Non-employment relationships.

Labour relationships must be distinguished from those based on general civil law contracts. Categorisation of a contract may have important consequences for determining tax duties, obligations to pay compensations, responsibilities to the third parties and etc. It is quite clear that re-categorisation of a 'contract of service' into a 'contract for service' and vice versa is possible under the Russian law. However, how to draw a distinction between these two contracts is less clear.

In the case N A05-7747/98-426/19 resolved on July 8, 1999 by the Federal Arbitrazhny Court of the North-West District it was held that the income received by an individual entrepreneur was not for the services he provided but his salary as a head of the team of loggers. In another case which had wide publicity Mikhail Khodorkovsky received approximately USD5 million in 1998/9 under contracts for services with two offshore companies. This income was taxed under the simplified system of taxation for small business whereby the total amount of tax paid was approximately USD300. In court it was held that this income was in fact Khodorkovsky's salary as an employee for the oil company Yukos and affiliated structures and, therefore, must be taxed accordingly.

As Russian law does not recognise judicial decision as a source of law it is not always possible or sensible to look for the ratio of a case. It appears, however, that Russian courts tend to look at the economic reality of the relationship, essentially whether an individual is in his own business, whether he/she is at financial risk, whether he/she gains or looses according to how well the work is done and etc.