1. EU 3 rd Energy Package in the context of the tax problems of cross-border energy supplies REPORTER: KUROCHKIN DENIS ALEKSEEVICH EURASIAN RESEARCH CENTRE FOR COMPARATIVE AND INTERNATIONAL TAX LAW 8 th Session of Congress, 22 May, 5-6 June, 2014, Yekaterinburg

2. Cause for discussion: Appeal of Russia to the WTO proceedings against the EU 3 rd Energy Package the provisions of which, in the opinion of the Russia, contrary to the obligations of the EU to the WTO related to compliance with the principle of non-discrimination

3. EU 3 rd Energy Package includes the following documents: Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC; Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for internal market in electricity and repealing Directive 2003/54/EC; Regulation № 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions of access to the natural gas transmission networks and repealing Regulation (EC) № 1775/2005; Regulation № 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions of access to the networks for crossborder exchanges in electricity and repealing Regulation (EC) № 1228/2003; Regulation № 713/2009 of the European Parliament and of the Council of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators.

4. The purposes of the EU 3 rd Energy Package: separation of supply and production activities from network operations; ensuring greater market transparency transmission system operators and energy consumption; creation of effective national regulatory authorities; promoting cross-border co-operation and investment; promoting cross-border energy trade; increase solidarity between EU Member States.

5. Most controversial provisions of the EU 3 rd Energy Package: 1. Separation of «vertically integrated undertaking» (VIU); On the choice of the EU Member States proposed the following models of separation of VIU: ownership unbundling; independent system operator, НСО; independent transmission operator, НТО. Exceptions to the requirement of separation of VIU: major new gas infrastructure (Art. 36 of Directive 2009/73/EC); isolated markets[1] (Art. 49 of Directive 2009/73/EC);[1] emergent markets (Art. 49 of Directive 2009/73/EC). Exceptions don’t concern transportation system, connecting EU Member States with third countries (eg Russia). [1][1] Finland, Latvia, Estonia, Cyprus

6. 2. Third countries clause Article 9 of Directive 2009/73/EC introduces: obligatory certification a transmission system owner or a transmission system operator from EU Member States Transmission system owner or a transmission system operator which is controlled by a person or persons from a third country or third countries may be certified, if they prove that granting certification will not put at risk the security of energy supply of the EU Member State and the EU (Article 11). But are not defined: - term «security of energy supply»; - evidence that owner/operators may submit in support of the absence of risk the security supply.

7. Third countries clause: 1) doesn’t apply to operators controlled by investors of the EU, i.e. constitutes a breach of national regime, limiting the rights of foreign investors. 2) apply to newly created and existing operators, that may give rise to destabilizing the existing relations in the energy sector.

8. Statistics EU-Russian relations in the energy sector: 36% gas, 31% oil and 30% coal EC receives from Russia; ; Russia sends to the EU 80% of its oil, 70% - of gas and 50% - of coal; ; on oil trade accounts 63% of sales in Russia and the EU, gas trade - 9%, coal trade - 2%[1].[1] [1] http://russiancouncil.ru/inner/?id_4=1492#tophttp://russiancouncil.ru/inner/?id_4=1492#top

9. Tendency of development of Russian-European relations in cross-border energy supply: Directive 2009/73/EC provides the legal basis for assigning European countries in their property those parts of the Russian pipelines which pass through their territory (examples with Poland and Latvia).

10. The risk of situation of double (multiple) taxation and non-taxation There is no basic agreement between EU (some EU Member States) and Russia on the taxation of income from use of pipelines  collision between legal systems (jurisdictions, approaches) as regards the qualifications these kind of tax incomes

11. Possible approaches of qualifying income from the use of pipelines (according to the OECD Model Tax Convention and its Commentaries) - Permanent Establishment (Art. 5(1)); - Activity of preparatory or auxiliary character (Art. 5(4)); - Income from immovable property (Art. 6); - Shipping, inland waterways transport and air transport (Art. 8); - Other Income (Art. 21).

12. Contradiction of provisions of EU 3 rd Energy Package 1.Contradiction with the general principles of international law (including EU law); 2.Contradiction with international investment law: a direct breach of principle of protection of legitimate expectations; 3.Contradiction with legal regimes of the WTO; 4.Contradiction with provisions of the Customs Union and the EurAsEC; 5.Contradiction with provision of the Constitution of the Russian Federation.

13. Risks of using the EU 3 rd Energy Package decrease of quality indicators of transport infrastructure; scarcity energy resources; increase of prices on energy resources for European consumers; corporate and investment disputes between business entities and / or EU Member States.

14. Conceptual problems between Russia and the EU in the energy sphere 1. Different interpretations of the organization of the energy sector; 2. Lack of clear purpose of cooperation in the energy sector; 3. Lack of depoliticizing of the energy sector; 4. Lack of a legal founfations for international energy cooperation.

15. THANKS FOR YOUR ATTENTION!