the least intrusive solution as well as the need to honour its contractual debts .

The Government provided the following background information in connection with the applicant ’s second offer of GPE shares ( see paragraph PERSON above ) . At this point , the owners of GPE had already obtained a court judgment in their favour by ORG on DATE , ordering the applicant company to return the PERCENT of GPE shares swapped for the cancelled PERCENT of the applicant company ’s shares and on DATE , that is , on DATE after the applicant ’s second offer , they had filed court claims demanding the return of PERCENT of the shares previously exchanged for PERCENT of the applicant company ’s existing shares . In addition , by a decision of DATE the owners of GPE had obtained an attachment order in respect of the GPE shares in question .

On DATE the applicant company filed an action against the bailiffs on account of their alleged failure to respond to the company ’s offer of DATE .

On DATE ORG dismissed this action , having noted that the failure to respond was lawful and within the scope of the bailiffs’ discretion . The court established that some of the steps undertaken by the applicant company during the unsuccessful merger with the GPE company had been contested in a different set of proceedings as unlawful . In addition , the applicant company ’s ownership of the GPE shares had been contested by third parties in CARDINAL different sets of proceedings . On the basis of these findings , the court concluded that the bailiff had not breached the law by ignoring the company ’s offer .

It does not appear that the applicant company appealed against the judgment .

On DATE the applicant company received a default notice from syndicated lenders , a group of international banks , who had previously loaned the company MONEY ( EUR CARDINAL,CARDINAL,CARDINAL ) . The lenders considered that a default had occurred as a result of the recent and well - publicised events in respect of the applicant company and their actual or potential impact on the applicant company ’s business and assets . The notice stated that as a result of the default notice the loans were due and payable on demand .

As set out above ( paragraph CARDINAL ) , on DATE the applicant company filed a cassation appeal against the court judgments on the DATE Tax Assessment and at the same time it moved to stay the enforcement proceedings . It argued that its assets were highly valuable , but that it had insufficient cash to honour the debts immediately and that the attachment of assets made any voluntary settlement impossible . The applicant company also argued that enforcement of the court judgments in the case would irreparably damage its business , since a reversal of the enforcement would be impossible .

By a decision of DATE the ORG agreed to consider the cassation appeal and , having examined the motion to stay the enforcement , dismissed it as unsubstantiated and unfounded , as the circumstances referred to by the applicant company were irrelevant under the domestic law . The court noted that it would be possible to reverse the enforcement , since the plaintiff was the ORG .

NORP This decision was upheld by ORG on DATE .

By a decision of DATE the bailiffs levied an enforcement fee of PERCENT in respect of the applicant company ’s failure to comply with the execution writs of DATE ( see paragraph CARDINAL above ) . The applicant company was to pay RUB CARDINAL ( approximately ORG CARDINAL )

On DATE the applicant company challenged this decision in court .

By a decision of CARDINAL DATE ORG examined the applicant company ’s action and quashed the decision of DATE as disproportionate and unjustified . The court decided that the enforcement fee could only be levied if the respondent had acted in bad faith and found that the bailiffs had failed to examine this question . The court also noted that PERCENT was the highest possible rate and that the bailiffs’ decision failed to explain why the fee could not be lower . Among other things , the court referred to section CARDINAL of Constitutional Court Ruling no . CARDINAL-P of DATE .

Following an appeal by ORG , on DATE ORG quashed the decision of DATE as erroneous and held that the bailiffs’ actions had been lawful and justified . The court noted that the applicant company had failed to demonstrate that it had taken any steps to meet the liabilities . It further noted that the cash in the applicant company ’s accounts was only frozen in certain specified amounts and that , above those amounts , the company was free to function as usual . As to the company ’s proposal to offer the GPE shares as payment , the court noted that this could not be accepted , because the applicant company ’s property rights in respect of these shares had been questioned by CARDINAL party in a parallel set of proceedings . In addition , the court noted that the applicant company had failed to use a remedy provided in LAW .

ORG upheld the appeal decision on DATE .

Overall , in respect of DATE , the applicant company was ordered to pay RUB MONEY ( approximately ORG CARDINAL,CARDINAL,CARDINAL,CARDINAL )

On DATE the applicant company again repeated its offer of PERCENT of GPE shares to the bailiffs . On DATE the offer was amended to include PERCENT of GPE shares . The domestic courts at CARDINAL instances analysed this offer in detail in their decisions of CARDINAL , CARDINAL DATE and DATE ( see paragraphs CARDINAL - CARDINAL below ) .

On DATE the bailiffs seized the shares of OAO Yuganskneftegas , CARDINAL of the applicant company ’s principal production subsidiaries . The decision referred to the applicant company ’s inability to meet its liabilities . The attachment did not affect the applicant company ’s ability to manage ORG , but rather prevented the company from selling or encumbering those shares .

The applicant company appealed against this decision in court . With reference to section CARDINAL of LAW , it argued that the bailiffs ought firstly to claim assets which were not involved in the production process , secondly those goods and other values which were not related to the production process and , thirdly , immovable objects , raw material and other main assets relating to the production cycle . In addition , the applicant company referred to Ruling no . CARDINAL of ORG “ On certain questions arising out of seizure and enforcement actions in respect of corporate shares ” , dated DATE , which suggested , in respect of those companies which had been privatised by the ORG as parts of bigger holding groups through the transfer of controlling blocks of shares , that the production cycle of the respective production unit should be preserved as much as possible . The company further claimed that the above ruling was applicable to the case at issue , that OAO Yuganskneftegas was a major production unit and that the bailiffs had produced no evidence that the assets and goods and other values not involved in the production process were insufficient . In addition , it reiterated its offer of the shares in GPE .

On DATE ORG examined and allowed the applicant company ’s challenge of this seizure .

At the hearing the Ministry and bailiffs referred to sections CARDINAL ( CARDINAL ) and CARDINAL ( DATE ) of LAW no . CARDINAL “ On seizure of securities ” of CARDINAL DATE . They argued that , under the applicable domestic law , the seizure should be made first in respect of the cash - flow and then , under section CARDINAL ( CARDINAL ) of ORG , it would be open to the bailiffs to assess and seize the assets depending on their liquidity . They countered the applicant company ’s arguments by saying that the latter ’s references were invalid in that they related to the other stage of enforcement proceedings ( the collection of debt and not the seizure as such ) . Furthermore , they argued that Ruling no . CARDINAL of the Plenum of ORG was inapplicable since , in the case of GPE , the ORG had transferred PERCENT of the shares and not a controlling block . With regard to the offer of GPE stock , ORG and bailiffs argued that the applicant company ’s rights in respect of these shares had been contested in separate sets of court proceedings and it was therefore risky to accept them as a payment . Lastly , they informed the court that the applicant company had recently hidden the shareholder registers of its CARDINAL major subsidiaries , ORG , ORG and ORG , which , in their view , demonstrated the risk of possible asset - stripping by the applicant company .

Having examined the parties’ submissions , the court upheld the applicant company ’s arguments . It noted that the applicant company ’s references to the applicable domestic law were correct . With regard to the non - controlling block argument , the court noted that at the time of transfer of the shares , PERCENT of shares were privileged and non - voting . For PERCENT of the voting stock , PERCENT transferred by the ORG constituted the controlling block . As regards the offer of shares in GPE , the court noted that the exact quantity of the contested shares was unclear and that the bailiffs should find out the exact figures and that they should consider the uncontested shares as a possible means of partial settlement . The court concluded that the decision of DATE was unlawful and quashed it .

On DATE the Ministry challenged the decision of CARDINAL DATE on appeal .

On DATE ORG quashed the decision , finding that the first - instance court had erred both in law and fact . In particular , the court confirmed that it was up to the bailiffs to choose the most liquid assets and dispose of them with a view to honouring the applicant company ’s huge debt . It also noted that Ruling no . CARDINAL of ORG was inapplicable to the case in issue , as the applicant company , in DATE following its privatisation , had restructured its initial shareholding in ORG in DATE in such a manner as to take those shares outside the scope of the exception provided by Ruling no . CARDINAL .

Following an appeal by the applicant company , on DATE ORG upheld the decision of DATE .

The applicant company ’s attempts to bring supervisory review proceedings against this decision proved unsuccessful .

The respective complaint was dismissed by a decision of ORG dated DATE .

NORP In addition to seizing the shares of ORG , on DATE the bailiffs also seized the shares of ORG and PERSON , the applicant company ’s CARDINAL other principal production units .

The applicant company ’s complaint against the seizure of OAO ORG proved unsuccessful .

ORG dismissed its complaint as unfounded on DATE .

The applicant company did not contest that judgment before ORG .

On DATE ORG dismissed the applicant company ’s cassation appeal in respect of the judgment of CARDINAL DATE . The court noted that the seizure was intended to protect the creditor ’s claims and that there was no indication that the seizure impeded the production cycle or otherwise disturbed the normal functioning of the company .

NORP The company also complained unsuccessfully about the seizure of its shares in ORG .

ORG , acting as a first - instance court , dismissed the appeal on DATE .

NORP The applicant company failed to appeal the judgment before ORG , although though it did pursue cassation proceedings .

On DATE ORG upheld the judgment .

On DATE the applicant company wrote a letter to ORG , applying for respite or payment in instalments in respect of the sums due . It appears that this letter remained unanswered . The Government submitted that ORG had not had any authority to respond to the request , as the issue of respite and payment in instalment lay within the competence of the courts .

On DATE ORG examined the applicant company ’s request to re - pay the DATE Tax Assessment award in instalments and rejected it as unfounded . The court noted , among other things , that the tax debt had resulted from intentional tax evasion by the applicant company and that the conduct of the debtor in court and during the enforcement proceedings demonstrated that it did not intend to pay the debts voluntarily .

It does not appear that the applicant company brought any appeal proceedings in respect of this judgment .

On DATE the applicant company offered the bailiffs the PERCENT stake in GPE and shares in CARDINAL other subsidiary companies as a settlement for its debts , requesting that the bailiffs respond within DATE .

It appears that the bailiffs responded to the company ’s offer on DATE . It does not appear that the company brought any court proceedings in respect of that response .

It appears that on DATE the Ministry responded to CARDINAL of the applicant company ’s letters about the settlement of the debt , rejecting the offers .

It does not appear that the company brought any separate court proceedings in this respect .

On DATE the applicant company announced that it would comply with ORG judgment of DATE , which had cancelled the issue of additional shares in the applicant company , used for the purpose of acquiring GPE . The applicant company , acting in compliance with the court order , instructed the registrar to return its PERCENT stake in GPE to its former owners .

On DATE ORG commenced tax inspection in respect of the applicant company ’s activities in DATE . The inspection ended on DATE and on DATE the ORG served the resultant report on the applicant company .

On the basis of the above - mentioned report , by a decision of CARDINAL DATE ORG issued a tax assessment for DATE ( “ the DATE LAW ” ) , finding the company liable for having used essentially the same tax arrangement as in DATE . LAW relied on a similarly wide range of evidence as LAW , including the documentary evidence and detailed statements of those involved in the nominal ownership and running of the trading companies . This time the applicant company had to pay RUB CARDINAL,CARDINAL,CARDINAL,CARDINAL ( approximately ORG CARDINAL ) in tax arrears , RUB CARDINAL ( approximately EUR CARDINAL,CARDINAL,CARDINAL ) in default interest and RUB CARDINAL,CARDINAL,CARDINAL,CARDINAL in penalties ( approximately ORG ) . Since the applicant company had recently been found guilty of a similar offence , the penalty was doubled .

On DATE the applicant company lodged an appeal against the decision of DATE and requested an injunction against the immediate enforcement of this decision .

On DATE ORG turned down the request for an injunction and on DATE it issued execution writs in respect of the ORG ’s decision of DATE . The court referred to Information Letter no . CARDINAL of ORG of DATE , which recommended that requests for interim measures in such situations be granted only if an applicant could demonstrate some security for a creditor ’s future claims . The court noted that , in the present case , the applicant company clearly had insufficient cash to satisfy the creditor ’s claims , and had failed to produce any security , and dismissed the claims accordingly .

NORP The judgment of DATE was upheld by ORG on DATE and by ORG on DATE .

As the DATE Tax Assessment was similar to the DATE LAW , the Ministry decided to enforce it directly in the part relating to additional taxes and interest surcharges , without taking the matter to the courts . The applicant company was to pay the amounts due by DATE .

On DATE the bailiffs instituted enforcement proceedings in connection with the decision of DATE . The company was to pay RUB CARDINAL,CARDINAL,CARDINAL,CARDINAL ( approximately ORG CARDINAL,CARDINAL,CARDINAL,CARDINAL ) in tax arrears and RUB CARDINAL,CARDINAL,CARDINAL,CARDINAL ( approximately EUR CARDINAL,CARDINAL,CARDINAL ) in default interest .

It appears that the DATE Tax Assessment , in the part relating to additional taxes and interest surcharges , was upheld by ORG on DATE . The judgment of DATE was upheld on appeal on DATE . ORG upheld the decisions of the lower courts on DATE .

The applicant company ’s request for an injunction pending those proceedings was unsuccessful . ORG dismissed it in its judgment of CARDINAL October CARDINAL . The refusal was upheld by ORG on DATE and by ORG on DATE .

