The team of Pepeliaev Group’s tax practice has successfully protected the interests of Kosvinsky Kamen CJSC before the Russian Supreme Court in a dispute concerning the taxation of the extraction of concentrates and other intermediate materials containing gold, platinum and other precious metals.
On 13 December, the Supreme Court’s Board for Economic Disputes considered case No. А60-42662//2022 and resolved it in favour of the taxpayer, thus reversing the decisions of state commercial courts.
The essence of the case, which was handled by Pepeliaev Group’s experts starting from the first cassation stage (when it was considered by the circuit court), is as follows.
From 1 January 2021, mineral extraction tax in relation to solid minerals has been calculated taking into account the special rent coefficient (Кrent). Whereas the general value of this coefficient is 1, for certain minerals the rent coefficient is set at 3.5. As a result, the tax assessed on such minerals is increased by 3.5 times.
For concentrates and other intermediate materials containing gold and/or silver, the rent coefficient is set at 1. The taxpayer had applied this coefficient since it extracts a mineral that is a concentrate containing several precious metals, gold being one of them.
In its decision further to an inspection, the tax authority proceeded otherwise: it nominally (according to the value shares) divided into two parts a single mineral (non-divisible when extracted), which is a concentrate containing several precious metals. With regard to gold, it applied the rent coefficient of 1, whereas with regard to platinum and metals of the platinum group, it used the Кrent multiplying coefficient of 3.5. Accordingly, an increased amount of mineral extraction tax was assessed on this part of the single mineral extracted. The courts of three instances agreed with this approach of the tax authority.
The groundless application of the coefficient to the extraction of the gold and platinum concentrate resulted in an amount of tax which in many cases makes extraction loss-making.
Pepeliaev Group’s lawyers drafted a cassation appeal to the Supreme Court against these judicial acts. This appeal touches upon important legal issues relevant both to the extraction industries as well as to the development of tax law in general, for instance:
- the priority of a literal interpretation of the provisions of tax law;
- the content and meaning of the factual elements of the tax and the procedure for how they are established by law;
- the need to account for the purposes of changes being made to the Russian Tax Code and the economic rationale of mineral extraction tax.
After considering the appeal in a court hearing, the Supreme Court’s Board for Economic Disputes reversed the decisions of the lower courts and invalidated the decision of the tax authority.