Translated material
YUKOS v. Russia
The European Court of Human Rights begins hearings into the bankruptcy case of a major oil company.
Today, the European Court of Human Rights (ECtHR) is expected to hold hearings on the most high-profile case in Russia - the YUKOS case. Since the arrest of its owner Mikhail Khodorkovsky and his partner Platon Lebedev in 2003, the investigation has been closely followed throughout the world, and reactions to the actions of the Russian authorities have constantly been received, including from the US State Department and the Council of Europe.Five years ago, Khodorkovsky and Lebedev were sentenced by the Meshchansky Court of Moscow to eight years in prison in their first criminal case and have already served more than half of this sentence. And for about a year now, almost every day, they have been taken from Matrosskaya Tishina to the Khamovnichesky Court, where the second case is being heard, in which Khodorkovsky and Lebedev are accused of the grandiose theft of 350 million tons of oil and the legalization of 450 billion rubles. and $7.5 billion from 1998 to 2004.
Some top managers of the company went abroad and received political asylum there, but this did not save them from Russian courts. In the past, one of the largest shareholders of YUKOS, Leonid Nevzlin, who has now become an Israeli citizen, by decision of the Moscow City Court received a life sentence in absentia on charges of organizing murders and attempts on the lives of people disliked by the company. While the trials and investigation were ongoing, the Yukos oil company itself was declared bankrupt and liquidated in November 2007. Its assets were sold off, the lion's share of them went to Rosneft and the organizations controlled by it.
The now defunct company YUKOS filed a claim with the Russian authorities at the ECHR seeking the recovery of $98 billion in compensation for damages suffered. Back in 2004, a year after the arrest of Khodorkovsky and Lebedev, Yukos filed a complaint in Strasbourg, in which it accused the Russian authorities of violations committed during the consideration of tax cases, which ultimately led to the liquidation of the company. Since 2002, YUKOS has been the subject of a series of audits and tax inspections, as a result of which the company was accused of tax evasion, namely, that it used an illegal tax evasion scheme in 2000-2003. Then the oil company was obliged to pay additional taxes, fines and interest on overdue debts, and these payments later increased significantly. The tax proceedings ended with the forced sale at auction of OJSC Yuganskneftegaz, the company's most valuable asset.
Thus, YUKOS, as a legal entity, asks that the Russian authorities be found guilty of violating several articles of the European Convention for the Protection of Human Rights and Fundamental Freedoms. This is, in particular, the right to a fair trial by an impartial and independent court within a reasonable time (Article 6) - due to violations committed during the trial of tax evasion cases in 2000. In addition, with regard to illegal tax claims in 2000-2003 and the sale of Yuganskneftegaz, this is the right of a legal entity to freely use its property (Article 1 of Protocol No. 1 to the Convention); the right to an effective remedy before public authorities (Article 13 of the Convention); prohibition of discrimination in the enjoyment of rights and freedoms (Article 14 of the Convention); prohibition on the application of permissible restrictions on rights and freedoms for purposes other than those for which they were provided (Article 18 of the Convention). YUKOS also demands that Art. 7 of the convention (there is no punishment without the law), since he believes that the proceedings for tax evasion in 2000-2003 had no legal basis and led to unfounded criminal prosecution and double punishment.
In January last year, based on the results of communications (a written survey of the disputing parties), the ECHR made a decision according to which the YUKOS complaint was recognized as partially acceptable, that is, in the facts stated by the company representatives, the court found certain violations of civil rights and freedoms. Here is how these facts were retold in last year's decision of the European Court: “The Yukos Oil Company was an open joint-stock company created on the basis of Russian legislation. It was registered in Nefteyugansk, Tyumen region and at the time described was managed by a subsidiary - YUKOS Moscow LLC, registered in the capital of the Russian Federation. The applicant, a holding company, was established by the Russian Government in 1993 to own and control numerous legal entities specializing in oil production. Until 1995-1996, the company was completely state-owned, and then, through a series of tenders and auctions, it was privatized.”
“Between November 2002 and March 2003, the tax inspectorate of Nefteyugansk conducted an audit of the company. Based on the results of the audit, the inspectorate prepared a report that indicated many relatively minor errors in tax returns, of which the company was notified. YUKOS did not agree with this, and then, in June 2003, the inspectorate decided that the company should be held liable for filing incomplete returns for certain taxes. The corporation agreed with this and a month later complied with the demands of the tax authorities,” the ECHR decision says.