On DATE the Ministry applied to ORG to recover the penalties arising from the CARDINAL Tax Assessment . .

It appears that on DATE the action was examined and granted by ORG . The judgment in the case was produced on DATE .

According to the applicant company , its appeal against the judgment of DATE was dismissed by ORG on DATE . It appears that ORG upheld these CARDINAL decisions on DATE .

On DATE the bailiffs instituted enforcement proceedings in respect of LAW in the part relating to penalties . The company was to pay RUB MONEY in penalties ( approximately EUR CARDINAL,CARDINAL,CARDINAL,CARDINAL ) .

On DATE the bailiffs decided to impose a PERCENT enforcement fee in respect of the applicant company ’s failure to abide by the DATE Tax Assessment in the part relating to taxes and interest surcharges . The applicant company was to pay RUB CARDINAL,CARDINAL,CARDINAL,CARDINAL.CARDINAL ( approximately ORG MONEY ) .

The resolution was served on the applicant company on DATE .

On DATE ORG examined and dismissed the challenge to the decision of DATE as groundless .

It does appear that the company pursued appeal proceedings .

On DATE the company appealed in cassation against the judgment of CARDINAL DATE .

NORP The appeal was dismissed by ORG on DATE .

On DATE the bailiff decided to impose a PERCENT enforcement fee in respect the applicant company ’s failure to abide by the DATE Tax Assessment in the part relating to penalties . The company was to pay a PERCENT enforcement fee of RUB MONEY or approximately ORG CARDINAL .

On DATE the company challenged this decision in court .

On DATE ORG dismissed the action .

NORP The applicant company failed to appeal the judgment of DATE .

ORG upheld the judgment of DATE on DATE .

Overall , in respect of DATE the applicant company was ordered to pay RUB CARDINAL ( approximately EUR CARDINAL,CARDINAL,CARDINAL,CARDINAL ) .

On DATE the Ministry produced an audit report in respect of the applicant company ’s activities for DATE . The report was received by the company on DATE .

On DATE the Ministry took a decision to levy further tax liabilities , this time in respect of DATE ( “ the DATE LAW ” ) . The applicant company was to pay RUB MONEY ( approximately EUR CARDINAL,CARDINAL,CARDINAL,CARDINAL ) in taxes , RUB MONEY ( approximately EUR CARDINAL,CARDINAL,CARDINAL ) in default interest and RUB MONEY ( approximately EUR CARDINAL,CARDINAL,CARDINAL,CARDINAL ) in penalties .

The decision established the use of the same tax - evasion scheme ( in respect of profit tax , ORG , corporate property tax and motorway LOC tax ) as in the decisions concerning DATE . It mentioned that the company had carried out its activities through PERSON , ORG , FAC , PERSON , PERSON , ORG treyding , PERSON , PERSON , most of which had also been used by the applicant company in DATE . The entities in question , acting in breach of LAW , which prohibits grants and gifts between independently functioning commercial entities , had transferred the entirety of their profits unilaterally to a fund owned and controlled by the applicant company . The decision mentioned that the transfers had been wrongly reflected in the applicant company ’s financial accounting and that the company had failed to explain the origin of these funds and had failed to take these sums into account for tax purposes . Accordingly , the applicant company had failed to pay taxes in respect of these amounts .

NORP The decision referred to several other mistakes in the applicant company ’s tax declarations . In particular , the tax in respect of the company ’s securities transactions was wrongly calculated , there were many general mistakes in the company ’s financial accounting , and there were some mistakes in the company ’s request for reimbursement of the LOC on export operations ( e.g. on CARDINAL occasion the company failed to submit the required sales contract ; it also mentioned CARDINAL contract but received the money on the basis of a different contract ; on some occasions the company failed to submit documents proving customs clearance , indicated wrongly calculated sums , and made multiple mistakes in GPE export documents ) . There were further multiple mistakes in tax deductions in respect of internal GPE .

NORP The decision also established that the applicant company had used sham entities to lower its group taxes , that the entities and the company ’s subsidiaries had entered into transactions with reduced prices , that on some occasions the company had declared the extracted oil as “ hydrocarbon liquid ” in order to lower the applicable price even further , that there were no cash transactions between the entities and subsidiaries and that the company ’s own promissory notes and mutual offsetting had been used instead and that the whole set - up , which had no economic purpose other than tax evasion , had resulted in massive tax evasion by the applicant company . The decision also noted that use of tax concessions in GPE and LOC by the sham entities had been unlawful , because they had failed to qualify for the exemptions and also because they had been sham companies . The decision was detailed in respect of the composition and all the activities of the sham entities : the Ministry analysed the entirety of DATE .

The applicant company had until DATE to meet the debts voluntarily .

By a decision of CARDINAL DATE bailiffs proceeded to enforcement of the decision of DATE in so far as it related to additional taxes and interest surcharges .

ORG joined the proceedings by which the applicant company tried to contest the decision of DATE and on DATE it examined and , in the most part , dismissed the applicant company ’s appeals against the decision of DATE . The court declared the ORG ’s conclusions partly unfounded and reduced the company ’s tax liability by RUB MONEY ( approximately ORG CARDINAL ) , its default interest payments by RUB MONEY ( approximately ORG ) and the penalty by RUB MONEY ( approximately EUR CARDINAL,CARDINAL,CARDINAL ) . The court also ordered the applicant to pay the penalty in question .

NORP This decision was upheld by ORG on DATE and ORG on DATE .

On DATE the applicant company also appealed against the ORG ’s decision in respect of DATE , in so far as it had ordered that the tax debts and default interest payments be collected directly .

It appears that on DATE ORG examined and dismissed the claim as unfounded . The judgment was upheld on appeal on DATE . ORG upheld the decisions of the lower courts on DATE .

On DATE the bailiffs decided to impose a PERCENT enforcement fee in respect of the applicant company ’s failure to comply voluntarily with ORG in the part relating to additional taxes and surcharge interests .

On DATE the company appealed against this decision in court , initially claiming that the decision had been unlawful and asking to reduce the fee to PERCENT . The company then withdrew its claim in the part relating to the reduction of the fee .

On DATE the ORG judgment dismissed the appeal .

It does not appear that the company brought any proceedings before ORG in respect of the judgment .

NORP The applicant company ’s cassation appeal was examined and dismissed by ORG on DATE .

Overall in respect of DATE ( excluding the PERCENT enforcement fee ) , the applicant company was ordered to pay RUB CARDINAL,CARDINAL,CARDINAL,CARDINAL.CARDINAL ( approximately EUR CARDINAL,CARDINAL,CARDINAL,CARDINAL ) .

In their observations of DATE the ORG submitted a copy of a report communicated to the applicant company ’s management by its auditor ORG . The applicant company did not comment on the contents of the report .

NORP In contrast to “ ordinary ” audit reports , which were made public , the internal information report was produced exclusively for the applicant company ’s management .

NORP The report noted specifically that the applicant company ’s “ Fund for Financial Support of the Production Development of OAO ORG ” was in breach of the domestic law in that the relevant legislation disallowed unilateral transfers and gifts between commercial entities . It also noted that the applicant company ’s accounting policy in respect of the operations involving promissory notes had been incompatible with the legislation in force and provided a distorted view of the company ’s activities .

In addition , on DATE the applicant company ’s auditor , ORG , disavowed its audit certifications in respect of the applicant company ’s financial statements for DATE on account of the applicant company ’s deliberate attempts to conceal its tax - evasion scheme , as well as its failure to disclose all relevant documents during the respective inspections conducted by the company ’s auditors at the time .

On DATE ORG commenced a tax inspection in respect of DATE , which resulted in an audit report that was dated DATE and served on the applicant company on DATE .

On the basis of the report , by a decision of DATE the ORG levied tax liabilities for DATE ( “ the DATE LAW ” ) , consisting of RUB ORG approximately ORG CARDINAL,CARDINAL,CARDINAL,CARDINAL ) in taxes , RUB GPE ( approximately ORG CARDINAL,CARDINAL,CARDINAL ) in default interest and RUB MONEY ( approximately ORG ) in penalties .

NORP The decision established that the company was guilty of having evaded taxes ( in particular , GPE , profit tax and advertising tax ) by using the same arrangement as in DATE . The decision mentioned the following entities registered either in GPE or LOC : PERSON , PERSON , ORG , PERSON , PERSON , PERSON , PERSON , and ORG . It was alleged that the entities were sham and that they had made unilateral transfers to the applicant company , in breach of LAW , that the applicant company had failed to reflect the transferred amounts as its profits , to account for them and to pay taxes in this connection and that the company had used lowered prices to avoid the payment of taxes . The decision contained a detailed contract - by - contract analysis of the sham entities’ transactions .

NORP The decision also mentioned that some of the applicant company ’s expenses were unjustifiably deducted from the company ’s taxable income , that the company failed to account for some of its operations with promissory notes , that there were some mistakes in calculation of the LOC owed by the company and that the company had evaded payment of advertising tax in GPE .

The applicant company had DATE to comply with the decision , that is , until DATE .

NORP On DATE the bailiffs proceeded to enforcement of the decision of DATE in so far as it related to taxes and interest surcharges .

It appears that ORG joined the proceedings by which the applicant company tried to contest the decision of DATE and on DATE it examined the company ’s challenge . In respect of the company ’s request to recalculate automatically the export NORP on operations conducted by the sham entities in the course of these proceedings , the court noted the request was unsubstantiated and also lodged out of time . In particular , the company had failed to submit a proper claim with DATE calculations and evidence that the goods in question had indeed been exported . The court also addressed the applicant company ’s argument that LAW ( CARDINAL ) of LAW prevented the authorities from levying the interest surcharges . It noted that the provision in question only applied to cases in which the sole reason for the taxpayer ’s inability to pay tax debts was the seizure of its assets and cash funds . On the facts , the applicant company was unable to pay because it had insufficient funds and not because its assets were frozen . The court concluded that the applicant company ’s argument was unfounded . The court also reduced the amount of additional taxes to be paid to RUB CARDINAL,CARDINAL,CARDINAL,CARDINAL.CARDINAL ( EUR CARDINAL,CARDINAL,CARDINAL,CARDINAL ) and the amount of fines to RUB CARDINAL,CARDINAL,CARDINAL,CARDINAL ( EUR CARDINAL,CARDINAL,CARDINAL,CARDINAL ) . The amount of interest surcharges was reduced accordingly . The exact figure of the interest surcharges to be paid by the applicant is unclear .

The judgment was upheld on appeal on DATE .

NORP The applicant company appealed on cassation .

On DATE ORG upheld the decisions of the lower courts .

NORP The bailiffs instituted enforcement proceedings in respect of the payment of fines on DATE .

On DATE the bailiffs decided to impose a PERCENT enforcement fee in respect of the applicant company ’s failure to comply voluntarily with the DATE Tax Assessment . The applicant company was to pay RUB CARDINAL ( EUR CARDINAL,CARDINAL,CARDINAL ) in respect of the unpaid reassessed taxes and interest surcharges and RUB MONEY ( EUR CARDINAL ) in respect of the unpaid fines .

Overall , in respect of DATE ( excluding the PERCENT enforcement fee and the interest surcharges , the exact amount of which is unclear ) the applicant company was ordered to pay RUB PERSON ( approximately ORG DATE ) .

On DATE ORG announced the forthcoming evaluation and sale of ORG as a part of its ongoing enforcement procedures .

On DATE the applicant company announced that :

“ ... the company management [ is ] currently making every effort to raise additional funds in order to repay , as soon as possible , the tax liability and to finance current operations . However , should those efforts prove unsuccessful and GPE [ be ] sold , in the present circumstances , the management of the Company would be compelled to announce the bankruptcy of GPE ’s largest oil company ” .

On DATE the valuation commissioned by the bailiffs and ORG from ORG , the investment branch of ORG ( working in GPE as PERSON ORG bank ) , for the purposes of the enforcement proceedings , estimated that PERCENT of shares in OAO Yuganskneftegas were worth between ORG CARDINAL and CARDINAL ( between ORG MONEY ) , excluding the pending and probable tax liabilities of this entity .

NORP The report evaluated PERCENT of the price of ORG as a separate entity and , having deduced its corresponding obligations , calculated the cost of its shares , on the basis of which it would be possible to calculate the price of CARDINAL share in OAO GPE .

It was specifically mentioned in the report that the valuation was not an opinion concerning the attainable price in the event of the sale of OAO GPE or any kind of recommendation concerning the starting bid of the auction in the event of the sale of GPE by ORG or any other ORG institution , or any recommendation concerning particular actions to be undertaken by ORG with a view to levying the judicially determined or estimated amount of the applicant company ’s tax debt .

Among the basic risks affecting the price of ORG , the report mentioned the tax claims , the validity of oil extraction licences , future oil prices , export quotas etc . The report also mentioned that the price of ORG as a part of the applicant company could be substantially different from the price of ORG as a separate entity . The report also mentioned various valuations of ORG made by third parties , including investment institutions and banks , and ranging from MONEY ( between ORG MONEY ) . It also mentioned that , because of the size of ORG , not many buyers would be financially capable of acquiring it .

