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October 30, 2008

PwC Russia cleared in tax scandal

By Nicholas Moody

A Russian court has overturned charges PricewaterhouseCoopers Russia (PwC) was involved in the tax evasion scheme of a failed audit client. This month, the Moscow Region Federal Arbitrazh Court reversed an earlier First Instance and Appellation Courts ruling brought against the firm by Russian tax authorities. The case has now been terminated.

Tax authorities were seeking $600,000, which amounts to the audit fees PwC collected for the 2002 audit of former oil company Yukos. The tax collector said the firm should have been aware of and alerted authorities about Yukos’s tax affairs, which were determined to be illegal by a Russian court.

PwC appealed the earlier ruling and said it was pleased with the latest outcome.

“The court has made the correct ruling in this case, particularly given that Yukos no longer exists. This is good news for PwC, as well as for the Russian and international business communities.

“As always, we continue to focus our energy on growing and developing our business in Russia,” the firm said in the statement.

Yukos was created in 1993 during a period of privatisation of state oil assets. It became one of the world’s largest private oil companies and was responsible for about 2 percent of global oil production at its peak.

In August 2006, the company was declared bankrupt by a Russian court and was liquidated in October 2007.

Russian tax authorities claimed PwC issued two different audit opinions in 2002 – one for investors and one for Yukos management, often referred to as an internal control report.

The authorities alleged the difference in opinion proved that PwC was in collusion with the Yukos management and helped the company evade tax payments.

PwC previously said that issuing different opinions to the two groups was in line with Russian regulations.

The Big Four firm reported fee income of RUB7 billion ($264 million) in the year ended 30 June 2008. Nicholas Moody

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