However, in December 2003, after the arrests of Khodorkovsky and Lebedev, the Ministry of Taxes and Duties (MTS) decided to conduct an additional audit of YUKOS. By the new year, a report was drawn up, according to which the company was found to have a large tax debt for 2000. This report was detailed and detailed over 70 pages and was accompanied by 284 supporting documents. An audit by the Ministry of Taxes and Taxes established that in 2000 the company withdrew its assets through a network of 22 private companies registered in offshore zones of Russia (in Mordovia, the city of Sarov in the Nizhny Novgorod region, Kalmykia, in Trekhgorny in the Chelyabinsk region, in Lesnoy in the Sverdlovsk region and in the Evenki Autonomous Okrug) . According to the Ministry of Taxes and Taxes, legally all these firms were independent of the holding, but in fact the only thing they were doing was buying crude oil from YUKOS or selling it on the domestic market and abroad, or transferring it to processing enterprises, and then selling it. Between the corporation, its branches for oil production and refining, as well as trading enterprises, settlements were made not in real money, but using promissory notes of the company and offsets. Thus, all money proceeds from sales were unilaterally transferred to the Fund for Financial Support of Production Development of OJSC Oil Company YUKOS, which was owned and managed by YUKOS itself. Subsequently, the oil company took a real part in all transactions of the enterprises under its control, but at the same time acted only as their agent, and not as the owner of goods produced and processed by its own “subsidiaries”. At the same time, the amounts paid for the services of NK YUKOS by trading companies were insignificant, and the company’s real turnover was never reflected in any tax documents or declarations. At the same time, trading companies, as the Ministry of Taxation believed, were, in fact, fictitious, since they never worked, were not located at the place of their registration, and had neither assets nor full-time employees.
During the inspection, the Ministry of Taxes came to the following conclusion. The actual movement of oil occurred from its production sites owned by Yukos to its storage and processing facilities. The corporation acted as an exporter of goods, but at the same time they formally belonged to fictitious companies, which in turn were always controlled by YUKOS. Their accounting was carried out by LLC YUKOS-FBC and LLC YUKOS-Invest, which also belonged to the holding. The network of fictitious companies was officially managed by Yukos-RM LLC, and all official correspondence, including tax documents, was sent from the mailing address of Yukos-Moscow LLC. The company's subsidiaries and fictitious companies made transactions with low prices specifically to evade taxes, and all the income received by these fictitious enterprises was then received by YUKOS. In addition, it was alleged that all these companies illegally received tax breaks. Thus, the Ministry of Taxes and Taxes came to the conclusion that Yukos illegally evaded paying VAT, transport tax, corporate property tax, social payments, housing tax, income tax and fuel sales tax.
Negotiations between YUKOS and the Ministry of Taxation led nowhere, and in April 2004 the ministry filed a claim with the Moscow Arbitration Court, demanding the seizure of the company's assets as security for this claim. The court agreed and imposed a ban on all Yukos transactions, which prevented the corporation from selling off its assets. At the end of May, the court decided to recover 99.342 billion rubles from the company in favor of the Ministry of Taxes. to pay off non-payments to the treasury for 2000. In September, after two unsuccessful attempts to appeal, this decision came into force. And in October 2005, the Supreme Arbitration Court also rejected YUKOS’s complaint. Subsequently, the courts also supported the Ministry of Taxation on its demands to collect tax arrears from YUKOS for 2001-2003, and the processes continued until the liquidation of the oil company in November 2007. The total amount of tax claims of the Ministry of Taxes against Yukos amounted to 582 billion rubles, and another almost 200 billion to its subsidiaries.
“The applicant company believes that Art. 6 of the Convention (fair trial - Ed. ), since her case of tax non-payments should have been considered not in Moscow, but in Nefteyugansk - at the place of registration of the company,” the ECHR decision says. In addition, representatives of YUKOS indicated to the Ministry of Taxes and Taxes that it did not respond to the company’s audit reports. The legal proceedings themselves, according to the corporation's lawyers, took place with numerous procedural violations. In particular, attention was drawn to the fact that the Ministry of Taxes and Taxes violated the statute of limitations, and in the process itself the principle of equality of the parties was not observed. “The tax claims for 2000-2003 were arbitrary, disproportionate and illegal,” Yukos said in its complaint. These claims did not comply with the current legislation and its analysis, according to the company's lawyers, and as a result, YUKOS became the first legal entity that was punished for the tax optimization scheme it used at that time.
Representatives of the Russian government believed that YUKOS's complaint to Strasbourg could not be considered because such a company no longer existed. However, the ECHR did not agree with this, since its responsibilities include not only the restoration of the violated rights of anyone, but also the consideration and analysis of various cases so that such violations do not recur in the future. “The Court emphasizes that the alleged violations of the Articles of the Convention in this case relate to tax claims and proceedings against the applicant company, which ultimately led to its bankruptcy and cessation of existence as a legal entity. And removing the applicant from the list of applicants would undermine the very essence of the right of legal entities to apply to court, thereby encouraging states to block their access to justice,” the ECHR decided.
Today, representatives of YUKOS, as well as the Commissioner of the Russian Federation at the ECHR, will once again verbally express their arguments and answer questions from the seven judges of the chamber of the European Court, after which he will retire to make a decision. If, as a result, violations of rights in relation to YUKOS are confirmed, then this may formally become the basis for a review of the company’s tax affairs in arbitration courts based on newly discovered circumstances. However, it is unknown whether in this case Russian courts will accept applications from a legal entity that no longer exists.