The valuation ( between ORG CARDINAL.CARDINAL and CARDINAL or ORG CARDINAL.CARDINAL and CARDINAL ) did not take account of already pending and probable tax claims against ORG . If and when lodged , these claims would “ substantially influence the assessment ” of the equity of ORG . The claims already announced ( as on that date ) were MONEY .

In carrying out the valuation , the report used the following CARDINAL methods : the method of discounted cash flows , a method based on the analysis of comparable transactions , and a method based on the analysis of comparable publicly - held companies .

NORP The report also specifically noted that :

“ ... the decision concerning the starting bid of the auction is a tactical one and should strike a balance between the desire to reach the highest price on the one hand , and the need to attract the maximum number of potential buyers on the other . Because of this , the starting bid is most likely to be different from the assessment of the price . ”

A copy of the valuation report was served on the applicant company on DATE .

It does not appear that the applicant company contested the report ’s valuations report before the courts .

On DATE the bailiffs confirmed to the Ministry that they had collected CARDINAL,CARDINAL,CARDINAL,CARDINAL RUB ( approximately EUR CARDINAL,CARDINAL,CARDINAL,CARDINAL ) .

On DATE the applicant company responded to the valuation report . It disagreed with the decision to evaluate and sell OAO GPE , and would have preferred to sell its other assets first . The applicant company informed the bailiffs that it had already honoured a major part of the debt ( apparently referring to its tax liability for DATE only ) and that the remaining sum was MONEY ( around LOC ) . The company claimed that it would be more reasonable to lift the seizure and let it dispose of its minor assets in order to honour the remaining debt .

As regards PERSON , the company referred to independent valuations by ORG , valuing the subsidiary at “ no less than MONEY ( some LAW ) ” and “ MONEY ( ORG CARDINAL ) and MONEY ( ORG MONEY ) , including tax liabilities ” respectively .

NORP The letter mentioned that the Ministry had brought tax claims against ORG totalling ORG MONEY .

On DATE the bailiffs noted that the applicant company ’s debt to ORG on that date was RUB CARDINAL,CARDINAL,CARDINAL,CARDINAL ( approximately ORG MONEY or USD CARDINAL,CARDINAL,CARDINAL,CARDINAL ) . Having referred to sections CARDINAL , CARDINAL ( CARDINAL ) , DATE ( CARDINAL ) and CARDINAL of LAW , the bailiffs decided to sell PERCENT of the shares in ORG at an auction which would take place on DATE . The published minimum bidding price for PERCENT of the shares in ORG ORG was RUB ORG ( approximately ORG MONEY or EUR MONEY ) .

The sale was entrusted to ORG ( “ the Property Fund ” ) , a specialised ORG in charge of organising sales of federal property and the property of those who had debts towards the ORG .

On DATE , ORG issued a regulation setting out the parameters and rules that would govern the auction , including the number of shares to be sold ( CARDINAL ordinary shares representing PERCENT of the capital of ORG ) , the starting price ( MONEY or some ORG MONEY ) , the date and place of the auction ( DATE ) , the eligibility requirements for bidders ( the auction was open to all perspective bidders , including foreign individuals and legal entities ) , which included a cash deposit of RUB MONEY ( MONEY , or PERCENT of the starting price ) , to be paid DATE before the auction .

The decision of CARDINAL DATE was challenged in court on DATE .

It appears that on DATE ORG dismissed the appeal against the decision of DATE .

On DATE and CARDINAL DATE that judgment was upheld on appeal and in cassation respectively .

NORP The applicant company argued that the valuation report had failed to give a market valuation of the asset and that the decision of CARDINAL DATE failed to mention a specific price for ORG . In response , the courts noted that CARDINAL ordinary and CARDINAL privileged shares in OAO Yuganskneftegaz had been seized by the bailiffs in satisfaction of the applicant company ’s liability , that the shares had been valued by ORG ORG and that the applicant company had been informed of all of the bailiffs’ actions in the course of the enforcement proceedings . They also noted that the seizure of shares in ORG had previously been declared lawful , that the applicant company had been properly notified of all of the steps taken by the bailiffs in the course of the enforcement proceedings and could bring court proceedings against them , that the valuation by ORG had not been contested by the applicant in accordance with the special procedure provided for by the legislation in force , and that the bailiffs had properly indicated the amount of the applicant company ’s debt and requested the ORG to sell the amount of shares necessary to satisfy the debt .

In the meantime , on DATE , ORG , an official Government newspaper , published an announcement about the sale of PERCENT of shares in ORG at a public auction organised by ORG . The CARDINAL conditions for participating in the auction were to file an application DATE and to make a deposit payment .

On DATE PERSON , ORG and ORG filed applications with ORG and thus were expected to bid at the auction .

NORP The media reported that OAO Gazprom , a parent company of PERSON , had begun negotiating a financing arrangement with a consortium of international banks to finance its bid at the auction . It was also reported that a number of non - NORP companies , such as ORG , ORG , ORG and ORG , had expressed interest in participating in the auction .

On DATE the bailiffs noted that the applicant company ’s consolidated debt on that date , regard being had also to the DATE Tax Assessment , was RUB CARDINAL ( ORG CARDINAL,CARDINAL,CARDINAL,CARDINAL.CARDINAL , or DATE ) .

On DATE the applicant company filed a voluntary petition under LAW of LAW in ORG for LOC of GPE , ORG ( “ the GPE Bankruptcy Court ” ) .

Simultaneously , the applicant company filed a request for injunctive relief , pursuant to section CARDINAL of LAW in order , among other things , to enforce the automatic stay set out in section CARDINAL ( a ) of LAW by enjoining certain parties from participating in ORG . The request was directed specifically against “ ... defendants GPE , PERSON , ORG , ORG , ORG , ORG , ORG , PERSON and ORG ... ” .

Under GPE law , an automatic stay went into immediate effect when the applicant company filed for bankruptcy . The automatic stay protected the company ’s assets by preventing the creditors from collecting claims that arose prior to the bankruptcy filing or from taking “ possession ” or “ control ” of the applicant company ’s property covered under the filing .

On DATE , having examined the applicant company ’s request , ORG issued a temporary restraining order barring certain specific entities from taking any actions with respect to the shares in ORG , including participation in the auction . Among other things , Judge PERSON stated the following :

“ ... The court is mindful of the need for deference to the judicial determination of another jurisdiction . This is ... of exceptional importance when it involves that of agencies of another sovereign state . However , in the instant case , the [ applicant company ] has made a showing that it needs a short additional time to hold its shareholder meeting scheduled for DATE and may elect to file for bankruptcy under NORP law in order to proceed with a more orderly adjustment of its assets and debts in accordance with NORP law or to continue to seek international arbitration ... ” .

NORP The entities mentioned in the order were ( a ) the CARDINAL companies registered to bid at the Auction , including PERSON , ORG and ORG , ( b ) CARDINAL western financial institutions that had announced their intention to fund PERSON bid at the auction ( ORG , ORG , ORG , PERSON and ORG ) and ( c ) those persons in active concert or participation with them .

On DATE ORG dismissed the applicant company ’s petition for bankruptcy with reference to section CARDINAL ( b ) of GPE LAW which gave the court discretion to dismiss a case “ in the best interest of the creditors and the estate ” .

The court noted that most of the applicant company ’s assets were oil and gas within GPE , so that the court ’s ability to carry out a re - organisation without the cooperation of the NORP government was extremely limited , that the applicant company sought to substitute GPE law in place of NORP , ORG and/or international law , that the applicant company had commenced proceedings in other fora , including ORG , and the court did not feel that it was uniquely qualified or more able that these other fora to consider the issues presented . Lastly , the court noted that the vast majority of the business and financial activities of the applicant company continued to occur in GPE and that the applicant company was CARDINAL of the largest producers of petroleum products in GPE . The court held that “ the sheer size of [ the applicant company ] and its impact on the entirety of the NORP economy weighs heavily in favour of allowing resolution in a forum in which participation of the NORP government is assured ” .

On DATE ORG auctioned PERCENT of the shares in ORG . It appears that media reporters were able to attend the auction .

There were CARDINAL participants in the auction , PERSON and PERSON . OOO PERSON , the only bidder in the auction , made CARDINAL bids , first of MONEY and then of RUB CARDINAL ( MONEY or ORG MONEY ) . It appears that whilst taking part in the auction PERSON was prevented from bidding by the injunction of DATE ( see paragraph CARDINAL above ) .

On DATE ORG issued a report accepting that ORG had properly carried out the services due under the contract of DATE .

On DATE ORG publicly reported the sale of the shares in ORG .

On DATE the bailiffs issued a resolution confirming the results of the auction . The resolution stated that PERSON had won the auction for CARDINAL shares in ORG ( PERCENT of its stock ) for RUB CARDINAL ( approximately ORG CARDINAL,CARDINAL,CARDINAL,CARDINAL or NORP ) . By the time that resolution was issued , the money had already been transferred to the bailiffs .

According to press reports of DATE , OAO Rosneft , a ORG - owned oil company , acquired PERSON and thus took control of ORG .

In its consolidated financial statements DATE , dated CARDINAL May CARDINAL,OAO PERSON declared :

“ ... In DATE [ OAO Rosneft ] acquired a PERCENT interest in [ OOO Baykalfinansgrup ] , which DATE had won an auction for the sale of a PERCENT interest in [ ORG ] , which represents PERCENT of the common shares of [ ORG ] . ... ”

It appears that on CARDINAL DATE the applicant company filed an action in ORG against ORG , PERSON , PERSON , PERSON , ORG and ORG , seeking to annul the auctioning of CARDINAL shares in OAO Yuganskneftegas and the deed of sale . It also claimed damages in excess of MONEY .

NORP The action was examined and dismissed by ORG on DATE . The court decided that both ORG and ORG had acted within their statutory powers , that the auction procedure had been fully complied with and that the applicant company ’s allegation about the auction participants acting in concert had been unsupported by any evidence .

The judgment was upheld by ORG on DATE and by ORG on DATE .

On DATE the applicant company also initiated parallel proceedings against PERSON , PERSON , ORG , ORG , ORG , ORG and GPE before ORG for violation of the automatic stay .

NORP The applicant company voluntarily withdrew the entire proceedings on DATE , after its bankruptcy petition was dismissed by ORG .

It does not appear that any enforcement measures took place in respect of the applicant company after the auctioning of OAO GPE until DATE .

On DATE a consortium of foreign banks represented by the NORP bank ORG ( “ the banks ” ) filed an application with ORG for recognition and enforcement of an ORG judgment ordering the applicant company to re - pay the contractual debt of MONEY ( around LAW ) , resulting from the applicant company ’s default under a MONEY loan agreement dated DATE .

On DATE , at the NORP request , the bailiffs again attached the applicant company ’s property .

In DATE the applicant company challenged this order .

On DATE ORG dismissed the appeal as groundless .

The first - instance judgment was upheld by ORG and by ORG on DATE and CARDINAL DATE respectively .

In the meantime , on DATE , ORG allowed recognition and enforcement of the ORG judgment .

On DATE ORG granted the applicant company ’s cassation appeal and quashed the judgment of DATE . It remitted the case for a fresh hearing .

On DATE , having re - examined the case , ORG allowed the ORG claims .

On DATE the applicant company appealed against the judgment of DATE .

On DATE ORG dismissed the appeal .

It appears that on DATE the banks reached an agreement with the PERSON company to sell to the latter the applicant company ’s debt to the banks .

On DATE the banks lodged a petition with ORG to declare the applicant company bankrupt .

On DATE bankruptcy proceedings were initiated against the applicant company upon the ORG petition . It appears that the ORG decided to join the proceedings as CARDINAL of the bankruptcy creditors in respect of remaining tax debts of the DATE ORG still owed by the applicant company .

On DATE the banks notified ORG about the decision to sell the debts owed by the applicant company to ORG .

NORP On DATE ORG substituted PERSON in the place of the banks as a bankruptcy creditor . By the same decision the court imposed a supervision order on the applicant company and appointed Mr PERSON as the applicant company ’s interim receiver . It also prohibited the company ’s management from disposing of any of its property exceeding RUB CARDINAL in value .

On DATE the applicant company appealed against the decision of DATE on all CARDINAL points .

On DATE ORG dismissed the appeals .

On DATE the applicant company appealed against the lower courts’ decisions to ORG . The outcome of these proceedings is unclear .

On DATE the Ministry submitted a claim to ORG , seeking to be included in the list of the applicant company ’s creditors for the amount of CARDINAL RUB ( approximately ORG CARDINAL,CARDINAL,CARDINAL,CARDINAL ) , along with CARDINAL pages of documentation . The claim was based on the company ’s reassessed tax liability for DATE .

NORP In DATE ORG made a number of rulings concerning the formation of the list of creditors . In particular , on DATE ORG held hearings on the claim . On DATE the final hearing of the claim was held . The court allowed the claims in its entirety and dismissed the application for stay .

On DATE ORG delivered a full version of the judgment of DATE . It decided to include ORG in the list of the applicant company ’s creditors for the amount claimed and refused to stay the proceedings .

On DATE the applicant company appealed against the judgment of DATE concerning the allowed claims .

On DATE , DATE and QUANTITY DATE ORG heard the applicant company ’s arguments .

On DATE ORG dismissed the applicant company ’s appeal .

