Hulley v. Russia 2014

(IN USD BILLION)	2000	2001	2002	2003	2004	Total	%
Tax for the maintenance
of housing, social and	0.209	–	–	–	–	0.209	0.9
culture facilities
Tax on sales of
combustibles and	0.570	–	–	–	–	0.570	2.4
lubricants
Advertisement tax	–	–	–	0.006	0.002	0.008	0.03
Total	2.399	1.707	4.015	2.203	0.266	10.589	43.93

582.The reasoning by the tax authorities for the imposition of profit tax and the other sundry revenue-based taxes did not vary substantively from year to year. For purposes of the present chapter, the Tribunal will therefore consider the documents relating to the 2000 tax year.

583.The 2000 Audit Report concludes that, during the year 2000, Yukos knowingly and deliberately operated a tax evasion scheme through the use of “sham dependent entities”. The Audit Report describes the “discovery”618 of the scheme as follows:

During the field tax audit, non-payment by OAO Yukos Oil Company of corporate profit tax, road users tax, property tax and housing support tax, arising from the use of an unlawful scheme involving evasion of tax through artificial creation of sham companies in the oil and oil product movement chain, which were registered in territories with a beneficial tax regime, was discovered.

The aim of using this scheme was non-payment of taxes on the sum of revenue (income) received from the sale of oil and oil products. For this purpose OAO Yukos Oil Company created sham dependent entities, which functioned as oil and oil product owners (hereinafter – the “owners”). These entities were registered in territories in which a beneficial tax regime applied (Closed administrative-territorial formations) [CATF], regions of the Russian Federation, providing tax benefits on investments). OAO Yukos Oil Company had control over the operations, conducted by the oil and oil product “owners”, by participating in the transactions as an intermediary (confirmed by documents shown in Attachment No. 14 to the field tax audit document) or by bringing in other entities dependent on OAO Yukos Oil Company to participate in transactions as an intermediary.619

584. The 2000 Audit Report continues:

618According to Mr. Konnov the use of the term “discovered” at the end of the first paragraph of the cited passage of the Audit Report (“[…] non-payment […] of corporate profit tax […] arising from the use of an unlawful scheme involving evasion of taxes […] was discovered.”) is a mistranslation. Mr. Konnov suggested that the original wording in Russian is better translated as “the audit concluded or established that […].” Transcript, Day 13 at 167; see also Respondent’s Closing Slides, p. 97.

6192000 Audit Report, pp. 7–8, Exh. C-103.

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The audit established that the actual owner of the oil and oil products was OAO Yukos Oil Company. The oil was in fact acquired and transferred for refining, and the oil and oil products sold, by OAO Yukos Oil Company, as evidenced by the actual movement of oil and oil products from production entities to oil refineries or to oil bases controlled by OAO Yukos Oil Company, as confirmed in the trade and transport documents, and also the direct participation by OAO Yukos Oil Company in all the operations. The following also provides proof that the oil and oil products actually belonged to OAO Yukos Oil Company [sic] and that the tax evasion scheme applied by them was illegal:

-interdependence of persons participating in the transactions and their control by OAO Yukos Oil Company;

-registration of the “owners” in territories with beneficial tax regimes;

-non-activity by the “owners” in their places of registration;

-the fictitious commission payments to OAO Yukos Oil Company, which are much smaller than the actual payments made on the intermediary market;

-the understated prices of acquisition of oil from production entities and from other sham companies;

-the conduct of accounting in all the entities by OOO Yukos-Invest, or by Yukos-FBTs OOO, which are dependent on OAO Yukos Oil Company;

-the opening of accounts for all the entities in the same banks, which are dependent on OAO Yukos Oil Company;

-the utilisation of promissory note settlements between the entities, or settlements by means of mutual set-off.620

