British Council to Challenge 'incorrect' Russian Tax Bill

Relations between Britain and Russia today hit another low after the British Council in Moscow said it had received a punitive and "incorrect" tax bill from the Russian authorities.

Tax officials sent the demand in May, the organization said, and also threatened to send bailiffs to seize books, furniture and computers from the council's Moscow office unless it was paid in full.

The demand was the latest in a series of hostile moves against the cultural organization by Russia.

It followed the closure of the council's regional offices in St Petersburg and Yekaterinburg in January and the intimidation by the FSB - Russia's post-KGB spy agency - of local staff.

The Kremlin admitted that its campaign against the UK government-funded body was directly linked to the row between Moscow and London over the murder of the Russian dissident Alexander Litvinenko in November 2006.

Last summer, Britain expelled four Russian diplomats after the former Russian president Vladimir Putin refused to extradite Andrei Lugovoi, the former KGB agent accused of Litvinenko's murder.

Russia responded by kicking out four British diplomats.

The council today described the tax bill - which covers 2004 to 2006 - as "incorrect."

It is taking legal action in Moscow's Basmanny court to have the bill, submitted following an inspection last year, overturned. A preliminary hearing will be held on Thursday.

"The British Council has received a tax claim from the Russian authorities," a British Council spokesman told guardian.co.uk today. "We dispute most of it. We are going to court to challenge it as allowed under Russian law.

"The British Council is registered for and pays tax in Russia. It has complied with all requests from the tax authorities in respect of its activities."

Council officials refused to reveal how big the bill was, but said they had already made the "appropriate payment" in accordance with Russia's tax code.

Russian tax officials last raided the organization in 2004, and the federal tax inspectorate declined to comment today.

The latest squeeze on the council comes at a time when British-Russian relations had appeared to be improving slightly following Dmitry Medvedev's inauguration as the new Russian president last month.

Medvedev will meet Gordon Brown during July's G8 summit in Japan.

Today, Tony Blair - attending a private investors' conference in Moscow - admitted relations between London and Russia had been "difficult", adding: "I've been out of office a year, but I still remember the diplomatic language."

Blair, who had dinner with Putin on Tuesday, said the west was still coming to terms with Russia's new economic strength.

"They have a pride in Russia today they didn't have ten years ago," he said. "We, in countries like mine, have to understand that change in psyche."

However, he added Moscow had to make sure it applied rules that were "objective and transparent".

British diplomats believe hawkish elements within Russia's security services could be behind the latest moves against the British Council, suggesting that the FSB remains implacably opposed to any rapprochement between London and Moscow.