It appears that on DATE ORG delivered a full version of the appeal decision .

On DATE ORG rejected the rehabilitation plan offered by the management and recommended the applicant company ’s liquidation .

On DATE the applicant company appealed against this decision .

On DATE ORG examined the applicant company ’s situation , declared that the company was bankrupt and dismissed its management . The court appointed PERSON as the applicant company ’s trustee . It also refused the company ’s request to stay the proceedings .

Both parties appealed on DATE

The judgment was upheld on appeal and entered into force on DATE .

It appears that on CARDINAL DATE Mr PERSON , acting as the trustee in the company ’s bankruptcy proceedings , revoked the authority of all counsel appointed by the applicant company ’s previous management , including PERSON .

On DATE Mr PERSON appointed a consortium of independent appraisers led by PERSON ( “ the consortium ” ) , selected through an open tender , to inventory and evaluate the applicant company ’s assets with a view to auctioning them .

The consortium carried out its evaluation from DATE .

From DATE to CARDINAL DATE PERSON held CARDINAL public auctions at which all of the applicant company ’s assets were sold in line with the evaluations which had been made earlier by the consortium . The aggregate proceeds amounted to over RUB MONEY ( MONEY ) . The assets sold included a PERCENT stake in ORG ( sold , along with CARDINAL fully owned subsidiaries , blocks of shares in CARDINAL more entities and some exchange notes , for RUB MONEY , or some EUR MONEY ) , PERCENT of shares of OAO Rosneft ( sold , along with CARDINAL exchange notes of ORG , for RUB MONEY , or some ORG MONEY ) and scores of the company ’s subsidiary companies .

By a decision of CARDINAL DATE , the full version of which was produced on DATE , ORG examined the applicant company ’s situation , heard the report by PERSON and decided to terminate the liquidation proceedings . The applicant company ceased to exist , leaving over RUB MONEY ( MONEY ) in unsatisfied liabilities .

On DATE a certificate was issued to the effect that the applicant company had been liquidated on the basis of the court decision .

It appears that a company ORG and ORG contested the decision of CARDINAL DATE before ORG . The appeal of ORG was declared inadmissible for the failure to submit it on time , whilst the appeal of ORG has been accepted for examination . The hearing in this respect was scheduled by ORG on DATE .

The outcome of these proceedings remains unclear .

Under LAW , everyone is liable to pay taxes and duties established by law .

DATE of LAW of DATE no . PERSON ( as in force at the relevant time ) states that an obligation to pay a tax or a duty arises , alters or ceases in accordance with that Code and other legislative acts on taxes and fees .

Articles DATE and CARDINAL of LAW provide that , as a general rule , taxpayers must comply with their obligation to pay a tax on their own initiative , and define a tax declaration as the written statement by taxpayers on their revenues and expenses , sources of revenue , tax benefits and the calculated sum of the tax , as well as other data related to calculation and payment of the tax .

Under LAW , in the event of non - payment or incomplete payment of the tax in due time , the tax authorities may levy the tax liability directly from the taxpayer ’s bank account .

DATE ( CARDINAL ) of LAW defines a branch of an organisation as a geographically separate department , with stable employment posts .

NORP Under LAW and CARDINAL of LAW , the tax authorities may carry out documentary and on - site tax inspections of taxpayers . Such inspections may cover only DATE of the taxpayer ’s activity directly preceding DATE of inspection . In exceptional cases the authorities are allowed to carry out repeated on - site tax inspections . Such cases include , among other things , on - site inspections conducted by way of supervision of the activities of the tax authority that conducted the initial audit ( LAW ) .

Article CARDINAL ( CARDINAL ) CARDINAL of LAW states that the tax authority may use as evidence during its inspections documents earlier demanded by the authority from a taxpayer , documents submitted or obtained during documentary and on - site tax inspections of that taxpayer as well as other documents in the possession of the authority .

Under LAW ( CARDINAL ) of LAW a taxpayer has DATE to file a detailed reply to the report drawn up by the tax authorities on the outcome of the tax inspection .

Under LAW of LAW , a taxpayer may not be fined in respect of any errors if , prior to commencement of the on - site tax inspection for DATE , it files amended tax returns and voluntarily satisfies the related tax liabilities , including default interest .

By order no . BG-CARDINAL - CARDINAL/CARDINAL dated DATE ORG decided that the period for performance of the demand to pay tax addressed to a taxpayer may not exceed DATE from the date of its receipt by the taxpayer .

The Government relied on the following cases as examples of typical terms given to taxpayers for voluntary payment of reassessed taxes and surcharges :

On DATE ORG demanded that respondent ORG pay reassessed taxes and interest surcharges amounting to over RUB CARDINAL within DATE . The court decisions in the case were taken on DATE , DATE and DATE .

On DATE ORG ordered ORG of LOC to pay reassessed taxes in the amount of ORG CARDINAL,CARDINAL.CARDINAL within DATE . The first judgment of DATE was upheld by the cassation instance on DATE .

On DATE ORG ordered FGUP PO Progress to pay reassessed taxes in the amount of RUB CARDINAL within DATE . The court decisions were taken on DATE , DATE and CARDINAL DATE respectively .

On CARDINAL occasions in DATE ORG ordered PERSON to pay reassessed taxes and interest surcharges in the overall amount of RUB CARDINAL,CARDINAL.CARDINAL within DATE . The first - instance judgment in the case , dated DATE , was upheld by a cassation decision of DATE .

On DATE ORG ordered OOO YamalGIS - Servis to pay reassessed taxes in the amount of RUB MONEY on DATE . The court decisions upholding the demand were taken on DATE , DATE and CARDINAL DATE .

DATE of LAW provides that objects of taxation may be operations involving the retailing of goods , works and services , property , profit , income , value of retailed goods , works and services or other objects having cost , quantitative or physical parameters on the existence of which the tax legislation bases the obligation to pay tax .

DATE the Code defines retailing of goods , works and services as , inter alia , the transfer ( including exchange of services , works and goods ) in return for compensation of property rights in respect of goods and results of works from one person to another , as well as the rendering of services from one person to another in exchange for compensation .

Article CARDINAL of the Code defines profits as economic gains in monetary form or in kind .

Section CARDINAL of RF Law no . DATE - CARDINAL of DATE “ On Value - Added Tax ” ( as in force at the relevant time ) subjects to ORG , among other things , the turnover generated by the retailing of goods , works and services on the territory of GPE , the rates of which range PERCENT . Under LAW , exported goods are exempt from payment of the tax . The exemption becomes effective only if the taxpayer properly justifies the claim . Until these documents are filed , the tax remains payable under the non - export rate .

Letter no . BCARDINAL - CARDINAL - CARDINAL/CARDINAL , QUANTITY of ORG of GPE and ORG , dated DATE , stated that taxpayers were to file the following documents to justify this tax exemption : a contract concluded between the legal personality taxpayer registered in GPE with its foreign partner , proof of payment in respect of the goods , and a customs declaration bearing the appropriate stamp of the customs body , confirming the export of goods from the customs territory of GPE .

In respect of GPE , the applicable tax rate is PERCENT if the traded goods are placed in an “ export ” customs regime and physically removed from the customs territory of GPE ( Article CARDINAL ( CARDINAL ) of LAW ) . In addition , the taxpayer may claim a refund of the “ incoming LOC already paid in respect of the exported goods .

For the CARDINAL rate to become effective and in order to claim the ORG refund , it is necessary to justify the claim by filing the following documents with the tax authorities ( LAW ) : the export contract concluded between the taxpayer and the foreign buyer , a bank statement confirming receipt of funds from the foreign buyer by a NORP bank duly registered with the tax authorities , a relevant customs declaration bearing the stamp of the customs bodies confirming the export of the goods from the customs territory of GPE , and copies of relevant transport bills and shipping documents , bearing the stamps of the customs bodies , confirming the export of goods from the customs territory of GPE .

On DATE ORG issued ruling no . PERSON , in which it essentially upheld the constitutionality of LAW . The court distinguished between documents required by public - law norms , such as the taxpayer ’s customs declaration bearing the relevant stamps from the customs bodies , and which are mandatory in all cases , and other documents such as contracts , transport bills etc . In view of the different practices of the economic actors , which made the latter type of documents mutually replaceable , the authorities were constitutionally permitted to require a taxpayer to file these documents , but without an excessive degree of formalism .

The relevant documents are to be filed with the competent tax authority within DATE from the date of the customs clearance of the goods in question ( Article CARDINAL ( CARDINAL ) of LAW ) . Until these documents are filed , the tax remains payable under the non - export rate . A taxpayer is not precluded from filing the documents in question even after the expiry of the time - limit in question ( LAW ) .

By a decision of DATE ( case no . PERSON ) in the case of PERSON neftyanaya kompaniya v. ORG , ORG of LOC , acting as a cassation review court , rejected the company ’s claims for ORG refunds with reference to its failure to satisfy the requirements of LAW . The company could not prove the fact of actual payment for the allegedly exported goods .

By a decision of CARDINAL DATE ( case no . ORG ) in the case of PERSON v. ORG , ORG of LOC , acting as a cassation review court , rejected the company ’s claims for ORG refunds with reference to its failure to satisfy the requirements of LAW . The company failed to submit a proper bank statement confirming receipt of funds from the foreign buyer .

By a decision of CARDINAL DATE ( case no . PERSON ) in the case of ORG trest no . CARDINAL v. ORG , ORG of LOC examined the decisions of lower courts whereby the company had been refused ORG refunds at first instance ( by a judgment of DATE – the company failed to submit the properly stamped customs declaration confirming the actual export of the goods ) and had subsequently been granted them on appeal ( by a decision of CARDINAL DATE – the appeal court decided that the fact of the actual export had been established by a final court decision in a related court dispute ) . The cassation court quashed the appeal decision , having noted that the requirements set out in LAW were strict and unequivocal and that the law did not allow for any replacement of the customs declaration by other means of proof .

By a decision of CARDINAL DATE ( case no . PERSON ) in the case of ORG gorno - obogatitelnyy kombinat PERSON v. ORG , ORG of the LOC quashed the decisions of lower courts whereby the company had been granted ORG refunds . The cassation court noted that the requirements set out in LAW were strict and unambiguous and that the law required the taxpayer to prove the actual export solely by means of the properly stamped customs declaration , which had not been done by the company in the present case . Accordingly , the court rejected the company ’s claims .

By a decision of CARDINAL DATE ( case no . FCARDINAL - CARDINAL/CARDINAL-CCARDINAL ) in the case of PERSON - proizvodstvennyy centr vysokotochnoy tekhniki PERSON v. ORG , ORG of LOC , acting as a cassation review court , rejected the company ’s claims for ORG refunds with reference to its failure to satisfy the requirements of LAW in a timely manner , that is , within DATE .

Section CARDINAL ( CARDINAL ) of RF PERSON no . DATE of DATE “ On motorway funds in the GPE ” provides for a PERCENT motorway users’ tax from the turnover of the retail of goods , works and services , payable by all motorway users . Section CARDINAL also makes subject to a PERCENT tax the turnover ( excluding VAT ) of companies trading in fuels and lubricants .

This tax was abolished from DATE .

Section CARDINAL ( “ PERSON ” ) of RF PERSON no . CARDINAL - CARDINAL of DATE “ On the foundations of the tax system ” imposes a tax of PERCENT for the maintenance of the housing stock and socio - economic facilities .

This tax was abolished with the entry into force of the Second Part of LAW on DATE .

Section CARDINAL ( CARDINAL - CARDINAL ) of RF PERSON no . DATE of DATE “ On corporate property tax ” provided for a tax of PERCENT in respect of organisations’ property .

Chapter CARDINAL of LAW provides for a tax of up to PERCENT in respect of organisations’ property . The exact rate is defined by the regional authorities .

Law no . DATE “ On profit tax on enterprises and organisations ” ( sections CARDINAL and CARDINAL ) provided for a profit tax , the rate of which could vary depending on the type of taxable activity and the rate fixed by the local authorities . The mandatory rate to be transferred to the Federal budget was PERCENT .

LAW provides for a profit tax of PERCENT ( PERCENT to be transferred to the Federal budget and the rest to the regional budget ) .

Section CARDINAL ( CARDINAL ) “ z ” of RF PERSON no . CARDINAL - CARDINAL of DATE “ On the foundations of the tax system ” imposed a tax in respect of the cost of advertisement services .

This tax was abolished from DATE .

Article CARDINAL of LAW defines a tax benefit as a full or partial exemption from the payment of taxes , granted by the tax legislation .

NORP In letter no . CARDINAL/CARDINAL/CARDINAL , dated DATE , ORG noted , inter alia :

“ ... [ that ] experience in creating and operating free economic zones in GPE , established pursuant to both federal laws ( the special economic zone in the FAC region ) and resolutions of the authorities of constituent entities of ORG , PERSON ) , [ has ] demonstrate[d ] that the creation of such zones across such vast areas in the absence of a proper analysis of investment projects leads to abuses of the tax and customs incentives granted and , accordingly , to serious losses suffered by the federal and local budgets , as reported by ORG of GPE to the Government of GPE on multiple occasions . ”

Under LAW ( CARDINAL ) of LAW , taxpayers which are legal entities are required to register with the tax authorities at their headquarters ( location of their executive bodies ) , at the location of their branches and at the location of any real estate and places where vehicles belonging to them are registered .

