CEDH · CASELAW;JUDGMENTS;CHAMBER;ENG — 20 septembre 2011

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font:7pt 'Times New Roman'; display:inline-block } .sE9E4B253 { font-family:Arial; font-size:8pt; font-style:italic; vertical-align:super; color:#0069d6 } .s434D37A9 { margin-top:0pt; margin-bottom:0pt; text-indent:14.2pt; text-align:justify; page-break-inside:avoid; page-break-after:avoid } .sF6A12959 { width:33%; height:1px; text-align:left } .s85226119 { margin-top:0pt; margin-bottom:0pt; text-align:justify; font-size:10pt } .s653E6C45 { font-family:Arial; font-size:6.67pt; vertical-align:super; color:#0069d6 }       FORMER FIRST SECTION             CASE OF OAO NEFTYANAYA KOMPANIYA YUKOS v. RUSSIA   (Application no. 14902/04)           JUDGMENT     This judgment was rectified on 17 January 2012 under Rule 81 of the Rules of Court   STRASBOURG   20 September 2011   FINAL   08/03/2012   This judgment has become final under Article 44 § 2 of the Convention. It may be subject to editorial revision . In the case of OAO Neftyanaya Kompaniya Yukos v. Russia, The European Court of Human Rights (First Section), sitting as a Chamber composed of:   Christos Rozakis, President,   Nina Vajić,   Khanlar Hajiyev,   Dean Spielmann,   Sverre Erik Jebens,   Giorgio Malinverni, judges,   Andrey Bushev, ad hoc judge, and Søren Nielsen, Section Registrar, Having deliberated in private on 24 June 2011, Delivers the following judgment, which was adopted on that date: PROCEDURE 1.     The case originated in an application (no. 14902/04) against the Russian Federation lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by OAO Neftyanaya Kompaniya Yukos (“the applicant company”), on 23 April 2004. 2.     The applicant was represented by Mr P. Gardner, a lawyer practising in London. The Russian Government (“the Government”) were initially represented by Mr P. Laptev and Ms V. Milinchuk, former Representatives of the Russian Federation at the European Court of Human Rights, and subsequently by their Representative, Mr G. Matyushkin. 3.     By a decision of 29 January 2009, the Court declared the application partly admissible. 4.     The applicant and the Government each filed further written observations (Rule 59 § 1). 5.     A hearing took place in public in the Human Rights Building, Strasbourg, on 4 March 2010 (Rule 59 § 3). There appeared before the Court: (a)     for the Government Mr   G. Matyushkin ,   Agent , Mr   M. Swainston QC, Mr   T. Brennan QC, Ms   M. Lester , Mr   S. Midwinter, Mr   P. Wright, Mr   Kh. Ivanyan , Mr   V . Starzhenetskiy , Ms   N. Elina , Ms   O. S irotkina Ms   O. Yurchenko, Ms   E. Kudelich, Ms   I. Koganova, Ms   D. Obyskalova , Mr   G. Abatourov , Mr   I. Plyushkov , Ms   V. Utkina , Mr   O. Ovchar , Ms   T. Struchkova , Mr   D. Mikhaylov, Mr   V. Torkanovskiy , Ms   E. Filatova ,   Advisers ; (b)     for the applicant Mr   P. Gardner ,   Counsel .   The Court heard addresses by Mr Gardner, Mr Matyushkin and Mr   Swainston QC, as well as the answers by Mr Gardner and Mr Swainston QC to questions put to the parties. THE FACTS I.     THE CIRCUMSTANCES OF THE CASE 6.     The applicant, OAO Neftyanaya Kompaniya YUKOS, was a publicly-traded private open joint-stock company incorporated under the laws of Russia. It was registered in Nefteyugansk, the Khanty-Mansi Autonomous Region, and at the relevant time was managed by its subsidiary, OOO “YUKOS” Moskva, registered in Moscow. 7.     The applicant was a holding company established by the Russian Government in 1993 to own and control a number of stand-alone entities specialised in oil production. The company remained fully State-owned until 1995-1996 when, through a series of tenders and auctions, it was privatised. A.     Proceedings in respect of the applicant company’s tax liability for the year 2000 1.     Tax assessment 2000 (a)     Original tax inspection 8.     Between 13 November 2002 and 4 March 2003 the Tax Inspectorate of the town of Nefteyugansk (“the Tax Office”) conducted a tax inspection of the applicant company. 9.     As a result of the inspection, on 28 April 2003 the Tax Office drew up a report indicating a number of relatively minor errors in the company’s tax returns and served it on the company. 10.     Following the company’s objections, on 9 June 2003 the Tax Office adopted a decision in which it found the company liable for having filed incomplete returns in respect of certain taxes. 11.     The decision of the Tax Office was accepted and complied with by the company on 7 July 2003. (b)     Additional tax inspection 12.     On 8 December 2003 the Tax Ministry (“the Ministry”), acting as a reviewing body within the meaning of section 87 (3) of the Tax Code, carried out an additional tax inspection of the applicant company. 13.     On 29 December 2003 the Ministry issued a report indicating that the applicant company had a large tax liability for the year 2000. The detailed report came to over 70 pages and had 284 supporting documents in annex. The report was served on the applicant company on the same date. 14 .     