Moscow — September 20, 2005 – LAWFUEL – Chadbourne & Parke LLP secured a precedent-setting ruling from the Russian Federation Supreme Arbitration Court in favor of a client on two related tax litigation matters.
The September 1 ruling, found that Chadbourne client, Flour Daniel Eurasia, Inc., a U.S. company providing engineering services for the oil and gas industry, was not obligated to pay a previously issued sanction of more than US $700,000 imposed over a tax-profits record-keeping issue.
The company operates in Russia via several representative offices located in different Russian regions. All proceeds from the client’s Russian operations arising out of one contract were deposited directly into the client’s U.S. bank account (with the relevant Russian profits tax paid), but each of the offices indicated in accounting records the amount of proceeds proportional to the amount of work provided by such office. For internal purposes, the corresponding amounts of proceeds were reflected by each of the offices on Subregister 79 of the Russian accounting standard balance sheets.
In 2003, local tax authorities in the Krasnodar Region ruled that all of foreign currency amounts reflected on Subregister 79 must be continuously re-calculated into Russian rubles, and that the corresponding forex differences must be reflected in the representative office’s corporate profit tax base. As a result, tax authorities ordered two of the client’s offices to pay additional profit tax assessments and imposed sanctions in an amount exceeding US $700,000. Chadbourne attorneys fought the decision since early 2003, and succeeded in the lower court. Appellate courts, however, overturned the lower court ruling.
Having obtained positive feed-back from the Ministry of Finance, Chadbourne’s Moscow-based litigators applied to the Russian Federaiton Supreme Arbitration Court requesting it reconsider the case on the basis of its potential widespread effect for foreign companies operating in Russia. Although the court accepts less than 2% of appeals submitted, both of the clients’ appeals were accepted due to the importance of the issue.
The court cancelled all lower court rulings rendered in favor of the tax authorities and upheld the initial decisions of the lower court confirming that a foreign company is free from obligation to account for forex differences on amounts reflected on Subregister 79.
Working on the case for Chadbourne was Moscow partner Mikhail Rozenberg and senior associate Sergei Volfson who appeared in court of behalf of the client.
About Chadbourne & Parke LLP
Chadbourne & Parke LLP, an international law firm headquartered in New York City, provides a full range of legal services, including mergers and acquisitions, securities, project finance, corporate finance, energy, telecommunications, commercial and products liability litigation, securities litigation and regulatory enforcement, white collar defense, intellectual property, antitrust, domestic and international tax, insurance and reinsurance, environmental, real estate, bankruptcy and financial restructuring, employment law and ERISA, trusts and estates and government contract matters. The Firm has offices in New York, Washington, D.C., Los Angeles, Houston, Moscow, Kyiv, Warsaw (through a Polish partnership), Almaty, Beijing and a multinational partnership, Chadbourne & Parke, in London. For additional information, visit www.chadbourne.com.
