Gazprom lobbies for Nord Stream VAT exemption, agencies willing
MOSCOW. Feb 20 (Interfax) - The Russian Finance Ministry, Economic Development Ministry and Energy Ministry are willing to consider amending the Tax Code in order to exempt gas pipeline operator Nord Stream AG from VAT on the construction of the pipeline's Russian section.
Letters from the ministries to this effect have been seen by Interfax and Finmarket.
Deputy Economic Development Minister Stanislav Voskresensky said in his letter to Deputy Finance Minister Sergei Shatalov dated January 16, 2012 that his ministry had, following a request by Gazprom CEO Alexei Miller, looked at the VAT exemption issue.
The essence of the matter is that Nord Stream, which is domiciled in Switzerland, has not been exempt from paying VAT charged for building and operating the pipeline.
Gazprom and Nord Stream declined to comment.
The Econ Ministry's letter clarifies that in accordance with Article 170 of the Tax Code, when acquiring goods and services, including fixed assets and intangible assets used to produce goods and services but sold not on Russian territory, the amount of tax that the buyer is liable to pay is reflected in the cost of the goods. So Nord Stream cannot be exempt from VAT charged when building and operating the pipeline.
The ministry says that a foreign company operating in Russia is entitled to a tax refund when acquiring goods, services and property rights for operating purposes or for other activity only if registered with the Russian tax authorities.
On this basis, the Econ Ministry thinks it is possible that, in the event Gazprom's Nord Stream business model cannot be adjusted in keeping with the Tax Code, to consider the company's proposals to change the Tax Code in such a way as to resolve the issue raised by Alexei Miller. Such proposals must be backed up by a financial and economic rationale and analysis of the implications for the federal budget.
The Finance Ministry backed the Econ Ministry's proposal, as Shatalov wrote to Russian Deputy Prime Minister Igor Sechin on February 10. The Finance Ministry considered the opinion of the Econ Ministry, Industry and Trade Ministry and Energy Ministry on the matter.
The Energy Ministry, in a letter seen by Finmarket, said it was prepared to attend a meeting on amendments to the Tax Code in order to facilitate the exemption from the VAT paid for the construction of the Russian section of Nord Stream.
The Industry Ministry is prepared to consider the projections and rationale when drafting the bill concerning the economic effectiveness of a tax break applicable to increased demand for Russian-made metallurgical and machine-building goods.
Russian Deputy Prime Minister Igor Sechin has put Nord Stream's cost at EUR 8.8 billion, including loan interest.
Project financing credits of EUR 3.9 billion were raised for phase one and EUR 2.5 billion for phase two of the project.
Nord Stream AG co-owners are Gazprom (51%), Wintershall and E.ON Ruhrgas (15.5%) each and Gasunie and GDF Suez (9% each).