The Ministry established that in 2000 the applicant company had carried out its activities through a network of 22 trading companies registered in low-tax areas of Russia (“the Republic of Mordoviya, the town of Sarov in the Nizhniy Novgorod Region, the Republic of Kalmykiya, the town of Trekhgornyy in the Chelyabinsk Region, the town of Lesnoy in the Sverdlovsk Region and the Evenk Autonomous District”). 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 “Fund for Financial Support of the Production Development of OAO Neftyanaya Kompaniya YUKOS”, 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 companies’ 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. 15.     The Ministry 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 two entities, OOO “YUKOS” FBC and OOO “YUKOS” Invest, both dependant on or belonging to the applicant company; (e)     the network of sham companies was officially managed by OOO “YUKOS” RM, all official correspondence, including tax documents, being sent from the postal address of OOO “YUKOS” Moskva, 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)     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. 16.     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 VAT, 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. 17 .     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. Five of the eleven subsidiary companies refused to comply, four failed to answer, whilst two entities filed incomplete documents. It also specified that during the on-site inspection the applicant company failed to provide the documents requested by the Ministry concerning the transportation of oil. 18 .     The report referred, inter alia , to Articles 7 (3), 38, 39 (1) and 41 of the Tax Code, section 3 of Law no. 1992-1 of the Russian Federation (RF) of 6 December 1991 “On Value-Added Tax”, sections 4 and 5 (2) of RF Law no. 1759-1 of 18 October 1991 “On motorway funds in the Russian Federation”, section 21 (“Ch”) of RF Law no. 2118-1 of 27 December 1991 “On the basics of the tax system”, Article 209 (1-2) of the Civil Code, section 2 of RF Law no. 2030-1 of 13 December 1991 “On corporate property tax”, section 2 (1-2) of RF Law no. 2116-1 of 27 December 1991 “On corporate profit tax”, Decision no. 138-O of the Constitutional Court of Russia of 25 July 2001 and Article 56 of the Tax Code. 19.     On 12 January 2004 the applicant company filed its detailed thirty-page objections to the report. The company admitted that for a very short period of time it had partly owned three out of the twenty-two organisations mentioned in the report, but denied its involvement in the ownership and management of the remaining nineteen companies. They maintained this position about their lack of involvement in the companies in question throughout the proceedings. 20.     During a meeting between the representatives of the Ministry and the company on 27 January 2004, the applicant company’s counsel were given an opportunity to state orally their arguments against the report. 21 .     Having considered the company’s objections, on 14 April 2004 the Ministry adopted a decision establishing that the applicant company had a large outstanding tax liability for the year 2000. 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 Article     122 (3) of the Tax Code the Ministry found that the company had underreported its tax liability for 2000 and ordered it to pay 47,989,241,953     Russian roubles (“RUB”) (approximately 1,394,748,234     euros, (“EUR”) ) in tax arrears, RUB   32,190,599,501.40 (approximately EUR 935,580,142) in default interest and RUB     19,195,696,780 as a 40% penalty (approximately EUR   557,899,293), totalling RUB 99,375,538,234.40 (approximately EUR   2,888,227,669). The arguments contained in the decision were identical to those of the report of 29   December 2003. In addition, the decision responded in detail to each of the counter-arguments advanced by the company in its objections of 12 January 2004. 22.     The decision was served on the applicant company on 15 April 2004. 23.     The company was given until 16 April 2004 to pay voluntarily the amounts due. 24.     The applicant company alleged that it had requested the Ministry to clarify the report of 29 December 2003 and that the Ministry had failed to respond to this request. (c)     Institution of proceedings by the Ministry 25 .     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 16   April   2004. 26 .     On 14 April 2004 it applied to the Moscow City Commercial Court (“the City Court”) and requested the court to attach the applicant company’s assets as a security for the claim. 27 .     By decision of 15 April 2004 the City Court 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. 28.     By the same decision the court fixed the date of the preliminary hearing for 7 May 2004 and invited the applicant company to respond to the Ministry’s claims. 