By its order of 20 July, 2009, the Federal Arbitration Court for the Moscow Circuit affirmed the ruling of the Arbitration Court of Moscow issued on 3 February, 2009, and the order of the Ninth Arbitration Court of Appeal issued on 27 April, 2009, where

On the field tax inspection results regarding ZAO “Ernst & Young Vneshaudit” for 2004 the Tax Office No. 5 of the Federal Tax Service of Russia for Moscow city issued a decision to hold the taxpayer liable to tax for tax offence.

ZAO “Ernst & Young Vneshaudit” applied to the Arbitration Court of Moscow to find the decision issued by the tax office invalid.

The claims stated by the company were satisfied in their entirety by the decision issued by the Arbitration Court of Moscow on 3 February, 2009.

The ruling made by the court of the first instance remained unchanged by the order issued by the Ninth Arbitration Court of Appeal on 27 April, 2007.

Based on the investigation and assessment of evidence filed with the case, the courts made a conclusion that expenses to pay services to provide qualified personnel in 2004 were referred to entrepreneurial activities (provision of audit and audit-related services) aimed at obtaining revenue and these were document supported, i.e. met the criteria defined by Article 252 of the Tax Code of the Russian Federation. Under such circumstances the courts came to a conclusion that it was rightful for ZAO “Ernst & Young Vneshaudit” to incorporate costs and expenses in profits tax calculation and wrongful for the tax office to make a decision thus contested.

In terms of the value-added tax the court instances came to a conclusion that ZAO “Ernst & Young Vneshaudit” had met the procedure for using tax benefits, specified in Articles 171 and 172 of the Tax Code of the Russian Federation, and because of this the tax authority had not had legal basis for charging extra VAT amounts, penalties and fines.

Besides, it was found during the case proceedings by the court instances that while the tax office issued the decision contested they allowed a significant breach of the requirements in Article 101 of the Tax Code of the Russian Federation with regard to procedural process of law, inasmuch the tax payer had not been given a due notice of time and place of paperwork review as extra tax control activities. Due to that fact ZAO “Ernst & Young Vneshaudit” had no possibility to participate in the paper review of the tax inspection either in person or via their representative and file their objections.

The available judicial acts remained unchanged by the order issued by the Federal Moscow District Arbitration Court on 20 July, 2009, and the cassation appeal by the Tax Office No. 5 of the Federal Tax Service of Russia for Moscow city was dismissed by the same order.

Mr. Alexey Popov, attorney at the Law Firm “YUST”, jointly with representatives of ZAO “Ernst & Young Vneshaudit” represented the company’s interests in the arbitral proceedings on the litigation with the tax authority.