Hulley v. Russia 2014

decision to give priority to enforcement against the 20 percent stake in Sibneft. The court found that, as the shares in YNG had been issued by YNG after its privatization, they were not related to primary production and thus could be considered as a higher priority.564 As Yukos had not discharged its debt “voluntarily,” the court found that the YNG shares were part of an inventory legally open to seizure by the bailiffs.565

542.On 30 August 2004, the Tax Ministry sent a letter to Yukos, denying its request for deferred payment or payment by installments.566 This letter was in response to the letter intended to “create a dialogue” between Yukos and the Russian Federation sent more than a month earlier to the Finance Ministry by Messrs. Theede and Misamore.

543.On 9 September 2004, five days after a decision reassessing taxes against Yukos for 2001, a letter from the Deputy Head of the Bailiffs Department notified the company that the arbitrazh courts had approved seizures against YNG and other production subsidiaries.567

544.On 23 November 2004, the resolution of the Ninth Arbitrazh Court of Appeal of 16 November 2004 was issued. It affirmed the lawfulness of the 2000 Decision.568

(b)The 2001 Decision

545.On 2 September 2004, Decision No. 30-3-15/3 holding the taxpayer fiscally liable for a tax offense (“2001 Decision”) was issued.569 It imposed the following taxes:

564Resolution of the Ninth Arbitrazh Court of Appeal, Case No. 09АP-1554/04-АK, p. 4, 23 August 2004, Exh. C-144.

565Ibid., pp.4–5.

566Letter from the Russian Tax Ministry to Yukos, 30 August 2004, Exh. C-145.

567Letter from the Russian Ministry of Justice to Yukos, 9 September 2004, Exh. C-146.

568Resolution of the Ninth Arbitrazh Court of Appeal, Case No. 09 AP-4078/04-AK, 23 November 2004, Exh. C-147.

5692001 Decision, Exh. C-155.

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day, there was another resolution of Bailiff Borisov to join the enforcement proceedings for the 2000 Decision and the 2001 Decision.575

550.On 16 September 2004, Yukos reiterated its petition for voluntary enforcement by the bailiffs against its holdings in Sibneft and non-core subsidiaries.576 No response was received from the

bailiffs.577 The next communication received from the bailiffs was on 20 September 2004, when they issued a resolution to collect a seven percent enforcement fee— RUR 5,549,574,880.78 (approximately USD 190 million) for the 2001 Decision.578

551.As it had done in respect of the 2000 Decision, Yukos challenged the lawfulness of the 2001 Decision. Parallel proceedings were filed by the Tax Ministry for collection of the 2001 Decision. Judge Dzuba ruled in favour of the Tax Ministry.579

552.On 29 October 2004, a Field Tax Audit Report for 2002 was released.580 It assessed tax arrears, interest, and fines of approximately USD 6.8 billion.581

553.On 12 November 2004, Yukos sent a letter to the Judicial Collegium of the Russian Federation complaining that its challenge to Judge Korotenko in the proceedings concerning the lawfulness of the 2001 Decision had not been heard.582 Yukos had challenged Judge Korotenko for bias, on the ground that he had presided over the appeal panel of the Moscow Arbitrazh Court which had made a decision in favour of the Tax Ministry in respect of the 2000 Decision.

575Resolution of Bailiff D.A. Borisov to join into consolidated enforcement proceedings, 9 September 2004, Exh. C-162. The consolidated enforcement proceeding is No. 10249/21/04.

576Yukos’ petition for voluntary enforcement of Resolution of 09.09.2004 to initiate an enforcement proceeding and Demand of 30.06.2004, Exh. C-163.

577Memorial ¶ 354.

578Resolution of the Bailiffs, 20 September 2004, Exh. C-164. RUR to USD is approximate, based on an exchange rate of 29.2552:1, the exchange rate on 2 September 2004, the date that the payment demand was issued.

579Memorial ¶ 261.

580Field Tax Audit Report No. 52/852, 29 October 2004, Exh. R-346.

581The results of the audit will be discussed below at paragraphs 557–65, in connection with the Tax Ministry decision to which it relates. RUR to USD is approximate, based on a ratio of 28.6696:1, the exchange rate on 16 November 2004, the date the Payment Demand was issued for the 2002 Decision.

582Letter from Yukos to Highest Judicial Qualification Collegium of the Russian Federation, 12 November 2004, Exh. C-165.

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554.In a hearing on 16-17 November 2004, Judge Korotenko denied Yukos’ request to join the trading companies as third parties in the case against the 2001 Decision.583 Judge Korotenko also denied Yukos’ motion to obtain an expert opinion on market prices of oil.584

555.On 18 November 2004, the Moscow Arbitrazh Court, Judge Korotenko presiding, affirmed the legality of the two-day time limits set forth in the previous payment demands.585 The court also rejected the arguments relating to the “massive” amounts assessed and the short time granted for voluntary payment. The court stated that “[t]he tax legislation does not stipulate any deadline for voluntary fulfillment by the taxpayer of the demand to pay taxes. Upon issue of the Claim, the Inspectorate is entitled to stipulate a time period for its voluntary execution.”586 This decision of the Moscow Arbitrazh Court was announced on the same day as a one-day payment demand, relating to Decision No. 52/896 holding the taxpayer liable for a tax offense (“2002 Decision”), became due. It also affirmed the lawfulness of the 2001 Decision.

