YUKOS Responds to Russian Tax Ministry Inquiry

YUKOS Oil Company has sent to the Tax Ministry objections against the Act of Tax Audit provided to YUKOS on December 29, 2003 that accuses YUKOS of designing an unlawful (as the Tax Ministry maintains) tax minimization scheme. In the objections against the Act that YUKOS sent to the Tax Ministry, YUKOS is demanding that the Tax Ministry adopt a resolution that all charges of tax wrongdoing alleged in the Act be dropped without any penalties for the Company.

YUKOS' position is that the allegations of the audit presented in the Act clearly conflict with the Constitution of the Russian Federation, the legal position of the Constitutional Court of the Russian Federation and various provisions of the Tax Code. In YUKOS' opinion the Act of Tax Audit is conspicuously biased and accusatory.

The Act of the Tax Audit contains an unlawful and unproven opinion that the company can be made liable for payment of taxes calculated independently by tax authorities on the basis of economic activity results of many independent organizations.

The Act contains illegitimate and incorrect allegations regarding the related party status of YUKOS and several business entities which have resulted in an unprecedented attempt to directly charge YUKOS, the taxpayer being audited, with increased tax payments that various organizations allegedly failed to pay.

The audit was conducted with numerous procedural irregularities. YUKOS was not given access to all documents supporting the charges, the findings related to the allegedly related parties were not attached to the Act, and non-disclosure rules of the Tax Code were grossly violated. Also, there can be no application of a penalty to YUKOS because of the statute of limitation.

Such egregious and groundless tax claims that make one company liable for the activities of a host of unrelated parties have no precedents in Russian practice.

In YUKOS' opinion the deliberately unlawful claims leveled against the Company not only compromise the government agencies, but also make highly questionable the sheer possibility of fair business in Russia. YUKOS considers the actions of the Tax Ministry as an unconscionable attempt to create a fictitious threat regarding the Company's financial stability and thereby put pressure on its shareholders, creditors, employees and partners.

YUKOS as a large and diligent Russian taxpayer, whose activity has never before been questioned by tax authorities on substantial issues, rejects all tax evasion charges. In case a resolution should be made to collect the alleged increased taxes and phantom penalty from YUKOS, YUKOS will immediately appeal such resolution in court as absolutely unlawful and groundless.