Never Say Nyet – PwC and Moscow Update

Looks like it’s not over until the very fat lady sings…

Hmmm… Second day in a row I have had to link to PwC Netherlands.

Arbitration Court OKs PwC Tax Bill
PricewaterhouseCoopers Audit is threatened with the loss of its license for the second time in six months. The Moscow Arbitration Court yesterday released the full text of its decision on the company’s tax case. The court agreed with all the arguments of the Federal Tax Service, including the claim that PricewaterhouseCoopers Audit violated the conditions of its license. The conclusions are no less severe than the decision on the illegality of PricewaterhouseCoopers Audit’s YUKOS audit reached in court on March 20.

The tax service claims PricewaterhouseCoopers Audit reduced its tax base in 2002 by funneling payments to the Dutch PricewaterhouseCoopers Resources B.V. (now PricewaterhouseCoopers Russia B.V.) in Moscow. PricewaterhouseCoopers Audit lost the case over its tax bill of about 390 million rubles last year when it was unable to prove that the foreign specialist provided any services, but the Supreme Arbitration Court sent the case back for a new hearing on June 10 of this year. Now the court has again not accepted the auditor’s evidence of “brainstorming with clients,” “general issues” and “business activity” by the foreign experts.

The biggest problem for the company may concern its licensing. PricewaterhouseCoopers Audit told the court that the “foreign specialists provided consultative services by participating in audits conducting by the respondent.” The court noted that “If employees of another legal entity, PricewaterhouseCoopers Russia B.V., took part in the audits conducted by ZAO PricewaterhouseCoopers Audit, a violation of part 1 of article 7 of the law ‘On the Licensing of Individual Forms of Activity’ took place” since PricewaterhouseCoopers Audit did not have the right to transfer its clients to the Dutch firm, which is not licensed in Russia.

The auditing firm has stated that it will appeal the decision. Analysts say that, if the decision is enforced, the Finance Ministry will be forced to react to the licensing violation. In addition, the tax service will also be able to demand that the company be liquidated because of the violation. The Finance Ministry granted PricewaterhouseCoopers Audit a five-year license on April 19, in spite of a court ruling against the company connected with YUKOS on March 20. The appeal of that ruling will be heard on October 8.