Cengage Advantage Books: Foundations of the Legal Environment of Business 2nd Edition by Marianne Jennings, Albert Napier, Marianne Jennings

Exercise 8

Taxing Dilemmas in Russia
PricewaterhouseCoopers (PwC) is a U.S. "Big 4" accounting firm. PwC has had a tax practice in Russia since the time that country changed from Communist rule. One of PwC's clients in Russia was Yukos, a major Russian oil company that is now bankrupt.
Russia's Federal Tax Service, an agency similar to the Internal Revenue Service (IRS) in the United States, has filed suit against PwC, alleging that it concealed tax evasion by Yukos for 2002-2004. The Tax Service also announced a criminal probe of PwC's conduct with regard to its tax services for Yukos. Tax Service agents searched PwC's offices in Moscow and questioned PwC employees about the Yukos account. Yukos lost its tax case and has paid $9.2 million in charges for the nonpayment of taxes. However, Yukos and PwC have the case on appeal.
Many see the battle between PwC and the Tax Service as part of the Russian government's ongoing battle to sell the assets of Yukos and avoid surrendering the company's assets to investors and creditors who have filed claims. Those suits are pending in courts in The Hague. Some analysts believe that the Russian government is hoping to press PwC into revealing information that would help it take back the Yukos assets.
If PwC is found to have engaged in evasion, it loses its license to do business in Russia, and if it turns over information, it is likely to lose its clients in Russia.
What issues should a company consider before doing business in an economically developing country? What are the risks? Did this ethical dilemma begin long before the Russian government's demands of PwC? What international law, culture, and ethical issues should a company consider before deciding to do business in another country?
Source: Neil Buckley and Catherine Belton, "Moscow Raids PwC Ahead of Yukos Case," Financial Times, March 11, 2007, p. 1.