ENERGY FOR PEOPLE - JSC Gazprom Neft

JSC GAZPROM NEFTANNUAL REPORT2009Risk Associated with TaxLegislation ChangesJSC Gazprom Neft is one of the toptaxpayers whose operations are basedon the principles of good faith and taxtransparency.The Company bears the burden of payingvalue-added tax, income tax, mineralextraction tax, property tax, land tax.The results of the tax reform can beestimated as positive: the taxation systemhas been structured, taxation mechanismsand procedures have been simplified,and tax rates have been cut. As perthe experience of reviewing cases inthe Constitutional court of the RussianFederation, the statements of the basiclaw affect the taxation laws of economicentities and protect tax-payers from illfoundedand sudden increase of taxburden.Since the taxable period 2009 the cutoffprice of mineral extraction tax hasbeen increased from 9 to 15 USD perbarrel; depreciation bonus for new capitalassets has been increased; licenseamortization period has been reducedto two years. Since the taxable period2009 depreciation terms of some typesof equipment and oil and gas industrystructures (including oil producingwells) have been reduced. Since 2010depreciation terms of drilling equipment,and some types of oil and gas industrystructures have been reduced as well.The aforementioned factors enable usto conclude that Russia’s tax systemis becoming more stable, and theoperations of economic entities in theRussian Federation are becoming morepredictable. However, one should notrule out the possibility of the state raisingthe tax burden for tax-payers which mayresult from changes in specific elementsof taxation, cancellation of tax privileges,growth of duties, etc.In the course of business the Companyperforms online monitoring of taxlegislation changes, changes in theapplication of current provisions. TheCompany also acts as an expert in thelaw-making process by assessing anddeveloping draft laws, including taxones. JSC Gazprom Neft assesses andforecasts the extent of potential adverseimpact of tax legislation changes, directingits efforts to minimize the related risks. TheCompany’s management believes that theCompany’s positions connected with thatare stable and will not have a significanteffect on consolidated financial state andoperating results of the Company.LEGAL RISKSJSC Gazprom Neft operates in strictcompliance with the civil, tax, customsand currency legislation.The Company cannot guarantee therewill be no adverse changes in Russianlegislation in the long-term, since most riskfactors are beyond the Company’s control.The adverse exposure to this categoryof risks is reduced by monitoring andtimely responding to the changes madeto different sections of legislation as wellas by active interaction with legislativeand executive authorities, and publicorganizations over the interpretation andimprovement of legislation.Risks Associated with CurrencyRegulation ChangesLimitations set by the state which entailreducing the possibilities for convertingincome denominated in rubles to foreigncurrencies and reverse converting toruble due to requirements of obligatoryrepatriation and conversion may have anunfavorable impact on the Company’soperating results. The Company isa participant of foreign economic relations.Today currency regulation in the RussianFederation is significantly liberalized,which considerably reduces the risks ofadverse consequences for the Company’soperations.Risks Associated with TaxLegislation ChangesJSC Gazprom Neft is one of the toptaxpayers paying federal, regional andmunicipal taxes; among them: mineralextraction tax, value-added tax, incometax, unified social tax, property tax, andland tax.Today the process of reforming of Russia’staxation law has been completed. Thelegislative stock has been codified.General part of the Tax Code which isin effect since 1999 sets down the mainprinciples of taxation and introduction ofnew taxes; the effect of these principlesand targeting on protection of propertyinterests of tax-payers has been realizedin law-enforcement practice. A specialpart of the Tax Code sets down taxesbuilding up the tax burden of the issuerand defines taxation items. Over the last10 years the rate of the value added taxhas been reduced by 2%, the rate ofincome tax – by 15%, the descendingrate scale for unified social tax hasbeen set up, and sales tax and someother compulsory payments have beencancelled.The results of the tax reform are seen aspositive: the taxation system has beenstructured, taxation mechanisms andprocedures have been simplified, and taxrates have been cut down.From our experience reviewing cases inthe Constitutional court of the RussianFederation, the statements of the basiclaw affect the taxation laws of economicentities and protect tax-payers from illfoundedand sudden increase of taxburden.The aforementioned factors enable usto conclude that Russia’s tax systemis becoming more stable, and theoperations of economic entities in theRussian Federation are becoming morepredictable.In the course of business the Companyperforms online monitoring of taxlegislation changes, changes in theinterpretation and application of currentprovisions of the tax legislation. TheCompany also acts as an expert in theprocess of improving the legal frameworkand developing new tax draft laws.Risks Associated with Changesin Customs Regulations andDutiesJSC Gazprom Neft is a participant offoreign economic relations, hence itis exposed to risks associated withchanges in the legislation governingforeign economic activities as well as theCustoms Legislation governing relationswith respect to establishment of theprocedure for transfer of goods throughthe customs border of the RussianFederation, imposition and application ofcustoms regimes, imposition, introductionand collection of customs payments. The91