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Tax policy

LUKOIL Group is one of the three largest taxpayers in Russia.  Entities of the Group pay taxes in more than 60 regions of the Russian Federation thus having a significant impact on the income of some Russian regions. Foreign-based entities of the LUKOIL Group operate in more than 45 jurisdictions. LUKOIL companies in Romania, Bulgaria, Italy and Belgium are the largest taxpayers among other foreign-based entities of LUKOIL.  

Tax Policy

LUKOIL strictly complies with requirements of the applicable tax legislation of the Russian Federation, international treaties and laws of foreign jurisdictions where entities of the Group operate, as well as follows provisions of international laws and directives. Entities of the Group do not conclude any transactions aimed at tax savings nor do they use aggressive practices of tax planning.

The system of tax relation management and control in the LUKOIL Group is integrated into the overall strategic and corporate management, planning and control system and aims at minimizing tax risks and ensuring that tax obligations are fulfilled in full and in a timely manner.  All major processes for monitoring and fulfilling tax obligations are automated and their efficiency is subject to regular reviews.

Transparency is a basis for any tax activities of the LUKOIL Group.

Every year the Company publishes a consolidated report on payments to governments in accordance with DTR  4.3А of the UK Financial Conduct Authority Disclosure and Transparency Rules for extractive industries.

LUKOIL Group has strengthened its reputation as honest taxpayer by moving its Russian entities to a new form of tax administration called "tax monitoring" where tax authorities can access data of the accounting systems and documents of the Group in real time.   

Legality
  • Strict and unconditional compliance with provisions of the applicable tax legislation. 

Centralization
  • The Tax Block is in charge of the strategic management of the tax function and acts as a center providing for the optimal and efficient functioning of the system.

Reliability
  • Tax-related decisions are made on the basis of the comprehensive analysis of all available current information and advanced international practices;

  • Tax-related decisions are made with account of interests of the long-term sustainable development of the LUKOIL Group.

Efficiency
  • Using the potential of tax benefits and preferences in the regions of presence;

  • Avoiding double taxation;

  • Tax-related decisions should not lead to the unreasonable increase in tax obligations;

  • Providing the management with reliable tax information necessary for making well-reasoned managerial decisions.

Predictability 
  • Predicting tax obligations and payments of LUKOIL Group entities on a continuous basis with account of external and internal factors affecting the tax burden.

Standardization and unification
  • Adherence to the unified rules and common methodological approaches established by regulations of PJSC LUKOIL and requirements of the effective tax legislation.

Good faith 
  • Entities of the Group do not conclude any deals aimed specifically at achieving tax savings nor do they use aggressive practices of tax planning.

Openness 
  • Interaction with official authorities is based on disclosure of  information as provided by the applicable legislation;

  • The Group strives to build an open dialogue with official authorities to establish a favorable environment for the development of business and the social sector in the regions of its operations.

 

Tax Risk Management

A number of documents were adopted in the LUKOIL Group to manage risks, including tax risks: the Risk Management and Internal Control Policy of PJSC LUKOIL, Provision on Risk Management and Regulation on Tax Risk Management. These documents establish uniform requirements to preventing and identifying risks, including tax risks, assessing their probability and scope of consequence, mitigation measures and monitoring such risks by entities of the Group.

For the efficient management of tax risks the Company continuously monitors information resources to track planned amendments to the applicable legislation and participates in work groups to develop proposals on making amendments to the effective tax legislation of the Russian Federation and countries of its operations.

OECD Principles

Strengthening tax control over activities of international holdings through the Action Plan developed by OECD (BEPS Action Plan) is a major global trend in the area of tax administration. The BEPS Action Plan is designed to strengthen control over the profit shifting by international holdings, including increased control over transfer pricing.

To provide for the transparency and completeness of tax base formation for jurisdictions of presence of LUKOIL Group entities, every year the Company prepares Country Reports, Master File and National Documentation as required by BEPS Action 13.

LUKOIL Group has all necessary conditions in place to comply with requirements of the transfer pricing legislation.  Control mechanisms were implemented which allow for the comprehensive assessment of the use of market pricing principles in major supply chains and intragroup financing.