Witness Testimony Summary: Yulia Smirnova
Bio:
Yulia Smirnova is the former head of tax section at YUKOS-Moscow and then YUKOS-RM. Ms. Smirnova worked at YUKOS from 1999 through 2007. Ms. Smirnova's section modeled statistics and projections based on the data collected by YUKOS-RM and YUKOS-EP's tax sections and analyzed tax risks.
Testimony Dates:
Testimony Summary:
During often contentious direct questioning, Ms. Smirnova testified about the details of her work. She explained that her work was based on analyzing tax consequences of intra-company sales. Often, the analysis began with an examination of a diagram charting crude oil sales between YUKOS subsidiaries. Ms. Smirnova testified that her section, as well as various consultants, analyzed the feasibility of continuing to use companies based in zones with preferential tax treatment. According to Ms. Smirnova, after examining potential tax risks, the general consensus was that the use of those zones complied with all applicable legislation and tax regulations.
Ms. Smirnova testified that her section ensured that prices paid to production subsidiaries did not deviate significantly from the market price. She explained that, although the Tax Code discussed "market price," "market price" did not exist and does not exist now, otherwise some kind of regulatory agency would be necessary to maintain the "market price." Instead, prices were adjusted based on comparing averages from the production company's region. Ms. Smirnova testified that there was always strict compliance with provisions of the Tax Code, with crude oil prices never deviating more than 20% from the average regional price. Replying to Mr. Lakhtin's challenge, Ms. Smirnova told the court that a vertically-integrated company set intra-company prices as it saw fit.
Ms. Smirnova was questioned about the use of tax-minimization strategies. She testified that everyone was aware of tax-minimization strategies used by YUKOS, including the Ministry of Finance. According to Ms. Smirnova, every company used these strategies, with the government never raising any issues concerning tax law violations.
Ms. Smirnova testified about Bank MENATEP collecting rights write-off. Ms. Smirnova testified that writing off losses is a regular business practice. According to Ms. Smirnova, decisions about collecting rights write-off were made higher up the management ladder. Ms. Smirnova testified that, in addition to Mr. Smirnov, numerous specialists would have been consulted prior to implementing the write-off.
Ms. Smirnova's transcript revealed that Bank MENATEP collecting rights right-off took place after the bank was declared bankrupt. Dividend payments were another topic Ms. Smirnova was questioned on. Afterwards, Ms. Smirnova clarified her initial testimony, explaining that she was flustered by investigator Iogan's questions and did not realize that consolidation was not applicable under Russian accounting standards. Furthermore, Ms. Smirnova told the court that although consolidated statements contain all revenues and profits, it did not mean that all profits had to be paid out as dividends.
On cross-examination, Ms. Smirnova was allowed to answer Mr. Khodorkovsky's question about the process of production, transfer and transportation of crude oil and whether that was in anyway different from property rights to that crude oil. Ms. Smirnova explained that crude oil was shipped through pipelines to end consumers, with property rights being transferred as well, often several times. The transfer of property rights, however, was not connected to whether crude oil was shipped to a particular territory.
Ms. Smirnova supplemented earlier testimony about regional price averages. Ms. Smirnova explained that deviation of 20% in any direction from the statistical average could expose the companies to being assessed taxes based on market averages.
Ms. Smirnova confirmed that pricing was determined by YUKOS-Moscow and YUKOS-EP, but production companies remained profitable. Ms. Smirnova confirmed that price paid to crude oil production subsidiaries was higher than the cost of production. Ms. Smirnova also confirmed that consolidated statements reflected profits for all YUKOS companies, including those based in Mordovia.
Discussing tax regulations and related questions, Ms. Smirnova testified that tax regulators were aware of all sales transactions, tracking tax payments based on sales. Ms. Smirnova, once again, confirmed that tax regulators knew about crude oil sales to companies based in ZATOs. According to Ms. Smirnova, her section regularly filed a form listing YUKOS and its companies, including crude oil traders in Mordovia and other regions. Ms. Smirnova testified that all companies within YUKOS consolidation perimeter were registered taxpayers and filed tax statements with regulators. Ms. Smirnova described the wide range of tax forms filed, including for profits, VAT, real property, natural resources and social contributions. Ms. Smirnova testified that neither Mr. Khodorkovsky nor anyone else asked her section to provide to any government agencies falsified data about prices, revenues or tax payments, and neither Mr. Lebedev nor he ever asked her to take any illegal actions.
Ms. Smirnova called a hypothetical question about payment of Rotterdam prices in Russia's crude oil production regions utter foolishness. Ms. Smirnova explained that to sell at Rotterdam prices [one had to get the crude oil there], which included numerous expenses. According to Ms. Smirnova, she never heard anyone compare Rotterdam prices to those in crude oil production regions.
Mr. Lebedev asked whether any of the YUKOS production subsidiaries received refunds for taxes overpaid from 1999 through 2004, in light of the alleged embezzlement committed by Mr. Khodorkovsky and he. Ms. Smirnova replied that she wasn't aware of any companies getting refunds or amending their tax statements for years 1999 through 2003 in order to reflect the alleged theft.