29.     On 23 April 2004 the applicant company filed a motion in which it argued that the City Court had no territorial jurisdiction over the company’s legal headquarters and requested that the case be referred to a court in Nefteyugansk, where it was registered. 30.     On 6 May 2004 the Ministry filed a motion inviting the court to call the applicant company’s managing subsidiary OOO “YUKOS” Moskva as a co-defendant in the case. (d)     Hearing of 7 May 2004 31.     At the hearing the City Court examined and dismissed the applicant company’s motion of 23 April 2004. Having regard to the fact that the applicant company was operated by its own subsidiary OOO “YUKOS” Moskva, registered and located in Moscow, the court established that the applicant company’s real headquarters were in Moscow and not in Nefteyugansk. In view of the above, the court concluded that it had jurisdiction to deal with the case. 32.     On 17 May 2004 the applicant company appealed against this decision. The appeal was examined and dismissed by the Appeals Division of the Moscow City Commercial Court (“the Appeal Court”) on 3 June 2004. 33.     The City Court also examined and granted the Ministry’s motion of 6   May 2004. The court ordered OOO “YUKOS” Moskva to join the proceedings as a co-defendant and adjourned the hearing until 14 May 2004. 34 .     At the hearing of 7 May 2004 the applicant company lodged with the City Court a separate action against the tax assessment of 14 April 2004, seeking to have the assessment decision declared unlawful. The applicant company’s brief came to 42 pages and had 22 supporting documents in annex. This action was examined separately and dismissed as unsubstantiated by the City Court on 27 August 2004. The judgment of 27 August 2004 was upheld on appeal on 23 November 2004. On 30 December 2005 the Circuit Court upheld the decisions of the lower courts. (e)     Hearing of 14 May 2004 35 .     In the meantime the tax assessment case continued. On 14 May 2004 the City Court 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 Ministry’s action. 36.     OOO “YUKOS” Moskva also requested that the hearing be adjourned as, it claimed, it was not ready to participate in the proceedings. 37.     This request was rejected by the court as unfounded on the same date. 38.     At the hearing the respondent companies also requested the City Court to vary their procedural status to that of interested parties. 39.     The court rejected this request and, on the applicant company’s motion of 15 April 2004, 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. 40.     The court then decided that the merits of the case would be heard on 21 May 2004. 41 .     On 17 May 2004 the Ministry invited the applicant company to examine the evidence in the case file at its premises. Two company lawyers went to the Ministry on 18 May and four lawyers went on 19 May 2004. 42.     According to the applicant company, the supporting material underlying the case was first provided to the company on 17 May 2004, when the Ministry filed approximately 24,000 pages of documents. On 18   May 2004 the Ministry allegedly disclosed approximately a further 45,000 pages, and a further 2,000 pages on the eve of the hearing before the City Court, that is, on 20 May 2004. 43.     Relying on a record dated 18 May 2004 [1] , drawn up and signed by S.   Pepelyaev and E.   Aleynikova (Ministry representative A. Bondarev 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 nineteen plastic crates (ten of which contained six thousand pages each, with nine others containing some four thousand pages each). All of the documents were allegedly crammed in a room measuring three to four square metres, with two chairs and a desk. No toilet facilities or means of refreshment were provided. 44 .     According to the Government, the documents in question (42,269   pages - and not 45,000 pages as claimed by the applicant- filed on 18   May 2004, and a further 1,292 - and not 2,000 pages as claimed by the applicant company, filed on 20 May 2004) 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 premises of its executive body OOO   Yukos-Moskva, located in Moscow. All of the documents were itemised in the Ministry’s document dated 17 May 2004 and filed in execution of the court’s order to disclose the evidence. 45 .     The Government also submitted that the applicant company’s lawyers could have studied the evidence both in court and at the Ministry’s premises throughout May, June and July 2004. (f)     First-instance judgment 46 .     The hearings on the merits of the case commenced on 21 May and lasted until 26 May 2004. 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. 47.     