585.The 2000 Audit Report goes into great detail in explaining the tax benefits that were claimed by each of the trading entities. The Audit Reports for subsequent tax years generally follow the same form. They audit OAO Yukos Oil Company and the trading companies. They are divided into separate sections for each trading company; some of the later reassessments also include sums assessed directly against OAO Yukos Oil Company. The sections on the trading companies generally begin with an overview of the incorporation, ownership, and capital of the company. They then affirm that the directors of the company and its operations are not based in the region in which it had been incorporated, which according to the authors of the Audit Reports, shows that the company could not benefit from preferential taxation agreements offered to companies operating in the low-tax regions. The reassessments then assert that the trading companies are “interrelated” and thus “dependent” on OAO Yukos Oil Company, thereby allowing OAO Yukos Oil Company to fraudulently claim taxation benefits.

586.The 2000 Audit Report concludes in relation to the tax evasion by Yukos as follows:

The tax evasion by OAO Yukos Oil Company, through registration of sham companies in territories with preferential tax rates, with the exclusive aim of evading tax, and

620	Ibid., pp. 8–9.

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which . . . did not actually trade or engage in any activity in those territories or indeed anywhere else, or invest any money in the economies of the relevant constituent entities of the Russian Federation, and which, therefore, illegally applied the additional tax benefits, indicates that OAO Yukos Oil Company acted in bad faith.

According to the Russian Federation Constitutional Court’s 25 July 2001 Ruling No. 138-O interpreting the provision contained in Article 3(7) of the RF Tax Code, in the area of taxation there is a presumption of good faith on the part of taxpayers.

As is evident from the above-mentioned Ruling, the presumption of taxpayer good faith, enshrined in the RF Tax Code, presupposes an obligation on the tax authorities to prove any bad faith on the part of taxpayers in the manner set out by the Russian Federation Tax Code, and to conduct the necessary audits in order to establish such bad faith with the aim of ensuring a balance between state and private interests.

Similar provisions are contained in RF Constitutional Court Rulings Nos. 4-O dated 10.01.2002 and 108-O dated 14.05.2002.

The Judgements of the Presidium of the RF Supreme Court of Arbitration Nos. 9408/00 dated 18.09.2001, 7374/01 dated 18.06.2002, 6294/01 dated 05.11.2002 and 11259/02 dated 17.12.2002, and a letter from the Deputy President of the RF Supreme Court of Arbitration No. S5-5/up-342 dated 17.04.2002, also point out the need to examine the question of bad faith on the part of taxpayers, that is, their commission of deliberate acts aimed at not fulfilling the constitutional obligation to pay taxes.

The above-mentioned circumstances, namely OAO Yukos Oil Company carrying out operations involving the purchase and sale of oil and oil products, indicate Yukos Oil Company’s OAO bad faith, which evidences its deliberate actions in evading payment of taxes through the application of illegal schemes.

. . . According to the Regulations of 01.01.2000 on the accounting policy for the year 2000, in OAO Yukos Oil Company for purposes of taxation (in order to calculate corporate profit tax, value added tax, Road users tax and housing support tax) revenue from the sale of products and goods (work, services) was determined on the basis of actual payments.

For purposes of taxation revenue was indicated by the entity in the accounts in the line 010 of the account using form No. 2 “Profit and Loss Account” taking into account the Information on the procedure for determination of data indicated in line 1 of “Calculation of tax on actual profit” in a sum of RUR 36,396,312,000 (RUR 36,264,009,000 in Form No. 2, “Profit and Loss Account” + RUR 132,303,000 according to the Information on the procedure for determination of data indicated in p. 1 of “Calculation of tax on actual profit”).

According to the data of the audit, revenue from the sale of goods (work, services) amounted to RUR 245,907,712,162.

