Protected the client’s interests before the Supreme Court in a dispute concerning mineral extraction tax on the extraction of gold concentrates

The 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.

The essence of the case, which was handled by our experts starting from the first cassation stage, 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 (К_RENT). 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 audit, the tax authority proceeded otherwise: it nominally 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 К_RENT multiplying coefficient of 3.5. An increased amount of mineral extraction tax was assessed on this part of the single mineral extracted. Courts of three instances agreed with the tax authority's approach. This resulted in a tax amount which in many cases made extraction loss-making.

Pepeliaev Group’s lawyers prepared a cassation appeal to the Russian Supreme Court where important legal problems were addressed which are of great importance both for extraction industries and for the development of tax law in general: the priority of a literal interpretation of the provisions of tax law; the content and meaning of legal elements of tax and the procedure for how they are established by law; and the need to account for the purposes of changes being made to the Russian Tax Code and the economic rationale of mineral extraction tax.

The Judicial Board for Economic Disputes of the Russian Supreme Court set aside the judgments of the lower-level courts and resolved the matter in favour of the taxpayer.