Special registration rules applied in respect of large taxpayers , including the applicant company .

By Decree no . АП-CARDINAL - CARDINAL/CARDINAL of ORG , dated DATE , such taxpayers are required to register at their main location , at the location of their branches and at the location of real estate and places where vehicles belonging to them are registered , and in certain specific tax offices ( inter - district level or as specifically indicated by ORG ) .

Annex CARDINAL to the Decree contains the form “ On subsidiary and dependant companies and subsidiary enterprises ” , to be filled in by the taxpayer . During registration the taxpayer is required to indicate all of its subsidiary and dependant companies .

In respect of domestic off - shore territories , according to commentators , this requirement means that in practice the taxpayer ’s executive body should always be physically located and functioning on the territory of the off - shore . If the taxpayer fails to comply with the requirement , the tax authorities could declare its registration void with the subsequent recovery of the entirety of the perceived tax benefits ( see GPE ORG , Practical Tax Encyclopaedia , GPE , DATE , LAW “ Methodology of tax optimisation ” ) .

NORP Under LAW no . CARDINAL - CARDINAL of GPE “ On closed administrative - territorial formations ” , tax concessions are provided to businesses if , inter alia , they have PERCENT of their fixed assets and conduct PERCENT of their activities on the territory of the respective formation ( including a requirement that PERCENT of their employees be made up of persons permanently residing in the ORG in question , and that PERCENT of their wage bill be paid to employees permanently residing in that territory ) .

Letter no . AП-CARDINAL - CARDINAL/CARDINAL of ORG , dated DATE , contained ORG to the tax bodies on issues concerning the lawfulness of the use of additional tax benefits granted by local authorities in the closed administrative - territorial formations . It stated that the tax authorities ought to verify the actual presence of the taxpayer ’s assets on the territory in question by checking its accounting records and financial statements , and by confirming the physical location of the organisation at the indicated address and the fact of genuine performance by the taxpayer ’s employees at the taxpayer ’s registered location .

The respondent legal entity was PERSON , registered in the closed administrative territorial formation town of ORG , which has a privileged tax regime . ORG tried unsuccessfully to contest the use of tax concessions by the respondent , by demonstrating that the entity had not been actually present at the place of its registration . The domestic court found for the respondent . They established that the entity had some assets on the territory of PERSON , a number of permanent employees ( including a lawyer and the cleaning lady ) , and a cash account in the local bank , which proved that the entity satisfied the criteria provided for in law .

NORP The final decision in the case was taken by ORG on DATE .

Under PERSON no . CARDINAL-FZ of GPE of DATE “ On the conditions of efficient use of the socio - economic potential of the Republic of GPE ” , tax concessions are granted to taxpayers whose entities were established after the entry into force of that law and whose activities meet certain conditions , including but not limited to the following :

( a ) they conduct export operations , the DATE proceeds from which account for at least CARDINAL%of the business ’s total earnings ;

( b ) they engage in wholesale trade in fuel and lubricants and other types of hydrocarbon raw materials , the DATE proceeds from which account for PERCENT of the FAC total earnings .

Section CARDINAL of the PERSON states that “ this PERSON establishes concessions with the objective of creating favourable conditions for attracting capital into the territory of GPE , strengthening the socio - economic potential of GPE , developing the securities market and creating new jobs through special arrangements for the taxation of organisations ” .

Law no . CARDINAL-P-CARDINAL of GPE On tax concessions for companies investing in GPE ” provides tax concessions to those who meet the following criteria :

( a ) the taxpayer is not a user of mineral resources in the territory of the Republic ;

( b ) the taxpayer is registered with ORG as an enterprise investing in the economy of the Republic ;

( c ) the enterprise ’s investment in the economy of the Republic meets the criteria established by ORG in accordance with this law .

By a decision of DATE ( case no . NORP - CARDINAL/CARDINAL - CARDINAL ) in the case of PERSON v. ORG , ORG of the LOC quashed the decisions of lower courts and instructed them to investigate further whether the taxpayer had indeed complied with the conditions mentioned in the law , had acted in good faith in this respect and had indeed made any investments in the local economy .

By a decision dated DATE ( case no . FCARDINAL - CARDINAL/CARDINAL - CARDINALA ) in the case of PERSON v. ORG , ORG of the LOC quashed the decisions of lower courts and instructed them to investigate further whether the taxpayer had indeed complied with the conditions mentioned in the law , had acted in good faith in this respect and indeed made any investments in the local economy .

By a decision of CARDINAL DATE ( case no . PERSON ) in the case of PERSON transportnaya kompaniya ( one of the sham entities belonging to the applicant company ) v. ORG , ORG of the North - Caucasian District ruled as follows :

“ [ b]ased on the content and meaning of the [ above - mentioned ] law and ORG no . CARDINAL of ORG , [ the purpose of the municipal legislation ] is to attract funds from various investors for development of the regional and local economies , given the lack of funds in the regional and local budgets and the need for their replenishment to ensure the activities of GPE and the town of Elista ...

The case documents show that RUB CARDINAL came from the plaintiff for development of the regional and local economies , whereas RUB CARDINAL did not enter the regional and local budgets directly . Thus , the investments made by [ PERSON transkportnaya kompaniya ] amount to PERCENT of the amount of taxes that would otherwise have been payable by it . They have no effect on the development of the economy [ and ] do not cover the budgetary losses related to the granting of incentives to taxpayers ; on the contrary , they have consequences in the form of unfair enrichment at the expense of budgetary funds . Thus , given that the amount of the investments made by the plaintiff is incommensurate to the amount of incentives used , the plaintiff abused its right , that is , it acted in bad faith ” .

Accordingly , the court quashed the decisions of the lower courts and instructed them to investigate further whether the taxpayer had complied with the above - mentioned conditions and whether it had acted in good faith .

By a decision of CARDINAL DATE ( case no . PERCENT ) in the case of ORG PERSON v. ORG , ORG of the North - Caucasian District ruled that :

“ [ b]ased on the meaning and contents of the [ above - mentioned ] law and ORG no . CARDINAL of ORG , it follows that [ the purpose of the municipal legislation ] is to attract funds from various investors for development of the regional and local economies , given the lack of funds in the regional and local budgets and the need for their replenishment to ensure the activities of GPE and the town of Elista ...

... [ the court has to examine ] the proportion between the investments made by the [ taxpayer ] and the amount of tax that did not enter the budget [ in order ] to resolve the issue of the plaintiff ’s good faith and its abuse of its rights ” .

Accordingly , the court quashed the decisions of the lower courts and instructed them to investigate further whether the taxpayer had complied with the above - mentioned conditions and had acted in good faith .

By a decision of DATE ( case no . FCARDINAL - CARDINAL/CARDINAL - CARDINALA ) in the case of PERSON korporaciya PERSON v. ORG , ORG of the LOC quashed the decisions of the lower courts and instructed them to investigate further whether the taxpayer had indeed complied with the conditions mentioned in the law , had acted in good faith in this respect and had indeed made any investments in the local economy .

By a decision of CARDINAL DATE ( case no . FCARDINAL - CARDINAL/CARDINAL - CARDINALA ) in the case of PERSON v. ORG , ORG of the LOC quashed the decisions of the lower courts and instructed them to investigate further whether the taxpayer had indeed complied with the conditions mentioned in the law , had acted in good faith in this respect and had indeed made any investments in the local economy .

By a decision of CARDINAL DATE ( case no . FCARDINAL - CARDINAL/CARDINAL - CARDINAL ) in the case of OOO TD Dion v. ORG , ORG of the LOC quashed the decisions of the lower courts and instructed them to investigate further whether the taxpayer had indeed complied with the conditions mentioned in the law , had acted in good faith in this respect and had indeed made any investments in the local economy .

By a decision of CARDINAL DATE ( case no . FCARDINAL - CARDINAL/CARDINAL - CARDINALA ) in the case of ZAO ORG v. ORG , ORG of the LOC quashed the decisions of the lower courts and instructed them to investigate further whether the taxpayer had indeed complied with the conditions mentioned in the law , had acted in good faith in this respect and had indeed made any investments in the local economy .

By a decision of CARDINAL DATE ( cases nos . ORG - CARDINAL/CARDINAL - CARDINALA and ORG - CARDINAL/CARDINAL - CARDINALA ) in a dispute between ORG and OOO “ PERSON perestrakhovochnaya kompaniya ” , ORG of ORG found as follows :

“ The investments made by the [ taxpayer ] amount to PERCENT of the amount of taxes that would otherwise have been payable by it . They have no effect on the development of the economy ... but ... their effect is unfair enrichment .... Therefore , [ as ] the amount of investments by [ the taxpayer ] was incommensurate to the amount of the benefits received , [ the taxpayer ] abused its right , that is , it acted in bad faith ”

By a decision of DATE ( case no . FCARDINAL - CARDINAL/CARDINAL - CARDINALA ) in the case of PERSON v. ORG , ORG of the LOC quashed the decisions of the lower courts and instructed them to investigate further whether the taxpayer had indeed complied with the conditions mentioned in the law , had acted in good faith in this respect and had indeed made any investments in the local economy .

Under LAW no . CARDINAL of the GPE “ On specific features of the tax system in the GPE ” of DATE , substantially lower tax rates apply to local businesses whose activities meet certain conditions with regard to the special taxation procedure set out in section CARDINAL of that PERSON .

Under LAW , the institutions , notions and terms of the civil legislation of GPE used in LAW keep their respective meanings , unless specifically stated .

Under LAW of DATE no . CARDINAL-FZ ( as in force at the relevant time ) , the legal status of parties involved in civil - law transactions , the grounds for the creation of ownership and other property rights and the order of exercising those rights are defined by the civil legislation , which also regulates contractual and other obligations .

The civil legislation regulates the relations between persons engaged in business activities or in those activities performed with their participation , on the assumption that business activity is an independent activity performed at one ’s own risk and aimed at systematically deriving a profit from the use of property , the sale of commodities , the performance of work or the rendering of services by those persons registered in this capacity in conformity with the legally - established procedure .

It is formally prohibited to make any unilateral property transfers ( gifts , grants or gratuitous loans ) between independent commercial legal entities ( Articles CARDINAL and CARDINAL of ORG ) . Unilateral property transfers are permitted by LAW and not counted for the purposes of profit tax if they are made between associated entities , where CARDINAL of them holds PERCENT of shares in the equity of the other entity .

Article CARDINAL of the Civil Code provides that a subsidiary company is CARDINAL controlled by another company , either through ownership of the subsidiary company ’s shares , by virtue of a contract or by any other means .

The controlling company is jointly responsible for debts incurred by the subsidiary company as a result of compliance with the controlling company ’s instructions . The controlling company may be held vicariously responsible for a debt of the subsidiary company in the event of the latter ’s insolvency .

DATE LAW provides that a company is dependant when the other company owns PERCENT of the first company ’s voting stock . A company which purchases PERCENT of the voting shares in other companies is obliged to make this information public .

Similar rules are established in respect of limited liability companies ( обществa с ограниченной ответственностью ) by LAW no . CARDINAL on limited liability companies of CARDINAL DATE .

Article CARDINAL of LAW defines an owner as the person who has the rights of possession , use and disposal of his property . In respect of this property , the owner is entitled , at his will , to perform any actions not contradicting the law and the other legal acts , and not violating the rights and legally protected interests of other persons .

Articles CARDINAL and CARDINAL of the Civil Code provide that the parties involved in civil - law transactions are free to act contractually within the limits defined by law .

Article CARDINAL ( CARDINAL and CARDINAL ) of the LAW states specifically that parties involved in civil - law transactions are prohibited from abusing their rights . In such cases , the courts may deny legal protection in respect of the right which is being abused . LAW ) establishes a refutable presumption of good faith and reasonableness of actions on the parties in civil - law transactions .

In its decision no . CARDINAL dated DATE , ORG for the first time made use and interpreted the notion of “ bad / good faith ” to assess the legal consequence of the conduct of taxpayers in its jurisprudence . In this case this was done to define the moment at which a taxpayer can be said to have discharged his or her constitutional obligation to pay taxes .

In its decision no . CARDINAL-O dated DATE , ORG again confirmed that there existed a refutable presumption that the taxpayer was acting in good faith and that a finding that a taxpayer had acted in bad faith could have unfavourable legal consequences for the taxpayer . The case again concerned the definition of a moment at which a taxpayer can be said to have discharged his or her constitutional obligation to pay taxes .

The domestic commercial courts applied this approach in a number of cases concerning the eligibility of taxpayers to tax concessions in GPE , such as decision no . FCARDINAL - CARDINAL/CARDINAL - CARDINAL of DATE of ORG of ORG , decision no . FCARDINAL - CARDINAL/CARDINAL - CARDINALA of DATE of ORG of ORG , decision no . FCARDINAL - CARDINAL/CARDINAL - CARDINALA of DATE of ORG of ORG , decision no . FCARDINAL - CARDINAL/CARDINAL - CARDINALA of DATE of ORG of ORG , decision no . FCARDINAL - CARDINAL/CARDINAL - CARDINALA of DATE of ORG of ORG , decision no . FCARDINAL - CARDINAL/CARDINAL - CARDINALA of DATE of ORG of ORG , decision no . FCARDINAL - CARDINAL/CARDINAL - CARDINALA of DATE of ORG of ORG .