Thus, the revenue from the sale of goods (work, services) in the sum of RUR 209,511,400,162 was understated as a result of non-indication in the accounting registers of the revenue which had been received as a result of utilising a scheme with the participation of sham entities which were dependent on OAO Yukos Oil Company and

which had been created for the purpose of tax evasion on the part of OAO Yukos Oil Company . . . .621

587.The 16 November 2004 decision of the Ninth Arbitrazh Court of Appeal upheld the 2000 Decision to hold Yukos liable for all these taxes. The English translation of the judgment is 25 pages long. The key passages, which the Tribunal believes should be set out so as to give

621	Ibid., pp. 14–15.

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visibility to the court’s reasoning (which the Tribunal will consider later as part of the totality of the evidence), follow:

OAO Yukos Oil Company did not agree with the decision of the Court and filed an appeal requesting that the decision of the Court of First Instance be quashed and that the presented claim be granted in full: to declare unlawful the Russian Federation Ministry of Taxes and Levies Decision No. 14-3-05/1609-1 of 14.04.2004 to Hold the Taxpayer Fiscally Liable for a Tax Offense.

. . . The interested party, the Russian Federation Ministry of Taxes and Levies, argues that the Court of First Instance legally and justifiably found that the decision and resolution issued in Case No. A40-17669/04-109-241 [i.e., the 26 May 2004 decision], which involves the same parties as Case No. A40-21839/04-76-276 [i.e., the case before the Court of Appeal], established the legality and validity of the disputed RF Tax Ministry Decision, the circumstances surrounding OAO Yukos Oil Company’s performance of actions aimed at evading taxes through the artificial formation of entities registered in territories with preferential tax rates and their “participation” in the chain of movement of oil and oil products, and the illegality and invalidity of OAO Yukos Oil Company’s arguments regarding the illegality of the RF Tax Ministry’s disputed Decision.

. . .

Pursuant to Article 69(2) of the RF Arbitrazh Procedure Code, facts established by the legally effective judicial act of an arbitrazh court in connection with a previously heard case do not need to be proven again when the arbitrazh court hears another case involving the same parties.

The Court Decision of 26.05.2004 in Case No. A40-17669/ 04-109-241 established that the tax authority did not breach the requirements of Article 87 of the RF Tax Code when issuing Decision No. 14-3-05/1609-1 of 14.04.2004. The Court found that RF Tax Ministry Decision No. 14-3-05/1609-1 of 14.04.2004 is consistent with the Russian Federation Tax Code, federal laws adopted pursuant to the RF Tax Code, and other tax laws that were in effect during the audit period.

. . . The Court found that the entities registered in territories with preferential tax rates and named in the RF Tax Ministry’s Decision (Yu-Mordovia OOO, Alta-Trade OOO, Ratmir OOO, Mars XXII OOO, Jupiter XXIV OOO, ZAO Yukos-M, Saturn XXV OOO, Yuksar OOO, Siberian Transportation Company OOO, Quercus OOO, Muskron OOO, Nortex OOO, Grace OOO, Colrain OOO, Virtus OOO, Plast OOO, Mitra OOO, Vald-Oil OOO, Business-Oil OOO, Staf OOO, Petroleum-Trading OOO) were related to each other and dependent on OAO Yukos Oil Company. The relationship of all the entities and their dependence on OAO Yukos Oil Company, as one of the items of evidence of bad faith on the part of the Applicant which applied the illegal tax evasion scheme is also confirmed by the fact that the same individuals were the founders and (or) officers in the aforementioned entities.

. . . The Court rightly found that control of the oil and oil-product transactions performed by the entities registered in territories with preferential tax rates was exercised OAO Yukos Oil Company by means of participation in the transactions as an intermediary or by means of involvement of other entities, dependent on OAO Yukos Oil Company, as intermediaries in the transactions. The entities registered in territories with preferential tax rates concluded agency agreements for the purchase of crude oil with OAO Yukos Oil Company. In turn, OAO Yukos Oil Company, acting on behalf of entities registered in territories with preferential tax rates, purchased oil from producing entities or from other suppliers. Thereafter, the crude oil purchased via the agent (OAO Yukos Oil Company) was sold to buyers (Russian or foreign) via this same OAO Yukos Oil Company (as the commission agent or the agent) or transferred for refining to refineries which were subsidiaries of OAO Yukos Oil Company. Apart from agency agreements, purchase and

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sale agreements were drawn up for purchase of oil, according to conditions thereof, OAO Yukos Oil Company “sold” oil from the resources of its producing entities – OAO Yuganskneftegaz, OAO Samaraneftegaz, and OAO Tomskneft. Unlike OAO Yukos Oil Company and its producing companies, which according to the customs cargo declarations were shippers, the entities registered in regions with preferential tax rates were not mentioned in the export documents.

