32. Commitments and contingencies

(a) Legal proceedings

The Group is subject to a number of proceedings arising in the course of the normal conduct of its business (refer to (b) below). Management believes that the ultimate resolution of these matters will not have a material adverse effect on the results of operations or the financial position of the Group.

(b) Taxation

Russian tax, currency and customs legislation is subject to varying interpretations and changes occurring frequently. Further, the interpretation of tax legislation by tax authorities as applied to the transactions and activity of the Group may not coincide with that of management. As a result, tax authorities may challenge transactions and the Group may be assessed additional taxes, penalties and interest, which can be significant. The Group's tax returns are open for review by the tax and customs authorities with respect to tax liabilities for three calendar years proceeding the year in which the decision on the conduct of the tax audit was adopted. Under certain circumstances, reviews may cover longer periods.

As at December 31, 2011, management believes that its interpretation of the relevant legislation is appropriate and that it is probable that the Group's tax, currency and customs positions will be sustained upon examination. Management of the Group believes that it has adequately provided for tax liabilities in the consolidated statements of financial position as at December 31, 2011. However, the general risk remains that relevant authorities could take different position with regard to interpretative issues and the effect could be significant.

In February 2010, the Federal Tax Service of the Russian Federation completed the comprehensive tax inspection for the period of 2007–2008 and, as a result, issued a claim in the amount of 715 of additional taxes, fines and penalties. In September 2010, higher taxing authority declared 410 of the total amount invalid. The Group appealed the decision of the higher taxing authority in respect of the remaining 305 to the Arbitration Court of Moscow. In June 2011 the claim of the Group was fully settled, though in October 2011 that decision of the Court was changed as a result of the tax authority’s appeal. The Court declared 265 of 305 invalid. The Group and the tax authority disputed that decision in the Federal Arbitration Court of Moscow Region, which declared 242 of 305 invalid. The claim of the tax authority was declared valid in the amount of 34. The Group appealed the decision in the amount of 28 to a higher taxing authority. No consideration of the suit was held by the moment the present statements were published. Management believes that, overall, taxes for 2007–2008 have been properly calculated by the Group and fairly stated in its financial statements based on the Group’s analysis of the sustainability of liability. However, certain transactions revealed during the tax inspection management assessed as unlikely to be successfully defended in higher courts. As a result, the Group has accrued additional tax liabilities. The total provision for tax liabilities for the period 2004–2008 amounted to 63 as December 31, 2011 (2010:16, 2009:169).

In September 2009 the Russian Federal Tax Service completed a comprehensive tax inspection of CJSC GlobalTel for the period of 2007–2008 and, as a result, issued a claim amounted to 217 of additional taxes, fines and penalties. Mostly, additional taxes were accrued as a result of the tax authorities’ interpretation of pricing for the services. In December 2009, CJSC GlobalTel initiated a lawsuit against the Russian Federal Tax Service in Moscow Arbitration Court. The court declared the claim of the tax authority to be invalid. The decision was upheld in the Court of Appeals and the Federal Arbitration Court of Moscow region. As a result, the Group has accrued no additional tax liabilities with regard to GlobalTel tax inspection.

In December 2007, the Federal Tax Service of the Russian Federation completed the comprehensive tax inspection for the period of 2004–2006 and, as a result, issued a claim in the amount of 1,812 of additional taxes, fines and penalties. More than 90% of the amount relates to assessments calculated on the basis of the tax authorities’ interpretation of telecommunication industry legislation in general and that of interaction between telecommunication operators in particular. The Group appealed the decision to a higher taxing authority and to the Arbitration Court of Moscow. In November 2008, the Arbitration Court of Moscow declared the claim of the tax authorities in the amount of 1,803 invalid and ordered the Group to pay 9. In February 2009, the Court of Appeals confirmed the decision of the Arbitration Court of Moscow. Subsequently, the Federal Tax Service of the Russian Federation filed an appeal to the Court of Cassation, which, in May 2009, upheld the ruling of the Arbitration Court of Moscow. Management believes that, overall, taxes for 2004–2006 have been properly calculated by the Group and fairly stated in its financial statements based on the Group’s analysis of the sustainability of liability. As a result, in 2010 the Group has reversed previously recognized provision for tax liabilities and has accrued no additional tax liabilities as at December 31, 2011 (2010: nil; 2009: 151) with regard to 2004–2006.

(c) Licenses

Substantially all of the Group’s revenues are derived from operations conducted pursuant to licenses granted by the Russian Government. These licenses expire in various years from 2013 up to 2021.

The Group has renewed all other licenses on a regular basis in the past, and believes that it will be able to renew licenses without additional cost in the normal course of business. Suspension or termination of the Group's main licenses or any failure to renew any or all of these main licenses could have a material adverse effect on the financial position and operations of the Group.

(d) Capital Commitments

As at December 31, 2011, contractual commitments of the Group for the acquisition of property, plant and equipment amounted to 56,453 (2010: 8,211; 2009: 5,993).

(e) Operating leases

As at December 31, 2011, all lease contracts are legally cancellable. However, the Group was involved in a number of operating lease agreements for land, on which the Group constructed certain leasehold improvements. Thus, it is reasonably certain that these leases would not be cancelled. Future minimum lease payments under these operating leases as at December 31, 2011, 2010 and 2009 were as follows:


  December 31,
2011
December 31,
2010
December 31,
2009
As lessee      
Current portion 461 1,963 1,849
Between one to five years 986 1,404 1,269
Over five years 2,217 4,960 4,620
Total minimum rental payables 3,664 8,327 7,738
As lessor      
Current portion 100 834 942
Between one to five years 281 444 483
Over five years 94 490 379
Total minimum rental payables 475 1,768 1,804

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