The Supreme Arbitration Court cleared British Airways of tax evasion Tuesday, in a ruling that could have repercussions for foreign airlines operating in Russia.
The Federal Tax Service accused the airline of not paying 716,044 rubles ($24,700) in taxes taking into account differences between the exchange rate that the company used when it converted its income into pounds from 2004 to 2006 and the official Central Bank rate.
The court found British Airways not liable for the tax claim, citing a 1994 Russian-British agreement that prohibits double taxation for companies that don’t have permanent representation.
The company, however, is now appealing a second tax case, in which the Federal Tax Service is demanding payment of 30.4 million rubles in value-added taxes on revenues received from cargo transportation.
In both cases, the airline argued that under a 1957 British-Soviet agreement, it wasn’t required to pay taxes on any income that was converted into pounds and transferred to its main office.
“We do not know for sure whether the Supreme Arbitration Court took into consideration the 1957 agreement in its ruling on the first case, because we’ve only seen the substantive provisions,” said Stepan Guzey from the Vegas Lex law firm, which represented the company’s interests. “If it did, we can be sure it will not satisfy the tax service’s claims on the second case, as BA should not pay any taxes in Russia according to that agreement.”
The 1957 agreement has never been in the focus of court proceedings, Guzey said, and the fact that the Soviet government did not levy a VAT tax at the time could make it a difficult case for the court.
“In my opinion, the court and the tax regulators cannot decide whether that agreement should be applied today,” he said. “However, it wasn’t denounced so far, so we hope it will be considered properly.”