556.Later, on 16 February 2005, a resolution of the Ninth Arbitrazh Court of Appeal of 9 February

2005, was issued. It reduced the overall amount payable for 2001 by approximately USD 150 million.587 On 15 November 2005, the Federal Arbitrazh Court for the Moscow District also reduced, slightly, the amount of fines payable for 2001.588

(c)The 2002 Decision

557.On 16 November 2004, the 2002 Decision was issued.589 It levied the following taxes:

583Moscow Arbitrazh Court, Transcript of the Hearing of 16–17 November 2004 in Moscow, Exh. C-166.

584Ibid.

586Ibid. at 15.

587Resolution of the Ninth Arbitrazh Court of Appeal, 16 February 2005, Exh. C-167.

588Resolution of the Federal Arbitrazh Court for the Moscow District, Case No. A40-45410/04-141-34, 15 November 2005, Exh. C-168; see Memorial ¶ 257.

5892002 Decision, Exh. C-175.

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enforcement proceedings and joined these proceedings to the two earlier proceedings for 2000 and 2001.593

561.On 19 November 2004, Field Audit Report No. 52/907 for 2003 was issued.594 It assessed tax arrears, interest and fines of approximately USD 5.9 billion.595

562.On 24 November 2004, Yukos filed a petition for voluntary enforcement of the resolution of 18 November 2004.596 No response was received from the bailiffs.

563.In relation to the 2002 Decision, there were no parallel proceedings: only a single proceeding which addressed both the lawfulness and the collection of the 2002 Decision. In a hearing on 8-9 December 2004, Yukos challenged Judge D.I. Dzuba, because, it submitted, the judge had “already formed a subjective negative opinion about OAO Yukos Oil Company as the guilty party” since he had presided over the collections case relating to the 2001 Decision. The challenge was never heard by the court.597 On 16 December 2004, Judge Dzuba denied Yukos’ request to obtain an expert opinion on oil market prices.598

564.Between these events, on 9 December 2004, a resolution of the bailiffs to collect a 7 percent enforcement fee, RUR 2,737,919,857.85, was issued.599 On 23 December 2004, the court upheld the lawfulness of the 2002 Decision.

565.On 30 June 2005, a resolution of the Federal Arbitrazh Court was issued, upholding earlier court decisions and reducing the overall amount payable for 2002 by USD 45.70 million.600

593Resolution of Bailiff I.V. Kochergin to initiate enforcement proceeding No. 15315/4/04 and join it to consolidated enforcement proceeding No. 10249/21/04, 18 November 2004, Exh. C-179.

594Field Audit Report No. 52/907, 19 November 2004, Exh. R-1583. The results of the audit will be discussed below at paragraphs 566–74, in connection with the Tax Ministry decision to which it relates.

595RUR to USD is approximate, based on a ratio of 27.8171:1, the exchange rate on 6 December 2004, the date the Payment Demand was issued for the 2003 Decision.

596Yukos’ petition for voluntary enforcement of Resolution 19.11.2004 to initiate an enforcement proceeding, Exh. C-180.

597Transcripts of the Preliminary Hearing of the Moscow Arbitrazh Court, Case Nos. A40-61058/04-141-151 and A40- 63472/04-141-162, Exh. C-181 and Exh. C-183.

598Transcript of the Preliminary Hearing of the Moscow Arbitrazh Court, Case Nos. A40-61058/04-141-151 and A40- 63472/04-141-162 p. 22, Exh. C-183.

599Resolution of Bailiff I.V. Kochergin to collect a seven percent enforcement fee, 9 December 2004, Exh. C-182.

600Resolution of the Federal Arbitrazh Court No. KA-A40/3222-5, Case Nos. A40-61058/04-141-151 and A40- 63472/04-141-162, 30 June 2005, Exh. C-184. See also Memorial ¶ 260 n.384.

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on 7 December 2004. The total due one day after the payment demands were issued was approximately USD 6 billion.

569.On 8 December 2004, a resolution of the Tax Ministry was issued to enforce and collect taxes and interest against Yukos’ assets.604 The following day, Bailiff Kochergin issued a resolution which initiated enforcement proceedings, and joined them to the previous enforcement proceedings.605

570.On 16 December 2004, Yukos again petitioned for voluntary enforcement only against assets of first priority, and requested that the bailiffs not collect an enforcement fee.606

571. The Tribunal notes that, on 31 January 2005, an Interpol “Red Notice” was issued against Mr. Vladimir Dubov, who at this time was living in Israel. It noted that he was “accused of budgetary funds misappropriation.”607

572.On 28 April 2005, the decision was issued by the Moscow Arbitrazh Court608 reducing the overall amount payable for 2003 by approximately USD 2.6 million.