The dependence of entities, registered in territories with preferential tax rates, on OAO Yukos Oil Company and the control by OAO Yukos Oil Company of all transactions is also confirmed by the fact that the records of all transactions associated with the purchase and transfer of oil for refining, as well as with the sale of oil and oil products (including accounting records) were kept by Yukos-Invest OOO and Yukos-FBTs, which are dependent on OAO Yukos Oil Company. Furthermore, the entities registered in territories with preferential tax rates entered into production management service contracts with OOO Yukos RM, which is also dependent on OAO Yukos Oil Company. The financial statements and tax filings were submitted to the tax authorities by post from the address at which OAO Yukos Oil Company was located according to the invoices. Furthermore, this address was the mailing address of OOO Yukos-Moscow, which is the executive body of OAO Yukos Oil Company.

The accounts of all entities are opened with the same banks, i.e. OAO Trust Investment Bank, OAO Bank Menatep St. Petersburg and Bank Solidarnost, where OAO Yukos Oil Company was a shareholder.

In addition to concluding agreements on the purchase and sale of oil and oil products, these entities also conducted activities involving the purchase and sale of promissory notes, which they used in settlements with one another and with OAO Yukos Oil Company for oil and oil products. Or by purchasing and selling promissory notes, these entities returned to OAO Yukos Oil Company funds supposedly earned for oil they sold. Therefore, the business of these entities related to the purchase and sale of promissory notes is a business related to the purchase and sale of oil and oil products. Therefore, the Court lawfully and justifiably rejected the Applicant’s argument that the entities registered in territories with preferential tax rates engaged in business activities other than the sale of oil and oil products.

The Applicant’s assertion that the determination of bad faith is possible exclusively in the instances of payment of taxes through insolvent banks is unfounded, as the finding that it is necessary for the tax authorities to conduct audits and determine bad faith was made by the Constitutional Court of the Russian Federation based on the interpretation of Article 3(7) of the RF Tax Code, i.e. the presumption of the taxpayers’ good faith. From this follows the obligation of taxpayers to act in good faith when conducting any actions associated with the discharge of their tax liability and the right of the tax authorities to determine bad faith on the part of taxpayers committing actions (inaction) intentionally aimed at tax evasion.

In light of the foregoing circumstances, the Court rightly found that the owner of the oil and oil products was OAO Yukos Oil Company. The purchase and transfer of the oil for refining and the sale of oil and oil products were actually carried out by OAO Yukos Oil Company as the owner.

. . . The Constitutional Court of the Russian Federation, in Ruling No. 138-O of 25.07.2001, points out that, according to the tenor of Article 3(7) of the RF Tax Code, the presumption of good faith on the part of taxpayers is in effect in the area of tax relations. For the purpose of determination of bad faith on the part of taxpayers, the tax authorities have the right—in order to ensure a balance between State and private interests—to carry out the necessary audit and to file with the arbitrazh courts claims that ensure the receipt of taxes into the budget. In light of the above, in order to ensure a balance between State and private interests, the tax authorities have the right to conduct audits for the purpose of

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determination of the actual owner of sold property and for determination of bad faith on the part thereof, expressed in the application of a tax evasion scheme.

The fact that OAO Yukos Oil Company had the rights of possession, use and disposal with respect to the oil and oil products, and at its own discretion performed with respect thereto any actions, including alienation, transfer for processing, etc. through sham entities dependent on OAO Yukos Oil Company was established by the legally effective judicial acts in Case No. А40-17669/04-109-241.

