Following ArcelorMittal Kryvyi Rih, the Security Service of Ukraine, the Bureau of Economic Security and the prosecutor's office came with searches to the mining and processing plants of Metinvest (owned by Rinat Akhmetov and Vadim Novinsky). The reason is the alleged evasion of paying rent for subsoil, which is now the basis for the future economic passport of the president. What is the essence of the tax dispute, what the parties say and what is the background of this issue – in the material Delo.ua.
Subsoil rent: why did the SBU and BEB search the GOKs of Metinvest and who else is threatened by the attention of the authorities
Following ArcelorMittal Kryvyi Rih, the Security Service of Ukraine, the Bureau of Economic Security and the prosecutor's office came with searches to the mining and processing plants of Metinvest (owned by Rinat Akhmetov and Vadim Novinsky). The reason is the alleged evasion of paying rent for subsoil, which is now the basis for the future economic passport of the president. What is the essence of the tax dispute, what the parties say and what is the background of this issue – in the material Delo.ua.
We continue to fight the occupier on the information front, providing only verified information and analytics.
On the evening of February 1, the Metinvest group officially announced that employees of the SBU and BEB, accompanied by the prosecutor's office, were conducting searches at mining and processing plants in Krivoy Rog of the Dnepropetrovsk region – Northern, Central and Ingulets.
The company claims unprecedented unjustified pressure on business groups by law enforcement agencies. The actions of law enforcement agencies (representatives of the SBU, BEB and the prosecutor's office) are accompanied by numerous violations. Searches are carried out unlawfully. In their actions, law enforcement agencies actually appropriated the function of the tax service, trying to bypass tax legislation to establish additional tax liabilities for businesses, the statement reads.
Metinvest said that during the searches, computer equipment was confiscated, pressure was put on the employees of the enterprise, and the economic activity of the plants was partially paralyzed.
The Metinvest Group promptly and fully responds to all requests, provides documents and information, which is direct evidence of a transparent business. Metinvest maintains a public position and calls on law enforcement agencies to refrain from illegal actions and stop pressure on the group's enterprises due to for allegedly incorrectly calculated tax deductions, which harms the company's business partnership and Ukraine as a whole, the statement said.
However, the next day, Metinvest stated that the searches were carried out with gross violations and threatened to go to court.
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Subsoil rent: why did the SBU and BEB search Metinvest’s GOKs and who else is threatened with the attention of the authorities.
Following ArcelorMittal Kryvyi Rih, the Security Service of Ukraine, the Bureau of Economic Security and the prosecutor's office came with searches to the mining and processing plants of Metinvest (owned by Rinat Akhmetov and Vadim Novinsky). The reason is the alleged evasion of paying rent for subsoil, which is now the basis for the future economic passport of the president. What is the essence of the tax dispute, what the parties say and what is the background of this issue – in the material Delo.ua.
Subsoil rent: why did the SBU and BEB search the GOKs of Metinvest and who else is threatened by the attention of the authorities
Following ArcelorMittal Kryvyi Rih, the Security Service of Ukraine, the Bureau of Economic Security and the prosecutor's office came with searches to the mining and processing plants of Metinvest (owned by Rinat Akhmetov and Vadim Novinsky). The reason is the alleged evasion of paying rent for subsoil, which is now the basis for the future economic passport of the president. What is the essence of the tax dispute, what the parties say and what is the background of this issue – in the material Delo.ua.
We continue to fight the occupier on the information front, providing only verified information and analytics.
On the evening of February 1, the Metinvest group officially announced that employees of the SBU and BEB, accompanied by the prosecutor's office, were conducting searches at mining and processing plants in Krivoy Rog of the Dnepropetrovsk region – Northern, Central and Ingulets.
The company claims unprecedented unjustified pressure on business groups by law enforcement agencies. The actions of law enforcement agencies (representatives of the SBU, BEB and the prosecutor's office) are accompanied by numerous violations. Searches are carried out unlawfully. In their actions, law enforcement agencies actually appropriated the function of the tax service, trying to bypass tax legislation to establish additional tax liabilities for businesses, the statement reads. Metinvest said that during the searches, computer equipment was confiscated, pressure was put on the employees of the enterprise, and the economic activity of the plants was partially paralyzed.The Metinvest Group promptly and fully responds to all requests, provides documents and information, which is direct evidence of a transparent business. Metinvest maintains a public position and calls on law enforcement agencies to refrain from illegal actions and stop pressure on the group's enterprises due to for allegedly incorrectly calculated tax deductions, which harms the company's business partnership and Ukraine as a whole, the statement said. However, the next day, Metinvest stated that the searches were carried out with gross violations and threatened to go to court.“Searchs were carried out at the Group’s enterprises, carried out with significant violations of the law. In particular, the searches were carried out on the basis of a “defective” court ruling, which did not specify the period of its validity, which directly contradicts the norms of the Criminal Procedure Code of Ukraine.
