Tax Claims against Ernst & Young
The Ernst & Young consulting company is the second Big Four accountant, after PricewaterhouseCoopers, to be charged with tax violations in Russia. ZAO Ernst & Young Vneshaudit disputed a tax bill of 390 million rubles in court today. The charges stem from the fact that the Russian company transferred most of its income to its parent company in Cyprus. Moscow tax inspectors' claims are dated December 29, 2007. The charges came immediately after charges against PwC were upheld in court. In both cases, tax authorities cite violations of licensing terms by using the services of foreign specialists unlicensed in Russia.
Ernst & Young Vneshaudit claimed an income of 10.5 million rubles in 2004. Auditors determined in the autumn of 2006, however, that the company had 630.3 million rubles in undeclared income. That sum was described by the company as expenses for the paid services of its parent company, Ernst & Young (CIS) Ltd., which owns 98 percent of the stock in Ernst & Young Vneshaudit. The Cypriote company received payment for attracting Russian clients, but Russian tax authorities say that those expenses were unjustified. They are demanding 151.26 million rubles in profits tax, 116.6 million rubles in VAT, 32.9 million rubles in fines and 95.4 million rubles in penalties.
Auditors' interested was initially piqued when it was discovered that Ernest & Young has more than 200 major Russian and foreign companies among its clients, while its staff consisted of 46 part-time workers (25 of whom were auditors) working 16 hours per week. It was also discovered that the Russian company and its Cypriote parent company, to which all payment received were forwarded on the same day, do business at the same address and telephone number and share employees.
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All the Article in Russian as of Apr. 09, 2008
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