How Chelski tycoon scores offshore
ROMAN Abramovich, the Russian billionaire owner of Chelsea football club, has avoided paying hundreds of millions of pounds in tax by using a complex network of obscure offshore companies.
His Sibneft oil company used the money merry-go-round to exploit a loophole in Russian law. The practice, known as tolling, involves selling cheap crude oil from Sibneft's Russian fields to affiliated third parties based in tax-exempt zones.
The crude oil is then processed by the intermediary at Sibneft's refinery in Omsk, western Siberia, and sold back to Sibneft at market rates.
The result is a big profit for the third party, while Sibneft, in which Abramovich is the biggest shareholder, slashes its tax bill. The big loser is the Russian treasury.
An analysis of Sibneft's accounts by Financial Mail reveals the scale of the enterprise. It shows that almost £1bn flowed from Sibneft to third parties between 1998 and 2000. There was a net outflow of £65m to intermediaries in 1998, rising to £341m the following year and £490m in 2000.
Sibneft's after-tax profits over the same three-year period totalled £640m while the rate of tax it paid on declared profits plummeted from 32% to ten%. The accounts state that tolling was used purely for 'cash flow optimisation purposes'.
Sibneft spokesman John Mann added: 'It's all perfectly legal and absolutely not abnormal. Every company in the world employs some form of tax planning. Why should Sibneft be any different?'
Tolling has been used extensively by Russian oligarchs such as Abramovich as a way of avoiding tax. Attempts by the Duma, the Russian parliament, to crack down on the practice have got nowhere.