The Government submitted that the first day of the hearings, 21   May   2004, was devoted to hearing and resolving various motions brought by the applicant company and OOO Yukos-Moskva. On 24 May 2004, after hearing further motions by OOO Yukos-Moskva, the court proceeded to the evidence phase of the trial. The Tax Ministry then explained the evidence that it had submitted to the court. During this phase of the trial, which continued on 25   May 2004, 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 Ministry wished to refer to, the court refused to allow the document to be entered in the record. On 26 May 2004 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 three hours of pleadings, whilst the Ministry limited its pleadings to brief references to its own tax inspection report, the decision dated 14 April 2004 and the statement of claim. 48 .     On 26 May 2004, at the end of the hearings, the City Court gave its judgment in which, for the most part, it reached the same findings and came to the same conclusions as in the Ministry’s decision of 14 April 2004. Having confirmed the factual findings of the decision of 14 April 2004 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 3 of RF Law no. 1992-1 of 6 December 1991 ‘On value-added tax’, part 2 of section 5 and section 4 of RF Law no. 1759-1 of 18 October 1991 ‘On motorway funds in the Russian Federation’, subpart ‘ch’ of section 21 of RF Law no.   2118-1 of 27   December 1991 ‘On the basics of the tax system’, the sale of goods (works and services) gives rise to an obligation to pay VAT, 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 1 of Article 38 of the Tax Code, 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 1 of Article 39 of the Tax Code, sales are defined as the transfer of property rights in respect of goods. Under subpart 1 and 2 of Article 209 of the Civil Code (taking into account Article 11 of the Tax Code) 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 Article 10 (3) and Article 8 (1) part 3 of the Civil Code ... 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 ). OAO NK Yukos was therefore under an obligation to pay [the taxes], and this obligation has not been complied with in good time. Article 41 of the Tax Code 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 1 and 2 of section 2 of RF Law no. 2116-1 of 27   December 1991 ‘On profit tax of enterprises and organisations’ 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 2 of RF Law no. 2030-1 of 13 December 1991 ‘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. 138-O of the Constitutional Court of the Russian Federation, dated 25   July 2001. 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 Article 56 of the Tax Code, 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 Mordoviya (OOO Yu-Mordoviya ..., ZAO Yukos-M ..., OAO Alta-Treyd ..., OOO Ratmir ..., OOO Mars XXII ...) applied benefits governed by Law of the Republic of Mordoviya no. 9-Z of 9   March 1999 ‘On conditions for the efficient use of the socio-economic potential of the Republic of Mordoviya’, which sets out a special taxation procedure for entities, for the purpose of creating beneficial conditions for attracting capital to the territory of the Republic of Mordoviya, developing the securities market and creating additional jobs. Under section 2 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 the Republic of Mordoviya), 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 one of the following conditions: export operations, with the resulting quarterly earnings totalling at least 15% of the whole of the entity’s earnings; wholesale trading of combustibles and lubricants and other kinds of hydrocarbons with the resulting quarterly earning totalling at least 70% of the whole of the entity’s earnings; and other conditions enumerated in that law. Pursuant to sections 3 and 4 of the Law, the Government of the Republic of Mordoviya 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 0% in respect of profit tax in so far as it is credited to the republican and local budgets of the Republic of Mordoviya; at the rate of 0% on motorway users’ tax in so far as it is credited to the Territorial Road Fund of the Republic of Mordoviya; and at the rate of 0% 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 the Republic of Mordoviya, 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 the Russian Federation, 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 the Republic of Mordoviya 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 the Republic of Kalmykiya (OOO Sibirskaya Transportnaya Kompaniya ...) did not pay profit tax, property tax, motorway users’ tax, tax on the acquisition of vehicles and other taxes, under Law no.   12 ‑ P-3 of the Republic of Kalmykiya of 12 March 1999 ‘On tax benefits to enterprises investing in the economy of the Republic of Kalmykiya’, which establishes advantages in respect of taxes and duties for the ... taxpayers that invest in the economy of the Republic of Kalmykiya and are registered as such enterprises with the Ministry of Investment Policy of the Republic of Kalmykiya. 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. 