OREANDA-NEWS. ОАО Severstal (“the Company”), one of the world’s leading steel and steel-related mining companies, and the Federal Tax Service of Russia (“FNS”) have signed an agreement to develop and expand the exchange of information and introduce horizontal monitoring. The signatories on the agreement were Alexey Mordashov, Chief Executive of ОАО Severstal, and Olga Makhalova, the Head of the FNS’s 5th Interregional Inspectorate for Major Taxpayers.

As part of the agreement, the tax authority will monitor the financial and business operations of the Company in real time, and each company will be able to agree earlier its tax positions with the Federal Tax Service of Russia. This mechanism is beneficial to Severstal as it allows the reduction of tax risk in many cases by increasing the predictability of taxation, and reduces the possible uncertainty that arises from the interpretation and application of tax laws.

Horizontal monitoring provides full disclosure of the activities on the part of the Company, allowing tax authorities to conduct tax audits on an ongoing basis. In cases where there are disputes about taxation on transactions, the Company can provide information on completed or proposed transactions to obtain clarification on the matter, and adjust its tax policy later.

As a result an effective mechanism of compliance with Russian legislation on taxes and fees by corporate taxpayers is created, as well as the predictability of tax regulation and quality of taxpayer administration being improved.

Similar agreements with the FNS have already been signed by OAO Inter RAO UES, OAO RusHydro, OAO MTS, and the CIS-based office of Ernst & Young, the international professional services group.

The FNS develops and implements new approaches to tax administration that have to date proved effective in a number of international countries. Similar processes have proved successful in the USA, Ireland and the Netherlands.

A challenge for the business community and tax authorities alike is the streamlining of tax administration procedures. One example of progress in this area is the inclusion of the Consolidated Group of Taxpayers (“KGN”) in the RF Tax Code. Since 1 January 2013, Severstal’s KGN has grown from 9 to 22 tax paying companies.