The searches were carried out partly in premises and at addresses that were not indicated in the court decisions. Law enforcement agencies blocked video recording of investigative actions by the company's lawyers. These actions of law enforcement agencies are contrary to the requirements of the legislation of Ukraine and will be appealed in court.
The behavior of law enforcement officers went beyond the legal field and probably indicates that the real purpose of the organized searches was not to find things or documents related to the investigation, but solely to intimidate and harass business, Metinvest said.
The BEB said: searches are carried out in companies that underestimated the rent for the use of subsoil in the period 2018-2020. According to the agency, criminal proceedings have been initiated under part 3 of article 212 of the Criminal Code on the facts of deliberate tax evasion by company officials. These facts, the Bureau explains, are confirmed by the conclusions of analytical studies conducted by the State Tax Service.
The procedural investigation is led by the Office of the Prosecutor General, and specialists from the National Academy of Sciences of Ukraine, the Kyiv Research Institute of Forensic Examinations and surveyors are also involved.
Ore or concentrate?
However, Metinvest is not the first company to be approached with the issue of tax evasion in the period 2018-2020. Earlier, one of the largest foreign investors, ArcelorMittal Krivoy Rog, which is part of the group of Indian businessman Lakshmi Mittal, had similar problems.
At the beginning of 2022, the Shevchenkovsky Court of Kyiv, after an appeal from the Office of the Prosecutor General
blocked company accounts
from which employees were paid salaries, then
lifted the ban
. Other previously arrested accounts remain blocked.
The essence of the dispute between miners and fiscals is what is the subject of rent taxation – ore or iron ore concentrate? And why specifically in this case to pay taxes – from the cost of mining ore or from the cost of producing concentrate? After all, the cost of the processes is different.
The Tax Code allows two norms to be interpreted in two ways.
GOKs pay rent from their economic activities.
According to subparagraph 14.1.37 of the Tax Code of Ukraine, the economic activity of a mining enterprise is an activity that covers the processes of extraction and primary processing of minerals.
According to the legislation in force at the time of 2018-2020, the primary processing of mineral raw materials is a type of operation that includes enrichment by physical and chemical methods without changing the mineral forms of fossils, the aggregate-phase state, and the crystal-chemical structure.
And here the question arises: why pay rent – from ore or from concentrate?
The tax authorities are sure that from the concentrate. To substantiate this, in a lawsuit with AMKR, representatives of the State Fiscal Service referred to a letter from the National Technical University Dniprovska Polytechnic, which stated that at the stages of turning ore into a concentrate, the mineral form, state of aggregation and crystal chemical structure do not change, but the product itself can be taken into account as iron ore. The Office of the Prosecutor General substantiated its activities with the findings of a comprehensive forensic examination on the study of materials, substances and products and economic examination of the National Scientific Center Institute of Forensic Examinations. honored prof. M.S. Bokarius of the Ministry of Justice of Ukraine, which involved specialists from the Institute of Geochemistry, Mineralogy and Ore Formation named after M.P.Semenenko of the National Academy of Sciences of Ukraine, as well as the conclusions of a comprehensive forensic examination of materials, substances and economic examination of the KNIISE of the Ministry of Justice of Ukraine.
The position of the industry in this case is the opposite.
“Our position is that the object of taxation is the extracted iron ore. The position of the tax authorities is that it is a concentrate,” says Artem Filipiev, Deputy General Director of ArcelorMittal Kryvyi Rih.
Representatives of the mining and metallurgical complex explain the differences between ore and concentrate using two metaphors. The first metaphor is tomatoes and tomato juice. Tomatoes in this case are ore: they are a marketable product, and in order to extract them, certain costs must be incurred. Tomato juice, in turn, is already a concentrate, that is, a product of deeper processing. Andrey Levitsky, technical director of the AMKR mining department, explains: there is no such product as ore in nature. It is already a product of primary processing, because before reaching a marketable condition (pieces less than 20 mm in size), it goes through the process of extraction from the bowels, and then four stages of crushing.
Next comes deep enrichment due to the fact that the ore itself, which is mined by AMKR, is quite poor: the total iron content in it is 34%, magnetite – 25%. To do this, the pebbles are crushed into dust. “Imagine a bun with raisins. To get the raisins out, you have to crumble the whole bun,” says Levitsky. Next – magnetic separation, hydrocyclones, dirt separators. In general, a huge processing cycle, the result of which is, in fact, a concentrate – a black powder with 65% iron. As a result, even two products are obtained: a concentrate and a tail with a 15% content of a valuable substance, which can also be used, say, as building materials.
The result of the discrepancy between the positions of the State Fiscal Service and AMKR is quite significant: the fiscal authorities calculated the discrepancy between the paid rent for ore and the calculated rent for concentrate in the amount of UAH 2.2 billion.
AMKR is involved in an administrative dispute and several criminal proceedings, in particular, on November 17, the Prosecutor General's Office and the SBU opened a criminal case against the company's financial director, Sergei Plichko, on the same suspicion of tax evasion. For him, they first asked for a deposit of UAH 2.2 billion (the exact amount of underpaid, according to the State Fiscal Service, taxes), later the amount decreased to UAH 20 million, which has already been paid.