NORP In its decision no . CARDINAL-O of DATE ORG noted that it would be inadmissible for bad - faith taxpayers to manipulate the legal civil - law institutions to create and operate schemes for unlawful enrichment at the expense of the ORG budget . The case concerned the use of exchange notes in the sphere of ORG refunds .

Under LAW , transactions are defined as activities of natural and legal persons creating , altering and terminating their civil rights and obligations .

Article CARDINAL of the Civil Code states that a transaction may be declared invalid on the grounds established by that Code , either by force of its being recognized as such by the court ( a voidable transaction , оспоримая сделка ) , or regardless of such recognition ( a void transaction , ничтожная сделка ) .

Under LAW , void transactions entail no legal consequences , apart from those relating to their invalidity , and are invalid from the moment they are conducted .

Article CARDINAL ( CARDINAL ) establishes specific rules in respect of CARDINAL types of void transactions : ‘ LOC transactions ( “ мнимая сделка ” , effected only for form ’s sake , without the intention to create the corresponding legal consequences ) and ‘ ORG transactions ( “ притворная сделка ” , which are effected for the purpose of screening other transactions ) . This provision condemns both imaginary and sham transactions as void .

It also provides that in the event of sham transactions , the rules governing the transaction that was in fact intended by the parties may be applied by a court , regard being had to the substance of this transaction ( the so - called “ substance over form ” rule ) .

Under LAW ( CARDINAL ) CARDINAL of LAW the power to re - characterise transactions by a taxpayer with third parties , their legal status and the nature of the taxpayer ’s activity in tax disputes lies with the courts ( as opposed to executive bodies ) . LAW no . CARDINAL of DATE “ On ORG in the GPE ” vests the power to contest such transactions and recover everything received in such transactions with the ORG budget .

Comments on LAW ( ORG , Comments on LAW , ORG , GPE , DATE ) states , with reference to Bulletin no . CARDINAL of ORG ( page CARDINAL ) , that any evidence admitted by the rules on civil procedure may also serve as proof of the invalidity of sham transactions .

DATE ( CARDINAL ) of LAW requires that the parties trade at market prices . It also establishes a refutable presumption that the prices agreed to by the parties correspond to market levels and are used for taxation purposes .

Under LAW ( CARDINAL ) of LAW , the tax authorities are empowered to overrule the above presumption by verifying and correcting the prices for taxation purposes . A finding that the prices were lowered usually leads to the conclusion that the taxpayer understated the taxable base and thus failed properly to pay his taxes ( see LAW below ) .

This may happen only ( CARDINAL ) when the parties are interdependent within the meaning of LAW ; ( CARDINAL ) in the event of barter transactions , or ; ( CARDINAL ) international transactions ; ( CARDINAL ) when the prices set by a taxpayer during the same short period for certain identical types of goods , work or services fluctuate by PERCENT .

Article CARDINAL ( CARDINAL ) of LAW defines interdependent parties as natural persons and ( or ) organisations whose mutual relations may influence the terms or economic results of their respective activities or the activities of the parties that they represent . In particular , ( a ) CARDINAL organisation has a direct and ( or ) indirect interest in another organisation , and the aggregate share of such interest is PERCENT . The share accounted for by the indirect interest held by CARDINAL organisation in another , through a chain of separate organisations , is defined as the product of the direct interest shares that the organisations in this chain hold in one another ; ( b ) CARDINAL natural person is subordinate to another natural person ex officio ; ( c ) in the case of individuals , they are spouses , relatives , adopters or adoptees , guardians or wards under the family law of GPE .

Article CARDINAL ( CARDINAL ) of LAW provides that the court may recognize persons as interdependent on other grounds , not provided for by LAW , if the relations between these persons may have influenced the results of transactions in the sale of goods ( work , services ) .

Article CARDINAL § § CARDINAL of LAW imposes a penalty of PERCENT of the unpaid tax liability on intentional non - payment or incomplete payment of the tax due , as a result of understating the taxable base . Articles CARDINAL § CARDINAL and CARDINAL § CARDINAL of LAW provide for a PERCENT increase in this penalty in the event of a repeated offence by the same taxpayer . LAW CARDINAL of the LAW also provides for a possibility of reducing the fine by CARDINAL if there were extenuating circumstances on the facts of the case .

Article CARDINAL § CARDINAL of the Code makes it mandatory to recover the penalties in court . This rule does not apply to reassessed fines and interest surcharges .

Article CARDINAL of LAW provides for payment of an interest surcharge by taxpayers in cases of late payment of the taxes due . The interest surcharge amounts to CARDINAL of the statutory rate for DATE of the delay . Persons and entities that were unable to meet their tax liabilities in due time because their bank account was suspended by the tax authority or a court are excused from payment of the interest surcharge for the duration of the respective suspension ( LAW of LAW ) .

NORP In accordance with LAW provisions concerning liability for tax offences ) , a person could not be held liable for a tax offence under LAW if DATE had expired since DATE after the end of the tax period during which the offence was committed . The above provision only applied to the payment of fines . LAW sets out DATE time - limit within which the authorities must collect the fines . It starts running from the date of adoption of the relevant audit report .

As regards the reassessed taxes and interest surcharges , LAW ( as in force as the relevant time ) limited the ability of the authorities to carry out tax inspections by stating that “ the[y ] ... [ may ] only be carried out in respect of the activities of the relevant taxpayer ... during the DATE immediately preceding the year of the tax inspection ” ( see also decision no . QUANTITY of ORG below ) .

NORP In paragraph CARDINAL of Resolution of the Plenum of ORG no . CARDINAL dated DATE “ On certain issues arising from application of the first part of the LAW ” , the court indicated to the lower courts that “ a taxpayer is considered to have been held liable [ within the meaning of LAW ] on the date on which the head of the [ relevant ] tax body or his deputy takes a decision to hold this person liable of a tax offence in accordance with [ the rules set out in ] the LAW ” .

This interpretation was subsequently used by the ORG of ORG in its decision no . PERSON ( PERSON v. ORG ) , taken in DATE , where an offence had been committed in DATE , whilst the time - limit began to run on DATE and expired on DATE . The ORG ’s decision was issued on DATE and was , accordingly , time - barred in so far as the fines were concerned .

On DATE ORG of ORG reviewed and quashed the lower courts’ decisions in a tax dispute involving ORG and a private shareholding . Among other things , ORG stated that the time - limit set out in LAW started running from the date on which the relevant facts came to the attention of the competent authorities ( as a result of a tax inspection or other types of tax control ) .

In a number of cases pre - dating the decision of ORG of DATE , the courts applied Article CARDINAL in line with an interpretation given by ORG no . CARDINAL of the Plenum of ORG of DATE ( see decision no . FCARDINAL/CARDINAL - CARDINAL/ACARDINAL - DATE of CARDINAL DATE of ORG of ORG , decision no . FCARDINAL/CARDINAL - CARDINAL/ACARDINAL - DATE of CARDINAL DATE of ORG of ORG , decision no . ORG of DATE of ORG of ORG , decision no . ACARDINAL - CARDINAL/CARDINAL - CARDINAL of CARDINAL DATE of ORG of ORG , decision no . ORG CARDINAL of DATE of ORG of the Volgo - Vyatskyy Circuit , decision no . FCARDINAL-ACARDINAL/CARDINAL - CARDINAL of CARDINAL DATE of ORG of ORG , decision no . CARDINAL - CARDINAL/CARDINAL-CCARDINAL of CARDINAL DATE of ORG of ORG , decision no . CARDINAL - CARDINAL/CARDINAL - CARDINAL-FCARDINAL - CARDINAL/CARDINAL-CCARDINAL of DATE of ORG of ORG , decision no . ORG - CARDINAL/CARDINAL-CCARDINAL-FCARDINAL - CARDINAL/CARDINAL-CCARDINAL of DATE of ORG of ORG , decision no . PERSON CARDINAL of DATE of ORG of ORG , decision no . FCARDINAL - CARDINAL/CARDINALAK of DATE of ORG of ORG , and decision no . FCARDINAL - CARDINAL/CARDINALAK of DATE of ORG of ORG ) . None of these cases involved a situation whereby a taxpayer had hindered a tax inspection or had deliberately sought to delay the tax proceedings .

ORG By a decision of DATE ORG of ORG , acting as a cassation review instance , reviewed the application of the time - limits of LAW . The audit report prepared by ORG in respect of the calendar DATE was dated DATE , whilst the decision to hold the taxpayer liable was issued on DATE . ORG decided that the authorities could be said to have been acting in time provided that they respected the requirements of LAW , which sets out a DATE time - limit for conducting tax inspections and LAW ( CARDINAL ) of the LAW , which sets out a DATE time - limit for the maintenance of accounting documents . ORG also specifically noted the actions of PERSON holding , which had sought to hinder and complicate the tax inspection .

The text of LAW has been amended by ORG no . CARDINAL of DATE , which came into force on DATE . The provision now contains § CARDINAL . , which states :

“ QUANTITY . NORP The running of the time - limit for holding a taxpayer liable stops if [ the taxpayer ] actively hindered an on - site tax inspection , thus creating an insurmountable obstacle for that inspection and for the determination by the tax authorities of the amount of taxes due to the budgetary system of GPE .

The running of the time - limit [ in question ] is suspended on the date of adoption of a report [ setting out the circumstances in which the taxpayer denied the tax authorities access to the relevant documents ] . In this case , the running of the time - limit continues on the date when the above - mentioned circumstances no longer exist and a decision on continuation of the on - site tax inspection is taken . ”

NORP On DATE ORG of ORG , acting as a cassation review instance , reviewed the application of the time - limits of LAW . The audit report prepared by ORG in respect of the calendar DATE was dated DATE , whilst the decision to hold the taxpayer liable was issued on DATE . Again , ORG decided that the authorities had been acting in time , regard being had to the taxpayer ’s actions for the purpose of delaying and hindering the tax inspection .

Under LAW Procedure of DATE no . CARDINAL-FZ ( as in force at the relevant time ) , claims should be brought to a court having jurisdiction over the defendant ’s official place of business .

Article CARDINAL of LAW defines a company ’s official place of business as the place of the company ’s registration , unless , in accordance with the law , the company ’s articles of association do not specify otherwise .

Decision no . CARDINAL of LAW of ORG and ORG of DATE specifies that the company ’s official place of business is the location of its entities .

Under LAW , a party may apply for proportionate security measures , including attachment of a defendant ’s assets , pending the examination of the case by the courts .

Article CARDINAL of the Code of Commercial Court Procedure provides that in tax cases a court suit may be filed by the authorities when their demands have not been complied with voluntarily , or when the term for voluntary compliance has expired .

Article CARDINAL of the Code of Commercial Court Procedure sets out a DATE time - limit during which a first - instance court is to finalise the examination on the merits of any case which involves mandatory payment and related penalties .

DATE Procedure establishes a DATE time - limit for the preparation of the case for examination at first instance .

Pursuant to LAW , the first - instance court should examine the case and deliver its judgment within DATE of a decision to list the case for a hearing .

DATE ( CARDINAL ) of LAW Procedure makes it mandatory for a party to disclose all evidence relied upon in their claims or objections prior to the beginning of the hearings in a case .

In paragraph CARDINAL of Information Letter no . CARDINAL , dated CARDINAL DATE , ORG gave the following recommendation in respect of whether the trial court ought to accept and examine evidence that was previously undisclosed by the parties prior to the beginning of the hearings in a case :

“ Any evidence undisclosed by the parties to the case prior to the hearing , but submitted later during the examination of the evidence , shall be examined by the commercial court at first instance regardless of the reasons for which the procedure for disclosure of evidence was breached ... ”

Under Articles CARDINAL and CARDINAL of the Code of Commercial Court Procedure participants in the proceedings have DATE from the delivery of the first - instance judgment to lodge an appeal .

Under LAW , an appeal court must examine an appeal lodged against the first - instance judgment within DATE , starting from the date of its filing . This term includes any time necessary for case preparation and for reaching the appeal decision . By federal law no . CARDINAL dated DATE the time - limit was increased to DATE . By federal law no . CARDINAL-FZ dated DATE the provision in question has been amended . The time - limit became extendable DATE depending on the complexity of the case and the number of participants . The provision also made it clear that the time - limit started running on expiry of the time - limit for lodging an appeal .

Under LAW , an appeal court fully re - examines the case using the evidence contained in the case and any newly - presented additional evidence . In examining procedural motions by the parties , including requests to call and hear additional witnesses or adduce and examine additional pieces of evidence , the appeal court is not bound by previous refusals of the same motions by the first - instance court .

Under Articles CARDINAL , CARDINAL and CARDINAL of the LAW , the first - instance judgment becomes enforceable on DATE of the entry into force of the appeal decision confirming it . The enforcement takes place on the basis on a writ issued by the respective court .