The Court therefore rightly does not accept the argument of the Applicant and the third party regarding the non-compliance with law and the factual circumstances of the assessment of taxes to OAO Yukos Oil Company as the owner of the oil and oil products.

. . .The circumstances established by the Court concerning the transactions of OAO Yukos Oil Company associated with the purchase and sale of oil and oil products and in their interconnection and collectively indicate bad faith on the part of OAO Yukos Oil Company, which is reflected in the intentional actions aimed at tax evasion by means of application of illegal schemes, as a result of which the RF Tax Ministry lawfully held OAO Yukos Oil Company liable pursuant to Article 122(3) of the Russian Federation Tax Code, for the intentional failure to pay or an incomplete payment of tax as a result of reduction of the tax base, other incorrect tax calculations, or other unlawful actions (inaction), in the form of a fine in the amount of 40 percent of the unpaid tax amount, as established by the judicial acts in Case No. А40-17669/04-109-241.

. . .Therefore, the Moscow Arbitrazh Court in its decision legally and justifiably found that RF Tax Ministry Decision No. 14-3-05/1609-1 of 14.04.2004 to Hold the Taxpayer Fiscally Liable for a Tax Offense is legal and well-founded in part and complies with the Russian Federation Tax Code, federal laws adopted pursuant to the RF Tax Code, and other tax laws that were in effect during the audit period (the Russian Federation Law No. 2116-1 of 27.12.91 “On Corporate Profit Tax”, the Russian Federation Law No. 1759-1 of 18.10.1991 “On Road Funds in the Russian Federation”, the Russian Federation Law No. 2118-1 of 27.12.1991 “On Fundamentals of the Tax System”, the Russian Federation Law No. 2030-1 of 13.12.1991 “On Corporate Property Tax” and the Russian Federation Law No. 1992-1 of 06.12.1991 “On Value Added Tax”).622

[emphasis added]

588.The Tribunal will discuss the key elements of this decision, notably its endorsement of the assessment of taxes against Yukos on the basis that Yukos was the “actual owner” of the oil and oil products, in Section VIII.B.5 below.

(b)VAT

589.As shown in the table below, for the tax years 2000 to 2004, the tax authorities imposed a demand for the payment of VAT (including interest and fines) ranging from USD 1 billion to USD 4 billion per year, for a total of USD 13.59 billion. This represents some 56 percent of

622Resolution of the Ninth Arbitrazh Court of Appeal, Case No. 09AP-4078/04-AK, 16 November 2004, Exh. C-147.

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the total tax claims levied against Yukos in the reassessments for those years. The breakdown by individual tax year is as follows:623

			2000	2001	2002	2003	2004	Total	%
	VAT	Tax Arrears	0.49	0.99	1.24	1.93	1.73	6.38	26.39
		Interest & Fines	0.59	1.40	1.50	1.97	1.75	7.21	29.82

	Sub-total	1.08	2.39	2.74	3.90	3.48	13.59	56.2
Other	Tax Arrears	1.19	0.75	1.91	1.16	0.16	5.17	21.38
taxes	Interest & Fines	1.21	0.96	2.11	1.05	0.10	5.42	22.46
	Sub-total	2.40	1.71	4.02	2.21	0.26	10.59	43.8
	TOTAL	3.48	4.10	6.76	6.11	3.74	24.18	100

590.The reasoning of the tax authorities for the imposition of VAT payments did not change from year to year. For purposes of this chapter, the Tribunal will therefore consider solely the documents relating to the 2000 tax year.

591.But before turning to the reasoning for the imposition of VAT payments on Yukos, the Tribunal will review some features of the VAT regulations of the Russian Federation.