In the case of Metinvest, BEB also immediately announced four suspects.
Accordingly, as previous practice shows, searches of these persons may soon take place, and if this happens, Delo.ua will closely monitor the amounts of bail that the prosecutor's office will require.
The courts are on the side of business
It should be noted that AMKR's position on this issue – to pay rent based on the volume of ore – is not unique: due to the possibility of a dual interpretation of Ukrainian tax legislation until 2022 (after the adoption of Law 5600, the situation with charges has changed), the entire industry pays rent from ore . Both the Federation of Metallurgists and Ukrmetallurgprom support the residents of Kryvyi Rih in this matter.
“The issue of rent was discussed many times. When drafting bills 1210, 5600, the question was raised of what is the tax base,” says Oleksandr Kalenkov, head of the Ukrmetallurgprom association of enterprises. “Then they looked at the established practice, which shows that ore is the tax base. taxation on oil production and gasoline production. In fact, the same tax base applies, for example, to manganese ore, however, the claims arose specifically against iron ore assets. This is a bad signal for everyone, and Arcelor spoke about it right away. Business is shocked, this crossing borders and red lines: given the selectivity of Ukrainian justice, they can come to anyone.
What the authorities say
At the same time, as sources in the market told Delo.ua, there are a number of companies that are engaged in mining and which have encountered interest from law enforcement agencies on the issue of paying rent.
In February and March, a number of companies should come to the Bureau of Economic Security. These are mining companies that pay large taxes on state budget, and we are talking about businesses with both domestic and foreign investments, they said, while clarifying us. What is at least about more than five companies that are included in the TOP-100 of the country's largest taxpayers.
The Bureau of Economic Security says there are four such enterprises, but the list may expand.
The prosecution authorities were entrusted with the Economic Security Bureau of economic investigation for one of the criminal proceedings, which was instituted on the facts of deliberate evasion of taxes by officials of four enterprises. Investigative actions are carried out at enterprises that, during the implementation of economic activities for the extraction and processing of minerals, underestimated the rental fee for the use of subsoil, ”the BEB press service said in response to a request Delo.ua, specifying that in their conclusions they are based on analytical studies conducted by the state tax service. Based on the court order, the detective of the BEB conducted searches in the administrative buildings of companies . Examination of deposits and production facilities for the processing of minerals was carried out. Examination is carried out.
Now the analysts of the bureau process a documentary base, including analytical studies of financial and economic activities, for the presence of signs of tax evasion and evaluate possible risks in the industry as a whole.
Objects of inspections on this subject can become any enterprise if facts of violations are established, say in the BEB.
In general, the department states that it is guided in its actions primarily by analytics, and the relevant conclusions of the analytical studies of the tax indicate that the requirements of tax legislation are violated.
In order to obtain additional evidence (including primary documents), explanations from officials and determine the final amount of damages, investigative actions are being carried out, the Bureau explained, noting that further all materials are transferred to forensic experts.
Delo.ua interviewed a number of large miners and found out that several mining and processing plants are preparing for lawsuits against the fiscal authorities on the issue of rent accrual in the period 2018-2020.
Thus, the issue will again go to the courts, where there is already a stable practice. This time, the case may go to international arbitration – in any case, AMKR directly states that they are ready for this.
The court practice that has developed in Ukraine is really on the side of business: on November 4, 2021, AMKR itself received a positive decision on rent from the Dniprovsky District Administrative Court in its own claim against the State Fiscal Service, and in 2016 other miners filed similar claims against tax authorities: PJSC Northern Mining and Processing Plant, JSC Poltava Mining and Processing Plant, LLC Ingulets Mining and Processing Plant. All of them were satisfied by higher authorities. You can read all this with details in the previous article by Delo.ua.
It should also be noted that the newly adopted law 5600 preliminarily settled the issue of rent. The price of ore in the Chinese market according to the IODEX 62% FE CFR China index of the pricing agency Platts became a new rent indicator. So, at a price above $200 per ton, the rent rate will be 10%, at a cost of $100-200 per ton – 5%. If the price per ton of ore drops below $100, the lowest rental rate of 3% is used.
According to the miners, based on the legislation, today it is the concentrate that will be considered a marketable product, which indirectly proves the validity of business claims against the state: earlier this issue was still not fully resolved. However, there may be nuances here: experts explain that first it is necessary to “live through” the new norm, they say, tax practice should first appear, then judicial practice, which can actually change the understanding of the new norm prescribed in the law.
Continued hostility or a message to the world?
As in the story with ArcelorMittal Krivoy Rog, so in the case of Metinvest, there are personal motives. Back in 2019, during a visit to Krivoy Rog, Volodymyr Zelensky severely criticized AMKR for insufficient efforts in the fight against emissions, after which an “ecocide” proceeding appeared, and then a tax dispute. Relations between President Volodymyr Zelensky and Rinat Akhmetov have also been tense for a long time.
