MOSCOW (Mineweb.com) --Russian officials believe that taxation is the key to whether the creation of a Russian aluminium monopoly, controlled by Oleg Deripaska, will materialize by next April, or be blocked by President Vladimir Putin.
Natalia Buryikina, a parliamentary deputy specializing in tax and member of the Tax and Budget Committee of the State Duma, said this week that, if the new Rusal continues to use tolling schemes for export of aluminium smelted in Russia, there will be a problem. Referring to the United Company Rusal, the name of the merger between Russian Aluminium (Rusal) and Siberian Ural Aluminium (SUAL), proposed a week ago, she said: Even if United Company Rusal will be registered offshore, we will be receiving taxes. There is only one issue ?what [trading] scheme will be used. If this will be the tolling scheme which Rusal uses, we will get lower taxes. As to control of the tolling regime, the government already has some tools to prevent massive tolling and tax evasion.?
It is too early for the Kremlin to confirm its readiness to use these tools. Putin's spokesman was asked if he had been briefed on the fact that the proposed merger will be registered abroad and will not pay Russian taxes as a Russian company? The spokesman said: We don't have such information? Has the president approved this? I am not sure we can answer this type of question,?the spokesman replied.
Tolling is a a chain of contracts for the supply of alumina to the smelter, according to which the smelter accepts a processing fee for electrolyzing and smelting the metal, and the company which owns the alumina receives aluminium metal in exchange. This is then exported for sale in the international market. Russian law regards such a scheme as legal if the alumina supply company, the owner of the smelter, and the companies which receive and sell the exported metal are legally independent of one another. However, if they are all owned in common by the same company, group, or shareholder, then it is considered that tolling becomes a scheme of transfer pricing, intended to minimize the taxable revenue received by the smelter, and maximize the profitability of the aluminium sales, outside Russian tax jurisdiction.
In such cases, evidence of corporate identity and trade payment chains that conceal or disguise this common ownership may become evidence of fraud. Similarly, the international movement of funds intended to evade tax and defraud the Russian government, and minority shareholders in the smelters, may become evidence supporting charges of international money laundering and racketeering.
That's the legal theory. In practice, proving that a chain of tolling companies used by Russian aluminium smelters belongs to the proprietors like Deripaska of Rusal and Victor Vekselberg of SUAL, has not been difficult. Court papers filed in the US, British Virgin Islands, Switzerland, and the UK have documented how tolling chains have resulted in the movement of cash which a variety of claimants have gone to court to recover from the Deripaska group. The most detailed examination of Rusal's business operations along these lines is currently under way in two UK High Court cases ?one pursued by the Norwegian aluminium group, Norsk Hydro, and one by a group of companies controlled by Avaz Nazarov, who was ousted by Rusal from management of the Tajikistan Aluminium Plant (TadAZ) in December 2004. Unlike the claims filed in the US against Rusal, which were not granted jurisdiction by the US judges, and never tried, the London courts have taken jurisdiction, so that a trial of tolling and related schemes becomes a distinct possibility. Rusal has never faced examination on oath of such affairs in an international court before.
Norsk Hydro was asked this week to confirm appellate and other court processes in
London, where the Norwegians are trying to enforce a recent London award of $145 million to Hydro from the Rusal-backed TadAZ smelter. Hydro was also asked to say why it is seeking the pub
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