ANNUAL REPORT 2005 - Lukoil

double tax treaty and require the tax agent (i.e., the company paying dividends or the Russian purchaser of the shares)
to withhold and pay tax, In practice, the most likely negative outcome for non-withholding of a tax are penalty, amounting
to 20% of non-withheld tax and late payment interest.
Otherwise a non-resident corporate holder seeking to obtain relief from Russian withholding tax under a tax treaty must
provide a confirmation of its tax residence that complies with the applicable double tax treaty as well as the other
documentation related to receiving such income in advance of receiving income. UK holders may obtain the confirmation
by writing to their local UK tax inspector.
In accordance with the Tax Code a non-resident holder who is an individual must present to the tax authorities a document
on his or her tax residency and a document justifying the income received and the tax paid offshore, confirmed by
the foreign tax authorities. Formally such requirement means that an individual cannot rely on the tax treaty until he or
she pays the tax in the residence jurisdiction.
If a non-resident does not obtain advance tax-treaty clearance and tax is withheld by a Russian resident on capital gains
or other amounts, the non-resident holder may apply for a refund within three years from the end of the tax period in
which the tax was withheld when the recipient is a company or within the one-year period from the end of the tax
period in which the tax was withheld when the recipient is an individual. The legal entities are not entitled to grant refund
to an individual.
To process a claim for a refund for legal entities, the Russian tax authorities require (i) a confirmation of the residence of
a non-resident at the time the income was paid, (ii) an application for refund of the tax withheld in a format provided by
the Russian tax authorities and (iii) copies of the relevant contracts and payment documents confirming the payment of
the tax withheld to the appropriate Russian authorities (Form 1012DT (2002) is applicable for legal entities only and is
designed to combine (i) and (ii) for foreign corporate).
For individual a refund is granted only upon the presentation of the a) an application for refund in any understandable by
the tax authorities format; b) statement of all annual income of the individual (Form NDFL-2); c) a confirmation of residence.
The refund of the tax withheld should be granted within one month of the filing of the application for the refund and the
relevant documents have been filed with the Russian tax authorities. However, procedures for processing such claims
have not been clearly established and there is significant uncertainty regarding the availability and timing of such refunds.
The Russian tax authorities may require a Russian translation of some documents as well as to apply other requirements to
the format of documents. Providing necessary documentation does not eliminate a risk of the tax authorities disputing the
relief from withholding tax and requiring additional documentation in the form determinated by the particular inspection.
CONSOLIDATED FINANCIAL STATEMENTS
UNITED KINGDOM TAX CONSIDERATIONS
The comments below are of a general nature based on current UK law and practice. They do not necessarily apply where
the income is deemed for tax purposes to be the income of persons other than persons who are the absolute beneficial
owners of DSs or ordinary shares. In particular these comments do not apply to the following:
investors who do not hold their DSs or ordinary shares as capital assets;
investors that own (or are deemed to own) 10% or more of our voting rights; or
special classes of investors such as dealers.
Withholding tax on dividends
Dividend payments in respect of DSs or ordinary shares issued by a company organised under the laws of the Russian
Federation should not be subject to UK withholding tax. As discussed in "-Russian tax considerations -Taxation of
Dividends," such dividends will be subject to Russian withholding taxes.
Taxation of Dividends
A UK holder of interests in DSs or ordinary shares that receives a dividend on the DSs or ordinary shares may be
subject to UK income tax or corporation tax, as the case may be, on the gross amount of any dividend paid before the
deduction of any Russian withholding taxes, subject to the availability of any credit for Russian tax withheld. An individual
holder of interests in DSs or ordinary shares who is resident and domiciled in the United Kingdom will generally be
subject to UK income tax on the dividend paid on the DSs or ordinary shares. An individual holder of interests in DSs or
ordinary shares who is resident but not domiciled in the United Kingdom (or is resident, but not ordinarily resident, and
domiciled in the United Kingdom, and either a Commonwealth citizen (this includes a British citizen) or a citizen of the
Republic of Ireland) will generally be subject to UK income tax on the dividend paid on the DSs or ordinary shares to the
extent that the dividend is remitted to the United Kingdom. A dividend is remitted to the United Kingdom if it is paid to
the United Kingdom or transmitted or brought to the United Kingdom in any way.
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