573.The Tribunal also notes that, on 16 May 2005, in another Russian court Messrs. Khodorkovsky and Lebedev were convicted of tax evasion and embezzlement.609

574.On 5 December 2005, the Federal Arbitrazh Court for Moscow issued a resolution affirming a small reduction of fines for 2003 by a lower court.610

604Resolution No. 52/999 of the Tax Ministry’s Interregional Inspectorate for Major Taxpayers No. 1, 8 December 2004, Exh. C-193.

605Resolution of Bailiff I.V. Kochergin to initiate enforcement proceeding No. 16305/4/04 and join it to consolidated enforcement proceeding No. 10249/21/04, 9 December 2004, Exh. C-194.

606Yukos’ petition for voluntary enforcement of the Resolution of 9 December 2004 to initiate an enforcement proceeding, 16 December 2004, Exh. C-195.

607Interpol Wants YUKOS V. Dubov and M. Brudno, Kommersant, 31 January 2005, Exh. C-749.

608Decision of the Moscow Arbitrazh Court, Case Nos. A40-4338/05-107-9 and A40-7780/05-98-90, 28 April 2005, Exh. C-196.

609Judgment of the Meshchansky District Court for the City of Moscow, 16 May 2005, Exh. R-379.

610Resolution of the Federal Arbitrazh Court for Moscow District, Case Nos. A40-4338/05-107-9 and A40-7780/05-98-90, 5 December 2005, Exh. C-197. See also Memorial ¶ 264, n.393.

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(e)The 2004 Decision

575.On 27 December 2005, a Field Tax Audit Report for 2004 was issued.611 It assessed tax arrears, interest, and fines against Yukos at approximately USD 3.9 billion.612

576.On 17 March 2006, Decision No. 52/292 was issued holding Yukos fiscally liable for the commission of a tax offence, (“2004 Decision”).613 It levied the following taxes:

577.The Tribunal notes that there are no documents in the record evidencing a tax payment demand or a tax penalty payment demand issued in respect of the 2004 Decision.

578.However, on 21 June 2006, the Moscow Arbitrazh Court issued a decision614 confirming the lawfulness of the Tax Ministry’s claims relating to the arrears claimed in the 2004 Decision in the amount of RUR 66,391,719,284 (USD 2.4 billion). On 18 August 2004, the Ninth Arbitrazh Court of Appeal issued a resolution, ordering a determination of the lawfulness of the 2004 fines in the amount of RUR 42,036,873,518 (USD 1.7 billion) in separate proceedings.615

611Field Tax Audit Report No. 52/996, 27 December 2005, Exh. C-200.

612RUR to USD is approximate, based on a ratio of 27.8171:1, the exchange rate on 17 March 2006—the date of the 2004 Decision.

6132004 Decision, Exh. R-1539.

614Decision of the Moscow Arbitrazh Court, Case No. A40-11836/06-88-35 “B”, 21 June 2006, Exh. R-538.

615Resolution of the Ninth Arbitrazh Court of Appeal No. 09AP-8628/2006 GK, 18 August 2006, Exh. C-336.

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The lawfulness of the fines was eventually affirmed by the Moscow Arbitrazh Court on 6 October 2006.616

(f)Observation

579.This chronology of the five tax assessments against Yukos for the years 2000–2004 and related decisions of the Tax Ministry, the Russian courts and the bailiffs is lengthy and tedious. But it is very much part of the factual matrix which will inform the Tribunal when it answers the question posed at the outset of the chapter: “Why would Russia have treated Yukos as it did if its purpose was to collect taxes?”

3.The Taxes Assessed Against Yukos

580.The principal taxes assessed against Yukos were profit tax and VAT. Together they account for over 95 percent of the total amount of more than USD 24 billion including related fines and interest. Details in relation to profit tax and certain other revenue-based taxes are provided in Subsection (a) below. Details in relation to VAT are set out in Subsection (b) below.

(a)Profit Tax and Other Revenue-based Taxes

581.As shown in the table below, for the tax years 2000 to 2004, the tax authorities imposed a

demand for the payment of profit tax (including interest and fines) ranging from USD 261 million to USD 4 billion per year, for a total of USD 9.5 billion. This represents some 39 percent of the total tax claims levied against Yukos in the reassessments for those years. Other revenue-based taxes (also including interest and fines) assessed against Yukos added approximately USD 1 billion to the total. The breakdown by individual tax year is as follows:617

616Decision of the Moscow Arbitrazh Court, Case Nos. A40-37697/06-141-233 and A40-49860/06-127-206, 6 October 2006, Exh. C-201.

617Figures derived from Details of Yukos’ Alleged Tax Reassessments, Exh. C-593; see also Claimants’ Opening Slides, pp. 62–63.

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