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Lukoil Unofficially Wins Bulgarian Tax Spat

August 2011 - Tax & Private Client. Legal Developments by Hassans.

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Bulgarian tax authorities have admitted that they will not be able to enforce sanctions on the country's only domestic energy producer, Russian-owned Lukoil, for failing to introduce metering in their operations as part of measures to prevent tax evasion.

On July 26, Lukoil's operations were suspended by the tax authorities for failing to comply with legislative amendments passed in 2010 that require storage facilities of excise goods to accurately monitor quantities of products sold to accurately determine tax liability. Lukoil had been provided thirteen months to comply, the director of the Customs Agency, Vanyo Tanov said at the time.

However, following a short-term energy crisis, and as a result of a ruling on August 2 by the Sofia Administrative Court in early August, Lukoil was permitted to resume operations. It has been confirmed that Lukoil, despite falling foul of the requirements necessary to hold a license to operate storage facilities, is the only entity that has been granted an exemption from the requirement.

The ruling kicked off a legal spat between the nation and the energy supplier; customs officials sought a higher court decision on the legality of sanctions, and the government is facing a suit from the Russian oil refinery for damages. The Sofia court's decision to allow the resumption of operations was upheld by the Supreme Administrative Court on August 10.

Speaking recently, Tanov admitted that the legal proceedings are expected to drag on too long to enforce sanctions on the producer, predicting that the metering would be installed by the time that the case had concluded.

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