In its resolution of 19.05.2006, the Federal Arbitration Court of the Moscow Circuit upheld the decision of the Arbitration Court of the City of Moscow of 18.11.2005 and the resolution of the Ninth Arbitration Appeals Court of 03.02.2006, that acknowledge

The District Inspectorate of the Federal Tax Service of the Russian Federation on Largest Taxpayers № 2 carried out a tax check of LLC “Tarkosalneftegaz” on the question of the correct calculation and payment of tax on profits by the company for 2004.

On 13 September 2005, the above-mentioned District Inspectorate issued a decision regarding the refusal to call the company to book on charges of committing a taxation violation, that envisaged the company paying an outstanding sum of tax on profits, and also a penalty; charges against the company by the District Inspectorate on the basis of pp. 3 p.1 art. 111 of the Tax Code of the RF were dismissed.

LLC “Tarkosalneftegaz” applied to the Arbitration Court of the City of Moscow calling for the acknowledgement of the Decision of the District Inspectorate of the Federal Tax Service on Largest Taxpayers №2 of 13.09.2005 as invalid.

In the course of the hearing, attorneys from the law firm “YUST”, acting on instructions from LLC “Tarkosalneftegaz”, pointed out that the Inspectorate’s grounds for demanding additional payment and refusal to allow the taxpayer the benefits of exemptions regarding tax on profits, envisaged by par. 27 p.5 art. 6 of the RF Law “On tax on profits of enterprises and organizations” of 27.12.1991 №2116-1, contravened the said RF Law.

The Arbitration Court of the City of Moscow accepted the arguments of the attorneys of the YUST law firm and, in its ruling of 18.11.2005, acknowledged the Decision of the District Inspectorate of the Federal Tax Service on Largest Taxpayers №2 of 13.09.2005 as invalid.

In granting the demands of the applicant, the court of the first instance proceeded on the grounds that the applicant had proved fulfillment of all the conditions necessary for the application of exemptions to tax on profits, envisaged by par. 27 p.6 art. 6 of the RF Law “On tax on profits of enterprises and organizations” of 27.12.1991 №2116-1, pursuant to which in 2004 the applicant justifiably did not tax the profits received from the gas condensate industry, insofar as it was eligible for the tax exemptions envisaged by par. 27 p.6 art. 6 of the RF Law concerning tax on profits.

In its Resolution of 03.02.2006 on the same matter, the Ninth Arbitration Appeals Court left the ruling of the court of the first instance in force, and dismissed the appeals complaint filed by the District Inspectorate of the Federal Tax Service on Largest Taxpayers № 2.

In its resolution of 19.05.2006, the Federal Arbitration Court of the Moscow Circuit left the above-mentioned decision and resolution in force, and dismissed the cassational complaint filed by the District Inspectorate of the Federal Tax Service on Largest Taxpayers №2.