Ekaterinburg – December 26, 2006 – Uralsvyazinform (RTS: URSI/URSIP) the leading carrier of fixed-line and mobile services in the Urals region, Russia comments on the decision of tax authorities to claim RUR 561.3 mln in taxes and penalties for 2003-2004’s.

Uralsvyazinform has initiated legal procedures necessary to dispute the tax claims for the period of 2003-2004’s in Moscow Court of Arbitration. Collection of tax arrears and penalties has been postponed until the court proceedings are finished.

Timeline

October 27, 2006
Uralsvyazinform received an official statement from Tax Authority of Russia following the field tax inspection. In the opinion of Tax Authority, the company underpaid RUR 567.7 million in taxes for the period of 2003-2004, and is also due RUR 122.1 million in fines and penalties. Uralsvyazinform responded in legally specified terms submitting its objections to the Tax Authority. The Tax Authority took into consideration part of the objections and reduced the amount of claims due.

December 1, 2006
Tax Authority’s Decision #12 is received affirming that Uralsvyazinform is to be held liable for the tax offence. The document specified the final tax claims in the amount of RUR 561.3 mln in unpaid taxes and RUR 107.4 mln in penalties for the period of 2003-2004.

December 14, 2006
Uralsvyazinform submitted a letter of complaint to Moscow Court of Arbitration claiming that Tax Authority’s Decision #12 should be considered invalid.

December 15, 2006
Uralsvyazinform submitted a request for interlocutory injunction to Moscow Court of Arbitration, whereby Uralsvyazinform requests that it should be exempt from the actions and obligations under Decision #12, including collection of taxes and penalties, for the full period of court proceedings.

December 19, 2006
Moscow Court of Arbitration postponed the legal enforcement under Decision #12 upon the receipt and affirmation of Uralsvyazinform’s request for interlocutory injunction.

Uralsvyazinform disagrees with the Tax Authority’s decision and considers itself to be a bona fide taxpayer. In 2003-2004’s Uralsvyazinform contributed about RUR 7.8 billion in various taxes and dues.

According to the Tax Authority, the main part of the arrears (over 80%) consisted of uncollected revenues from long-distance services (traffic termination settlements), and claims in connection with certification of costs related to purchase of property, plant and equipment.

It is worth noting that similar tax claims in connection with traffic termination have been presented to other companies inside Svyazinvest group (Dalsvyaz, Southern Telecommunications Company, Centertelecom, Rostelecom), who are currently challenging their respective cases in court. From companies’ standpoint, the attempts to reconsider operator-to-operator settlement schemes for interconnection effective in 2003-2004’s should be considered unlawful.