592.In Russia, VAT is a federal tax levied at uniform rates throughout the Federation. As a result, all companies pay VAT regardless of the region where they are registered, under identical terms and conditions. There are accordingly no additional VAT benefits for companies incorporated in low-tax regions. The applicable rate of VAT to oil and oil products was 20% in 2000 to 2003 and 18 percent in 2004.624

593.If the products were exported, they were either exempt from VAT (2000) or subject to a zero percent VAT rate (2001 onwards).625 The zero percent rate is not automatic, but available when the taxpayer files a monthly or quarterly VAT return.626 It is common ground between the

623Figures derived from Details of Yukos’ Alleged Tax Reassessments, Exh. C-593; see also Claimants’ Opening Slides, pp. 62–63.

624First Konnov Report ¶ 56. See also Articles 165(9) and 164(3), Russian Tax Code, Exhs. R-1484 and R-1483.

625As a result, exporting companies did not charge VAT to their foreign customers and were entitled to the refunds on the VAT charged by their own suppliers. See Dubov WS ¶ 37; see also Memorial ¶ 319.

626First Konnov Report ¶¶ 53–58.

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Parties that, in the years 1999 to 2003, the Yukos trading companies filed the VAT returns for their exports of oil.627

594.The 2000 Decision notes that Yukos failed to reflect revenue from the sale of products “arising from the use of an unlawful scheme involving evasion of tax through artificial creation of sham companies in the oil and oil product movement chain, which were registered in territories with a beneficial tax regime.”628 The 2000 Decision then states:

The aim of using this scheme was non-payment of corporate profit tax value added tax, road users tax, tax on sales of fuel and lubricants (hereinafter referred to as F&L) and housing support tax on the sum of revenue (income) received from the sale of oil and oil products.629

595.The VAT at issue was the VAT in relation to which the Yukos trading companies had already obtained an exemption or zero percent rate, not VAT that could be said to arise from new or additional transactions or from a finding that the oil or oil products had not actually been exported. During his cross-examination at the Hearing, Mr. Konnov explained that the reasoning behind the imposition of VAT on Yukos is very clear from the original Russianlanguage version of the decision. The 2000 Decision states (in the Russian language original) that it is Yukos, as the actual exporter, which must file the VAT return in order to get the VAT tax benefit which had earlier been granted to its trading entities. Mr. Konnov explained:

A.And then there is a sentence which I don’t see in the English text, which says:

“Based on the foregoing, the actual export operations were conducted by OAO NK Yukos and tax claim were provided to ZAO Yukos-M.”

And that’s the sentence on the point; for some reason it’s not in the English text.

So I agree maybe it’s not a detailed sentence, but what it clearly tells to any tax lawyer, or to Yukos, I think: that Yukos – sorry, Yukos-M claimed the tax benefits

and was provided the tax benefits, and the actual exporter who must file the return is Yukos.630

596.In other words, while it was the trading companies that were set up in Yukos’ tax structure as the entities exporting oil and oil products to purchasers abroad that filed VAT returns to claim

the exemption or zero percent rate that applies to export transactions, and in spite of the fact

627	Memorial ¶¶ 320–21. See also Decision No. 23 on partial refusal to refund/offset VAT (Alta-Trade), 15 June 2000,
	Exh. C-1110; Decision No. 48 to deny refunding (offset) VAT (Alta-Trade), 29 October 2001, Exh. C-1116; Decision
	No. 53 on partial refusal to refund/offset VAT (Mars XXII), 27 December 2004, Exh. C-1117.

628

629

2000 Decision, p. 1, Exh. C-104.

Ibid.

630	Transcript, Day 14 at 236.

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that the trading companies had already qualified for the exemption or zero percent rate on the basis of duly submitted VAT returns, the tax authorities subsequently determined that Yukos itself was the “actual exporter”, and that it was Yukos, instead of the trading entities, that had to qualify for the exemption or zero percent rate. Since Yukos had not filed the returns itself, it was deemed to have failed to file the VAT returns required to benefit from the exemption or zero percent rate.