138-O of the Constitutional Court of 25 July 2001, no. 4-O of 10   January 2002 and no. 108-O of 14 May 2002, Rulings of the Presidium of the Supreme Commercial Court no. 9408/00 dated 18 September 2001, no. 7374/01 of 18   June 2002, no. 6294/01 of 5 November 2002 and no. 11259/02 of 17 December 2002 and letter no. С5-5/уп-342 of the Deputy President of the Supreme Commercial Court of 17 April 2002) 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 the Republic of Kalmykiya 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 (‘ZATO’) town of Sarov in the Nizhniy Novgorod Region (OOO Yuksar ...) concluded a tax agreement on the provision of tax concessions with the Sarov municipal administration. The granting of additional tax advantages on the territory of the Sarov ZATO (Federal Nuclear Centre) in 2000 was regulated by the norms of Articles 21 and 56 of the Tax Code, section 58 of Law no. 227-FZ of 31 December 1999 ‘On the federal budget for the year 2000’, section 5 of Law no. 3297-1 ‘On closed administrative territorial formations’ of 14 July 1992, Item 2 of Paragraph 30 of Decree no. 222 of the Russian Government of 13 March 2000 ‘On measures for implementation of the Federal Law ‘On the Federal Budget for 2000’ and Regulations ‘On the investment zone of the town of Sarov’, approved by a Resolution of the Sarov Duma on 30 December 1999. According to the tax agreement, the Sarov administration confers advantages in respect of taxes payable into the Sarov budget to the entity in question in the form of a reduction in the share of taxes and other compulsory payments to the budget, up to 25% of the sums due in VAT, 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 Sarov investment zone or with its participation, aimed at raising additional budget receipts and solving the problems of Sarov’s socio-economic development by transferring quarterly at least 1% of the sum of the tax advantages. At the same time, according to Paragraph 1 of section 5 of the Federal Law no.   3297-1 ‘On closed administrative territorial formations’ of 17 July 1992, 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 at least 90% of their capital assets and conducting at least 70% of their activities on the territories of the closed administrative territorial formations (including the requirement that at least 70% 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 at least 70% 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 OOO Yuksar did not actually carry out any activity on the territory of Sarov, was not actually present on the territory of Sarov and that there were no assets and production facilities necessary for the procurement and storage of oil on the territory of Sarov, Nizhniy 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 Sarov 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 the Chelyabinsk Region (OOO Kverkus ..., OOO Muskron ..., OOO Nortex ..., OOO Greis ... and OOO Virtus ...) concluded tax agreements with the administration of the town of Trekhgornyy, 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 5% of the total amount of tax advantages conferred, for implementation of the town’s socio-economic programmes, to the Trekhgornyy 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 around 0.006% of the sum of the advantages for each taxpayer). Thus, the investments made by the taxpayers did not influence the development of Trekhgornyy’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 Trekhgornyy, had no assets and none of the production facilities necessary to buy and store oil on the territory of Trekhgornyy, the application of tax advantages by the above-mentioned organisations is contrary to part 1 of section 5 of RF Law no. 3297-1 of 17 July 1992 ‘On closed administrative territorial formations’. The organisations registered in the Lesnoy ZATO in the Sverdlovsk Region (OOO Mitra ..., OOO Vald-oyl ..., OOO Bizness-oyl ...) 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 users’ tax, vehicle users’ 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 Lesnoy municipal administration sums amounting to 5% of the sums of the granted tax concessions, but no less than 6,000 roubles quarterly, 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 Lesnoy because the above-mentioned organisations never carried out any activities on the territory of Lesnoy, were never in fact located on the territory of Lesnoy and had no assets and none of the production facilities required to sell and store oil on the territory of Lesnoy, [and thus] the application of the tax advantages in respect of the above-mentioned organisations is contrary to part 1 of section 5 of RF Law no. 3297-1 of 17   July 1992 ‘On closed administrative territorial formations’. The organisation registered in the Evenk Autonomous District (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 the Evenk Autonomous District, abused its right granted by Law no. 108 of the Evenk Autonomous District of 24 September 1998 ‘On specific features of the tax system in the Evenk Autonomous District’. The mentioned organisation was regi