By its Resolution of 13.01.2006, the Federal Arbitration Court of the Moscow Circuit upheld the ruling of the Arbitration Court of the City of Moscow of 29.07.2005

The Inspectorate of the Federal Taxation Service of the Russian Federation № 27 for the City of Moscow conducted an in camera tax check of LLC “ALFA-OILl” for the period from 20.01.2005 to 23.05.2005 concerning the validity of the calculation and payment of VAT by the said Company. The check was conducted by the Inspectorate in connection with the Company’s submission of a VAT declaration at the tax rate of zero percent for December 2004.

Pursuant to the Decision of 23 May 2005, LLC “ALFA-OIL” was declared liable for a tax violation envisaged by p.1 art. 122 of the TC RF, in the form of a fine to the amount of 20%; the Company was also called upon to settle unpaid VAT and a fine.

LCC “ALFA-OIL” applied to the Arbitration Court of the City of Moscow, calling for an acknowledgement of the Decision of Inspectorate № 27 as invalid.

In the course of the hearing, attorneys of the Bar Association of the Moscow Region “Law firm “YUST”, acting on behalf of LLC “ALFA-OIL”, argued that the Inspectorate’s refusal to reimburse tax on the grounds that the taxpayer did not submit the full set of documents required by the law for the application of zero percentage rate, is contrary to the law.

The Arbitration Court of the City of Moscow accepted the arguments of “YUST” attorneys, and in its ruling of 29.07.2005 declared the above-mentioned Decision of Inspectorate № 27 for the City of Moscow of 23.05.2005 invalid.

Moreover, in its ruling, the court of the first instance indicated that the Company submitted its VAT declaration for the tax rate of zero percent and all documents required under art. 165 TC RF to the tax authorities within the requisite period. The court considered the export of LLC “ALFA-OIL” confirmed in full, and thus reached the conclusion that the taxpayer was justified in applying the tax rate of zero percent regarding export, and acted within its rights by applying for reimbursement from the budget of the sum of the tax paid upon acquisition of the exported goods.

In its ruling the court also indicated that the Inspectorate’s disputed Decision was adopted prior to the expiry of the 180-day period envisaged by p.9 art. 165 TC RF from the date of the accomplishment of the export, therefore on the date of the Decision, the tax authority had no grounds for additional levying of tax and bringing the Company to book under p.1 art. 122 TC RF.

By virtue of the Resolution of the Ninth Arbitration Appeals Court of 05.10.2005 on the same matter, the ruling of the court of the first instance was left in force, and the appeals complaint filed by Inspectorate № 27 for the City of Moscow was dismissed.

The Resolution of the Federal Arbitration Court of the Moscow Circuit of 13.01.2006 upheld the ruling and the resolution, and dismissed the cassational complaint filed by the Inspectorate of the Federal Taxation Service № 27 for the City of Moscow.