597.The judgment of the Moscow Arbitrazh Court that confirmed the decision for the 2000 tax year rejected Yukos’ appeal against the VAT assessments:

The court does not accept the arguments of OAO Yukos Oil Company regarding unlawfulness of the RF Tax Ministry Decision No. 14-3-05/1609-1 of 14.04.2004 relating to assessment of the value added tax. It follows from the RF Tax Ministry Decision that the tax authority assessed VAT reimbursed to entities registered in the territories with preferential tax rates upon their applications on export transactions. Pursuant to Law No. 1992-1 of 06.12.1991 “On Value-Added Tax,” effective during that period, exemption from payment of value-added tax when exporting goods (work, services) was a benefit. In order to use its right to the benefit, the taxpayer had to declare its right and confirm its right

by documents in accordance with the current legislation. The taxpayer – OAO Yukos Oil Company – did not declare its desire to use its benefit either in 2000 or later.631

[emphasis added]

598.At the Hearing, Mr. Konnov described as follows “the essence” of the reasoning in the decision and subsequent judgment:

[T]hat Yukos did not file tax return, and in the absence of the tax return it is not eligible for a 0% VAT rate.632

Mr. Konnov also confirmed at the Hearing that the same reasoning was applied for subsequent tax years.633

4. The Fines Assessed Against Yukos

599.As shown in the table below, for the tax years 2000–2004, the tax authorities imposed fines

against Yukos ranging from USD 670 million to USD 2.5 billion per year, for a total of

631Decision of the Moscow Arbitrazh Court, Case No. A40-17669/04-109-241, 26 May 2004, p. 19, Exh. C-116.

632Transcript, Day 14 at 240

633Ibid. at 240–51.

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USD 8.5 billion. This represents some 35% of the total tax claims levied against Yukos in the reassessments for those years. The breakdown by individual tax year is as follows:634

	2000	2001	2002	2003	2004	Total	%
Tax Arrears	1.68	1.74	3.15	3.09	1.90	11.55	47.73
Interest	1.13	0.97	1.10	0.54	0.38	4.13	17.14
Fines	0.67	1.39	2.51	2.47	1.46	8.50	35.13
TOTAL	3.48	4.10	6.76	6.10	3.74	24.18	100

600.Article 122 of the Russian Tax Code establishes a taxpayer’s liability for “non-payment or underpayment of taxes.” Pursuant to paragraph 1 of this provision, the sanction is a 20 percent fine on the unpaid amount of taxes. Under paragraph 3 of this provision, this fine can be increased to 40 percent of the unpaid amount if the offense is committed intentionally. This fine has been referred to in this case as the “willful offender” fine. Under Articles 110(2) and 110(4) of the Russian Tax Code, the intention of a company requires, inter alia, that the awareness of the company’s executives of the unlawful nature of their actions (or failure to act) be established. Finally, under Articles 112(2) and 114(4) of the Russian Tax Code, the fines can be increased to 80 percent, concretely, be doubled, in cases of so-called “repeat” offenses, i.e. offenses committed by “a person, which has been previously held liable for a similar tax offense.”635 This fine has been referred to in this case as the “repeat offender” fine.

601.Yukos was assessed both the “willful offender” and the “repeat offender” fines by the authorities.

602.The Tax Ministry, referring to Article 110(2) of the Russian Tax Code, claimed that for the year 2000, “[Yukos] deliberately committed the acts aimed at evading payment of taxes, and its officers were aware of the unlawful nature of such actions.”636 On this basis, the fines on

634Figures (in USD billions) derived from Details of Yukos’ Alleged Tax Reassessments, Exh. C-593. The fines levied in relation to unpaid VAT alone account for a total of some USD 4.8 billion for the tax years 2000–2004, with the balance of USD 3.7 billion levied in relation to all of the other types of taxes (the majority—USD 3.3 billion—of the remaining amount being levied in relation to profit tax).

635Russian Tax Code, Part I, Exh. C-401.

6362000 Decision, p. 8, Exh. C-104.

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