News

20th May 2010 was the final session of the Federal Arbitration court for the Moscow Circuit (FAC MC) relating to the dispute between the Russian tax authorities and British Airways.

By way of background, in 2008, the Russian tax office charged BA with more than RUR 30 million of additional tax claims related to assessed profit tax and VAT. Although the profit tax decision of the tax office has now been officially declared illegal by the RF Supreme Arbitration Court (RF SAC), in the Resolution of the Presidium of the RF SAC No. 6624/09 of 17 November 2009, it was only on 10th May that the question of the claim for VAT was finally settled.

The position of the Russian tax authorities was that foreign airlines should pay VAT on cargo operations (whereas, in fact, passenger transportation by foreign air companies is directly exempt from VAT by the Russian Tax Code).

The proceedings lasted for almost two years and took, as lawyers say, "two rounds". The courts of the first and appellate levels had consistently supported the Russian tax authority's approach.  It was only the FAC MC that could finally issue a legal and fair resolution by revoking the rulings of the lower courts and declaring the Russian tax authority's decision to be illegal.

This resolution of the FAC MC takes effect immediately. This means that the Russian tax authorities will have to repay circa USD 1 million to BA from the federal budget.

In addition noted by Oleg Bazhenov, Head of the Tax Litigation Group of Vegas Lex, who represented BA in this case, the Russian tax authorities will also be obliged to pay interest to the BA for the entire period when the illegally recovered VAT was included in the federal budget.