NORP In accordance with LAW , a cassation instance court , among other things , reviews the lower courts’

Article CARDINAL of the Code provides for a possibility of applying for a stay of enforcement of the lower courts’ decisions . The applicant must show that it would be impossible to reverse the effects of an immediate enforcement of the lower courts’ decisions if the cassation appeal were successful .

In its rulings no . CARDINAL dated DATE , no . CARDINAL dated DATE

In DATE the respondent legal entity was involved in a series of intertwined transactions ( rent contracts and loan agreements ) with CARDINAL third parties : as a result , the respondent leased a building in central GPE to the third parties , but was able to avoid inclusion of the rent payments in the taxable base of its operations by claiming that they were interest payments in respect of the loan agreement . ORG discovered the tax evasion scheme , re - characterised the transactions in question as rent and ordered the taxpayer to pay RUB MONEY in back taxes .

The case was examined in CARDINAL rounds of court proceedings by the courts at CARDINAL levels of jurisdiction . Having regard to the substance of the transactions entered into by the respondent , the terms of payment and execution of the contested contracts , and , generally , to the conduct of the respondent company and the third parties , the courts decided that the contractual arrangement had been sham , re - characterised the arrangement as rent and upheld the ORG ’s decision .

In the first round of proceedings the courts adopted their decisions on the following dates : DATE , CARDINAL DATE and DATE .

In the second round of proceedings the decisions were adopted by the first - instance and appeal courts on CARDINAL DATE and DATE . The decision of the cassation court was taken on an unspecified date .

The third round of proceedings involved decisions on DATE , DATE and DATE .

NORP The respondent legal entity entered into a loan agreement with a third party ; the tax authorities considered it a sham , re - characterised it as a rent contract and reassessed the tax due in respect of the profits made . The lower courts disagreed and quashed the tax authority ’s decision . By a decision of CARDINAL DATE the cassation court quashed the lower courts’ decisions and ordered that the matter be re - examined , giving due regard to all relevant circumstances , including the substance of the transaction . The courts were to reconsider all relevant clauses in the agreement in question , the conduct of the parties and the fact of physical occupation of the allegedly rented space .

The respondent legal entity is a bank which in DATE conducted business by buying and then reselling precious metals . To avoid the payment of full ORG on its sales operations in this respect , the bank entered into commission agreements with the sellers from which it bought the metals , in order to be considered not as the owner of the traded goods , but merely as the ORG agent .

NORP The domestic courts took account of the substance of the bank ’s transactions ( terms of payment , actual circumstances of delivery and other relevant factual details ) and , having established that in reality the bank had been buying and reselling the precious metals , re - characterised the bank ’s activity as sales . The courts referred to LAW ( containing the legal definition of an owner ) and concluded that the bank first bought the precious metals , thus becoming the “ owner ” within the meaning of the said provision and thereafter resold the goods . They found the bank liable for tax evasion under LAW , ordered it to pay reassessed ORG in the amount of RUB CARDINAL,CARDINAL,CARDINAL,CARDINAL.CARDINAL , default interest of RUB CARDINAL,CARDINAL.CARDINAL and penalties of RUB CARDINAL,CARDINAL,CARDINAL.CARDINAL .

The first - instance judgment was adopted on DATE and upheld on appeal on DATE .

OAO Ufimskiy NPZ , the main production unit of CARDINAL of the biggest NORP oil companies , PERSON , physically located in the town of GPE , used the domestic tax offshore territory situated in the town of GPE , the territory rented by GPE from GPE for its space - related projects . The town ’s tax regime was similar to that in the closed administrative - territorial formations ( see above ) .

On DATE the respondents PERSON and PERSON , a letter - box entity registered in GPE , entered into a rent agreement whereby the entirety of PERSON production facilities were rented by PERSON in exchange for nominal compensation . Since PERSON was registered in GPE , the activity of PERSON enjoyed lower rates in respect of excise duties . The tax authorities discovered “ the scheme ” and contested it in court as sham and therefore null and void .

On DATE the first - instance court had regard to the substance of the transaction and , having established that , despite the contractual arrangement , PERSON had continued to operate the facilities in question , that furthermore the letter - box entity was never properly registered and licensed as the operator of oil processing and oil storage facilities in accordance with the relevant law , and that the letter - box entity could not operate the facility because it had rented CARDINAL part of the production cycle ( which , in technological terms , could not be split in CARDINAL ) , that the sole aim and effect of the arrangement was tax evasion and that PERSON and PERSON had “ malicious intent ” to evade taxes , upheld the tax authorities’ claim .

The first - instance judgment was upheld on appeal and in cassation on DATE and DATE respectively .

These cases are essentially follow - ups to the previous case : ORG is the second main production unit of PERSON and was involved in exactly the same tax - evasion scheme , using the sham offshore entities ZAO Bort - M and PERSON . The domestic courts examined all CARDINAL cases at CARDINAL instances and granted the ORG ’s claims . The decisions in the first set of proceedings were taken on DATE , DATE and DATE . The decisions in the second set of proceedings were taken on DATE , DATE and CARDINAL DATE . The decisions in the third set of proceedings were taken on DATE , DATE and CARDINAL DATE .

NORP This case concerns exactly the same tax - evasion scheme as in the previous cases , but involves OAO MNPZ , a major oil - processing facility located in GPE and owned by ORG , as the defendant .

The decisions in the case were taken on DATE and DATE .

This case also concerns the tax - evasion scheme described in the previous cases . ORG assessed the company , apparently a sham entity belonging to an oil producer , and found that it owed additional taxes , surcharges and penalties . The entity prevailed at first instance on DATE . On DATE the cassation court quashed the first - instance judgment , as the lower court had failed to take into account the relevance of the entity ’s activity for the economy of the town of GPE , which was CARDINAL of the criteria the law considered relevant to the issue of the lawfulness of tax exemptions .

The case concerns the same tax - evasion scheme as in the previous cases ( involving the sham renting agreement ) , but the offshore territory at issue is the town of PERSON and the taxpayer is ORG , one of the applicant company ’s subsidiary oil - processing units .

The scheme operated from DATE and was prosecuted in DATE . The first - instance judgment in favour of the ORG was taken on CARDINAL DATE . The court applied the same ‘ substance over form’ approach as in the previous cases and , having assessed the GPE conduct , the character of their relations and statements by the officials of the entities , granted the ORG ’s claims and also ordered ORG to pay RUB CARDINAL in reassessed taxes .

This is a follow - up to the previous case : in the first - instance judgment the court declared the GPE contractual arrangement to be sham and unlawful and ordered OAO Novokuybyshevskiy NPZ to pay RUB CARDINAL in reassessed taxes .

ORG The first - instance judgment in the case , dated DATE , was upheld on appeal on DATE .

This is a follow - up to the previous cases and involved OAO Syzranskiy NPZ , a production unit belonging to the applicant company . The rent agreement between the letter - box entity and the applicant company ’s production unit was declared sham and annulled . OAO Syzranskiy NPZ was ordered to pay RUB MONEY in reassessed taxes .

The first - instance judgment of CARDINAL DATE was upheld on appeal on DATE .

The respondent legal entity is a privately - owned enterprise specialised in importing and assembling computer equipment . In DATE the respondent disguised a portion of its sales as loan agreements with its clients in order to avoid payment of ORG . The first - instance judgment and the appeal decision in the case were taken on DATE and DATE . On DATE the Presidium of ORG of GPE reviewed the lower courts’

CARDINAL ’s request for a ORG refund . In addition , the courts recovered the unpaid LOC with penalties .

The domestic courts reached their respective decisions on DATE , DATE and DATE .

ORG The respondent legal entity is the main production unit of OAO NK Russneft , a large NORP private oil company , which was involved in a dispute with ORG refunds in respect of its export operations . The courts established that in DATE the respondent entered into a series of transactions with a number of third parties , aimed at deceiving the Ministry and claiming an artificially increased VAT refund . The courts took account of the overall economic effect of the transactions in their entirety , numerous discrepancies and contradictions between the contractual arrangements , the actual movement of oil , the documents certifying the customs clearance of the goods in question , etc . , and refused to recognise them as valid for the purposes of reimbursement of GPE . The courts concluded that ORG had been acting lawfully by refusing the respondent company ’s request for a refund of export ORG .

The domestic courts reached their respective decisions on DATE , CARDINAL DATE and DATE .

This is essentially a follow - up to the previous cases . The courts reached similar conclusions in respect of the respondent company and recovered RUB CARDINAL in overpaid ORG in favour of ORG .

The decisions in the case during the first round of proceedings were taken on DATE , DATE and DATE .

The second round of proceedings resulted in the first - instance judgment of DATE , the appeal decision of DATE and the supervisory review decision of DATE .

The first respondent legal entity is a big producer of grains , cereals and related processed products . It was involved in a dispute with ORG refunds in respect of export operations , whereby it had commissioned the second respondent to sell certain equipment abroad . The equipment was bought by the third respondent and resold “ at an economic loss ” to an entity registered in a foreign offshore location . Having regard to various circumstances , including the conduct of the entities involved and the fact that no actual hard cash had been paid for the equipment in question , the ORG applied to court , asking it to invalidate the transactions in question as sham . The first - instance court dismissed the claim but the appeal and cassation review courts subsequently reversed that judgment , essentially upholding the ORG ’s approach .

The domestic courts took their respective decisions on DATE , CARDINAL DATE and DATE .

The first respondent legal entity was involved in a dispute with ORG refunds in respect of export operations , whereby it had entered in complex relations with the other CARDINAL respondents to sell certain goods abroad . Having regard to various circumstances , including the conduct of the entities involved and the fact that no actual hard cash had been paid for the goods in question , the ORG applied to court , asking it to invalidate the transactions in question as sham and therefore null and void . The courts at CARDINAL instances upheld the ORG ’s approach .

The domestic courts took their respective decisions on DATE , DATE and DATE .

The respondent entity was involved in a dispute with ORG over the latter ’s refusal to refund the VAT in respect of the entity ’s export operations . ORG uncovered an arrangement whereby there had been no hard cash transactions between the parties to the export operation , the respondent had “ traded at a loss ” and the allegedly exported produce had had nothing to do with the respondent ’s usual business activity . Having regard to various circumstances , including the conduct of the entities involved , the courts at CARDINAL instances upheld the ORG ’s approach .

By a decision dated DATE in the case of ORG and OAO Mechel ( no . FCARDINAL - CARDINAL/CARDINAL-AK ) , ORG of ORG quashed the decisions of lower courts in which they had upheld the lawfulness of a “ kickback ” contract which had been concluded between the respondent bank and the respondent company . ORG ruled that the lower courts had failed to study and to take account of all of the circumstances relevant to the case at issue . In particular , the court noted the finding that the contract had been concluded specifically to avoid the payment of taxes . Accordingly , it reversed and invalidated the contract as unlawful , contrary to the legal order and morality , and ordered that the proceeds ( RUB CARDINAL bn ) derived by the parties from the contract be seized in favour of the ORG .

In a decision of DATE in case no . CARDINAL , the Presidium of ORG of GPE invalidated a loan secured by a promissory note and a related pay - off agreement as imaginary and sham respectively . The court had regard to the terms of contracts concluded between the parties and the manner of their execution , in particular the fact that the loan had never been used by the borrower ; it concluded that the transactions in question covered the sale of a promissory note and invalidated them as sham .

In a decision of DATE in case no . CARDINAL the ORG of ORG of GPE invalidated CARDINAL contracts for the sale of securities and a related loan agreement as sham , having regard to the terms of contracts in question , the manner of their execution and the contractual prices . The court established that the sales contracts in fact covered the loan agreement secured by the pledge of securities and remitted the case for re - trial .

LAW ( Law no . CARDINAL-FZ ) of DATE ( as in force at the relevant time ) establishes the procedure by which a creditor may enforce a court award against a presumably solvent legal entity debtor . According to LAW , execution was to be levied against the debtor ’s property “ in such amount and such scope as is required to ensure the satisfaction of claims set out in the enforcement document ” .

NORP legislation provides for a set of special procedures in respect of presumably insolvent legal entity debtors ( see section O below ) .

NORP Under LAW ( CARDINAL ) of LAW , on an application by the creditor , the bailiff institutes enforcement proceedings , fixes the time - limit for enforcement of the execution writ - which may not exceed DATE from the date of institution of enforcement proceedings - and notifies the debtor accordingly .

Article CARDINAL of the Commercial Procedure Code sets out a procedure whereby a court may alter the method and order of enforcement of a final court decision . Among other thing , it provides as follows :

“ CARDINAL . If there are circumstances which make it difficult to enforce the judicial act , the commercial court which issued a writ may , upon an application by the creditor , debtor or bailiff , grant respite in respect of the enforcement or arrange for the payment in instalments , or otherwise change the method or order of enforcement . ... ”

At the same time , Articles CARDINAL , CARDINAL ( CARDINAL ) and ( CARDINAL ) of LAW specify that a respite or possibility of repaying in instalments concerns only the taxes , and not the interest surcharges and penalties , and may be granted by a court only for a period from DATE from the original deadline for payment , may only be granted on specific grounds enumerated in the law and can not be granted if there are tax proceedings pending against the applicant ( Article CARDINAL ( CARDINAL ) ) .

