Just Business


 

Earlier today the European Court of Human Rights announced a long-awaited decision in the case Yukos v Russia, the most ballyhooed and expensive lawsuit in its history.

The court ruled that the company had become a victim of the ‘lack of flexibility’ of Russian law and tax authorities. It said that Russia violated Yukos’s right to a fair trial - the company had not been given enough time to prepare its defence. Some taxes and penalties were excessive. The court also said that Russia hadn’t balanced fairly the legal requirement to collect taxes and the methods of enforcement and was, therefore, responsible for the destruction of one of Russia’s largest companies.

Yet ECHR did not support Yukos’s main claim that the pursuit of the company was politically motivated. The court did not agree that the company was singled out. Nor did it find evidence that the legal proceedings had been mere window dressing, while the actual goal had been to destroy the company and seize its assets.

The court said that the company had employed a tax arrangement of considerable complexity, involving the fraudulent use of trading companies registered in domestic ‘tax havens’.

‘Nothing in the case file suggested that Yukos’s tax arrangements during the years 2000-2003, taken in their entirety, including the use of fraudulently-registered trading companies, were known to the tax authorities or the national courts or that they had previously upheld them as lawful,’ ruled the court, ‘It therefore could not be said that the authorities passively tolerated or actively endorsed them.’

Russian tax authorities were wrong in the imposition of penalties for 2000-2001 but they were right as far as the years 2002 and 2003 were concerned. The court referred to Article 113 of the Tax Code of Russia establishing the three-year statute of limitations for tax offences. Therefore, tax collections, which took place in 2004, were lawful in respect to 2002 and 2003 but illegal in respect to 2000 and 2001.

The Russian judge in ECHR Andrey Bushev dissented, followed in part by Khanlar Hajiyev elected from Azerbaijan. The court was too literal, they said, in the interpretation of Article 113 of the Tax Code and did not take into account the fact that Yukos had acted in bad faith and actively opposed tax authorities.

Overall, the decision is Yukos’s failure. In theory, this ruling – and, especially, the fact that there had been no fair trial in Russia - supplies the formal ground to retry the case. In practice, this will not happen. The Russian authorities already indicated the reason why when they resisted the case’s admittance in Strasbourg. There is no such company as Yukos. In 2007 it was struck off the register of legal entities. No company, no problem.

 

 

The European Court of Human Rights did not find politics in the Yukos case. The company became a victim of the ‘lack of flexibility’ of Russian law and tax authorities, says ECHR. The court did not award any damages either. This matter will be resolved later. Russia triumphs.
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