LAW provides for CARDINAL possibilities , namely : ( a ) to postpone enforcement actions for a term of DATE ( section CARDINAL ) ; ( b ) to suspend the enforcement proceedings ( section CARDINAL ) ; or ( c ) to defer the execution of enforcement of a debt or arrange for payment in instalments ( section CARDINAL ) .

With regard to ( a ) , the bailiff takes the decision in the “ appropriate circumstances ” either on an application by the debtor or of its own motion .

With regard to ( b ) , the decision may only be taken in CARDINAL enumerated cases : if the bailiff applied to the court with a request to interpret the judicial act ; on a request from a debtor who has been drafted to serve in the army ; if the debtor is on a long - term mission ; if the debtor is hospitalised and being treated ; if the actions of the bailiff are being contested in court ; if the debtor himself or his property is being searched for ; if the debtor or creditor are on holiday and can not be contacted .

As regards ( c ) , the debtor , creditor or bailiff has the right to request the court to defer the execution of enforcement of a debt or arrange for payment in instalments if there are “ circumstances impeding the enforcement actions ” .

If the debtor does not comply within the specified time - limit , under section CARDINAL ( CARDINAL ) of LAW the bailiff , on an application by the creditor , has the right to make an inventory of the debtor ’s property and to seize it .

NORP Under section CARDINAL ( CARDINAL ) of ORG the bailiff is empowered to seize any of the debtor ’s assets to secure enforcement . In seizing the debtor ’s assets the bailiffs are obliged to follow the order of priority of arrest and sale set out in section CARDINAL ( CARDINAL ) of ORG , which provides :

“ ... execution under enforcement documents shall , in the first priority , be levied on the debtor ’s monetary funds in roubles and in foreign currency , and on other valuables , including those kept in banks and other credit institutions ” .

At the same time , ORG specified in its Information Letter no . CARDINAL , dated DATE :

“ ... the freezing of cash ... may not be imposed on the respondent ’s account and on amounts that will enter this account in the future ... ” .

In its ORG no . CARDINAL of DATE ORG ruled :

“ ... arrest on cash owned by the debtor shall be imposed not on its account in credit institutions but on cash that is on the accounts , within the limits of the monetary claims ... ”

Section CARDINAL ( CARDINAL ) of LAW provides that , if a debtor lacks sufficient cash funds to satisfy the creditor ’s claims , the debt may be levied from the other forms of the debtor ’s property , unless the federal law states otherwise . The debtor has the right to indicate his preferred order of priority , but the final order is determined by the bailiff .

Section CARDINAL of LAW establishes a DATE time - limit for the seizure of the debtor ’s property from the date on which the ruling on the institution of enforcement proceedings is served . The seizure is intended , inter alia , to secure the safety of the debtor ’s property and the creditor ’s claims , which shall be subject to a subsequent transfer to the creditor or to a subsequent sale . The seizure of securities is carried out in conformity with the procedure defined by ORG of GPE in Decree no . CARDINAL “ On the seizure of securities ” , dated CARDINAL DATE .

Section CARDINAL of LAW establishes the order of priority in the seizure and forced sale of a debtor ’s property in CARDINAL stages . Firstly , the bailiff sells property which is not immediately involved in the debtor ’s production cycle ( securities , cash on the debtor ’s deposit and other accounts , currency valuables , cars , office equipment , etc . ) ; secondly , finished products ( goods ) and other material values not immediately involved in production and not intended to play an immediate part in it ; and , thirdly , real - estate objects , as well as raw and other materials , machine - tools and equipment and other fixed assets , intended for immediate involvement in production .

In Ruling no . CARDINAL “ On certain questions arising out of seizure and enforcement actions in respect of corporate shares ” , dated DATE , the ORG of ORG decided that in respect of companies which had been privatised by the ORG as parts of bigger holding groups through the transfer of controlling blocks of shares , the production cycle of the respective production unit should be preserved as much as possible .

Section CARDINAL of LAW penalises a debtor ’s failure to comply voluntarily with a writ of execution with a PERCENT enforcement fee . Under LAW of the LAW the fee is a priority payment which should be made by the debtor even before it begins repaying the principal debt .

NORP In ruling no . CARDINAL-P of DATE ORG described the enforcement fee as an administrative penal sanction having a fixed monetary expression , exacted by compulsion , formalised by the decision of an authorised official and levied in favour of the ORG . ORG struck the above provision down as unconstitutional , in so far as it did not allow the debtor to excuse his failure to comply with the writ by reference to certain extraordinary , objectively inevitable circumstances and to other unforeseeable and insurmountable obstacles beyond the debtor ’s control .

The Government referred to CARDINAL cases from across GPE which , they claimed , confirmed that that the PERCENT enforcement fee was levied by bailiffs as a matter of standard practice in the event of the debtor ’s failure to pay , routinely and without exceptions , even if the debtor was a ORG - owned entity or indeed a ORG body . Here are some examples : enforcement proceedings dated DATE no . DATE , in respect of RUB CARDINAL,CARDINAL,CARDINAL , owed by a ORG - owned private - law entity ORG ; enforcement proceedings dated DATE no . CARDINAL/CARDINAL/CARDINAL/CARDINAL in respect of RUB CARDINAL,CARDINAL,CARDINAL.CARDINAL , owed by ORG of the town of PERSON ; enforcement proceedings dated DATE no . CARDINAL - CARDINAL/CARDINAL in respect of RUB CARDINAL,CARDINAL,CARDINAL , owed by ORG ; enforcement proceedings dated DATE no . QUANTITY in respect of RUB CARDINAL,CARDINAL,CARDINAL.CARDINAL , owed by PERSON ; enforcement proceedings dated DATE no . CARDINAL - CARDINAL/CARDINAL in respect of RUB CARDINAL , owed by ORG Kazanskiy zavod tochnogo mashinostroeniya imeni PERSON .

Section CARDINAL of LAW requires the bailiff to evaluate the arrested property on the basis of market prices on the date of execution of the enforcement writ . Should valuation be problematic for technical or any other reasons , the bailiff is to appoint a specialist to carry out the valuation .

According to a Decree of the Ministry of Justice dated DATE , the bailiff is obliged to appoint a specialist to conduct the valuation if the seized property is shares or other securities ( ценные бумаги ) . Under the same Decree the bailiff is to inform the debtor and creditor of the resulting valuation .

Section CARDINAL of LAW requires the bailiff to sell the arrested property in satisfaction of the debt within DATE of the date of seizure . The sale is carried out by a specialised institution on the basis of a commission contract with the bailiff .

According to Government Decree no . CARDINAL “ On ORG ” of CARDINAL DATE and Government Decree no . CARDINAL “ On ORG , ORG and Other Property ... ” of DATE , the ORG is entrusted with the task , inter alia , of auctioning property seized in satisfaction of the debts owed to GPE .

Section CARDINAL of LAW provides that , in respect of the sums levied from the debtor , including the proceeds from the forced sale of the debtor ’s property , the bailiffs first recover enforcement fees and all related payments and the remainder is used in satisfaction of the PERSON claims .

If the proceeds from the forced sale(s ) are insufficient to satisfy all creditors , the following order of priority applies ( section CARDINAL of LAW ) : tort claims , employment and labour - related claims , claims made on behalf of ORG and ORG of GPE , claims made on behalf of the budgets of various territorial levels and finally all other claims .

Under LAW , all actions by the bailiff in the course of enforcement proceedings can be appealed against within DATE from the date of proper notification of the action in question .

Any damage inflicted on the debtor as a result of the bailiff ’s omission is compensated in accordance with the applicable legislation .

The enforcement of court awards and more generally debt claims against insolvent or presumably insolvent debtor legal entities are regulated by ORG of DATE ( Law no . CARDINAL ) .

Section CARDINAL of the Insolvency ( Bankruptcy ) Act defines the state of bankruptcy of a legal entity as follows :

“ A legal entity is regarded as being unable to satisfy the claims of creditors in respect of pecuniary obligations and ( or ) to fulfil its obligations in respect of mandatory payments if the respective obligations and ( or ) obligation are not complied with within DATE on which compliance should have occurred . ”

In accordance with section CARDINAL of the Act , the obligations are , as a general rule , defined / recognised by the court on the date of examination of the bankruptcy petition .

Bankruptcy proceedings in respect of a legal entity may only be instituted by a court if the overall amount of debt claims exceeds RUB CARDINAL ( section CARDINAL of the Act ) .

Under LAW the debtor , the debtor ’s creditors in respect of pecuniary claims and ORG bodies competent to take part in bankruptcy proceedings in which the ORG is a creditor in respect of mandatory payments are entitled to bring a bankruptcy petition .

Whilst the executive body of the debtor has the right to file for bankruptcy in circumstances where it is obvious that the debtor would be unable to fulfil its obligation in due time ( section CARDINAL of the Act ) , it has a legal duty to do so if the forced seizure of the debtor ’s property in satisfaction of a claim would make the debtor ’s economic activity extremely difficult or impossible ( section CARDINAL of the Act ) . In this latter respect , the petition should be brought within DATE from the date on which the respective relevant circumstances occurred .

Failure to abide by the above rules exposes the offender to civil liability action by virtue of LAW and may also make the offender vicariously liable for any resulting damage .

The admissibility of the bankruptcy petition is examined by a single - judge bench ( section CARDINAL of the Act ) . Having declared the petition well - founded ( admissible ) , the judge is to impose a supervision order in respect of the debtor ( see below ) .

The merits of the bankruptcy petition should be examined by a court within DATE of its filing ( section QUANTITY ) .

Having examined the merits of the bankruptcy petition , the court takes CARDINAL of the following decisions ( section CARDINAL of the Act ) : ( a ) it declares the debtor bankrupt and applies the liquidation procedure in respect of the debtor ; ( b ) it rejects the request to declare the debtor bankrupt ; ( c ) it introduces a “ financial improvement order ” in respect of the debtor ; ( d ) it applies the procedure of external management ; ( e ) it discontinues the bankruptcy proceedings ; ( f ) it disallows the bankruptcy petition ; ( g ) it approves the friendly settlement of the case .

The following CARDINAL procedures may be applicable in respect of the debtor in a bankruptcy case ( section QUANTITY ) : ( a ) supervision order ; ( b ) financial improvement order ; ( c ) external management ; ( d ) liquidation ; ( e ) friendly settlement .

A supervision order is defined as the first procedure applied to the debtor ( see above ) . It consists of securing the debtor ’s property , analysing its financial condition , composing the list of creditors and carrying out the first assembly of creditors ( section CARDINAL of the Act ) . The decision to impose a supervision order is taken by a judge in accordance with section QUANTITY . It can be appealed against to a higher court . In the decision , the judge should also appoint an interim receiver .

A financial improvement order is a bankruptcy procedure intended to re - establish the debtor ’s solvency and consisting in repayment of the debts in accordance with a debt repayment schedule ( section CARDINAL of the Act ) .

External management is a bankruptcy procedure intended to re - establish the debtor ’s solvency ( section CARDINAL of the Act ) .

Liquidation is a bankruptcy procedure applied in respect of a debtor who has been declared bankrupt . It is essentially the sale of the debtor ’s property by a court - appointed trustee in proportionate satisfaction of the LOC claims ( section CARDINAL of the Act ) .

Friendly settlement is a bankruptcy procedure applicable at any stage of bankruptcy proceedings whereby the creditors and the debtor reach an agreement in respect of the debtor ’s liability ( section CARDINAL of the Act ) .

The automatic consequences of the decision to adopt a supervision order in respect of the debtor legal entity ( section CARDINAL of the Act ) are , in particular , the following : all debts due after the date of the decision are recoverable only pursuant to a special procedure ; enforcement of execution writs already issued , including any pecuniary claims ( with the exception of those relating to payment of salaries and tort claims ) against the debtor , is halted , and the seizure in respect of the debtor ’s property is lifted .

The law also introduces some restrictions in respect of operations with the debtor ’s shares and the actions of the debtor itself ( section CARDINAL of the Act ) . However , the debtor ’s management team remains in place , subject to limitations restricting their ability to dispose of the debtor ’s property above a certain value ( PERCENT of the book costs of the debtor ’s property ) or to indebt the debtor further by contracting loans , issuing guaranties or sureties , transferring debts to third parties or transferring the debtor ’s property for external management by a third party .

An interim receiver is appointed by a court in accordance with sections CARDINAL and CARDINAL of the LAW . At this stage of proceedings , he or she has no management functions and is essentially responsible for securing the debtor ’s property , watching over the activities of the debtor ’s management , analysing the debtor ’s financial condition and identifying the debtor ’s creditors . The interim receiver is accountable to a court and is in charge of organising the first meeting of creditors .

For DATE from the date of publication of the supervision order notice , the creditors have the right to file their claims against the debtor ( section CARDINAL of the Act ) . The claims may be included in the list of creditors on the basis of the court ’s decision .

DATE prior to the date of termination of the supervision order , the interim receiver must organise the first meeting of creditors ( section CARDINAL of the Act ) . At the meeting , the creditors are competent , among other things , to decide either : ( a ) to introduce a financial supervision order and lodge the relevant request with the court ; ( b ) to introduce an external management order and lodge the respective request with the court ; or ( c ) to request the court to declare the debtor bankrupt and impose a liquidation order ( section CARDINAL of the Act ) .