A Claim Challenging a Notification Based on the Results of a Desk Audit Shall Be Considered under Administrative Judicial Proceedings

Pursuant to subparagraph 4) of paragraph 2 of Article 19 of the Tax Code, the tax authorities are obliged, within the scope of their competence, to provide explanations and comments regarding the occurrence, performance, and termination of tax obligations. Such explanations and comments, as well as methodological recommendations, including those issued by the authorized body, do not constitute regulatory legal acts. They shall be assessed by the court, taking into account their compliance with the provisions of tax legislation….

…Tax policy (a set of measures aimed at introducing new taxes and budget payments and abolishing existing ones, changing tax rates, objects of taxation and objects related to taxation, and the tax base for taxes and budget payments) shall be implemented by the authorized body in the field of tax policy….

…If an international treaty ratified by the Republic of Kazakhstan establishes rules different from those contained in the Tax Code, the rules of such treaty shall apply (paragraph 5 of Article 2 of the Tax Code). In accordance with paragraph 3 of Article 4 of the Constitution, the procedure and conditions for the application of international treaties to which Kazakhstan is a party within the territory of the Republic of Kazakhstan shall be determined by the legislation of the Republic….

…If a ratified international treaty grants the Government of the Republic of Kazakhstan the right to impose taxation, but such right has not been implemented in national legislation (where a tax exemption exists), national legislation shall apply….

…When interpreting conventions for the avoidance of double taxation, the general rules of interpretation provided for by international treaties and the legislation of the Republic of Kazakhstan shall apply, provided that such rules of interpretation comply with the provisions of the Vienna Convention on the Law of Treaties, to which the Republic of Kazakhstan acceded pursuant to a Resolution of the Supreme Soviet….

The resolution of the issue of conducting tax control in the event that a claim for liquidation of a legal entity or for declaring the registration (re-registration) of a legal entity invalid is granted falls within the powers of the tax authority. Only upon the adoption of measures provided for by tax legislation may the rights and legitimate interests of counterparties be affected, and such counterparties are entitled to protect their rights and legitimate interests by challenging the decisions, actions (or omissions) of the tax authorities….

Courts shall be advised that, pursuant to subparagraph 3) of paragraph 2 of Article 49 of the Civil Code, they may decide to liquidate a legal entity if the legal entity is absent from its registered location or actual address, as well as where its founders (participants) and officials, without whom the legal entity cannot function, have been absent for one year.

The absence of the above circumstances taken together shall constitute grounds for dismissing the claimant's request, since the tax authorities have other available means of response….

…The state re-registration of a legal entity constitutes an administrative act of the registering authority; therefore, a claim seeking to declare such re-registration invalid shall be considered under administrative judicial proceedings….

…Courts should take into account that, from 1 January 2020, participants in tax legal relations, when taking actions during the current tax period in relation to previous tax periods, are not entitled to apply the repealed provision of the Tax Code establishing a five-year limitation period, since under the current provision of the Tax Code, such period is three years, unless otherwise provided for by the Tax Code.

Tax authorities are not entitled to bring claims against a taxpayer and/or tax agent after the expiration of the limitation period. At the same time, the Tax Code does not limit the accrual of penalties by limitation periods….

…The general limitation period, taking into account its suspension during a tax audit concerning transfer pricing matters, may not exceed seven years.

When suspending an audit on the above matters, the tax authority must comply with the requirements of Article 8 of the Law of the Republic of Kazakhstan dated 5 July 2008….

No. 67-IV “On Transfer Pricing.” The limitation period may be suspended upon the submission of a request that must meet the following requirements:

• be addressed to the competent authority (organization) of a foreign state;
• be individualized and prepared in respect of the taxpayer under audit;
• concern matters falling within the scope of the audit.

Courts should take into account that if a request does not comply with the above requirements, such a request shall not be deemed to have been sent….

…With regard to tax claims for the payment of taxes and other payments to the budget, assessed and accrued by the state revenue authorities and presented to taxpayers for payment within the applicable limitation periods, the expiration of the limitation period does not terminate the resulting tax obligation and does not release the taxpayer from fulfilling it….

It is necessary to distinguish between the tax authority's right to assess or revise the calculated or assessed amount of taxes and other mandatory payments to the budget and the taxpayer's right to request the offset and/or refund of taxes, budget payments, and penalties. Thus, when a taxpayer exercises the right to obtain a refund of taxes from the budget, the tax authority does not assess or revise the calculated amount of taxes; rather, it confirms or refuses to confirm the refund of taxes from the budget.

In this regard, with respect to taxpayers' right to request the offset and/or refund of taxes, budget payments, and penalties, when calculating the limitation period, account should be taken of the date on which the tax authority accepts (registers) the tax application provided for in subparagraph 1) of paragraph 4 of Article 101 of the Tax Code, or the claim for the refund of the excess amount of VAT provided for in subparagraph 2) of paragraph 1 of Article 431 of the Tax Code, rather than the date of the decision issued following a tax audit, including the notification of the results of a tax audit….

…If the state duty has been paid by the claimant using an incorrect budget classification code or has not been paid in full, then, in accordance with part four of Article 138 of the Administrative Procedural and Process-related Code of the Republic of Kazakhstan (hereinafter referred to as the APPC), the judge shall inform the claimant of these deficiencies and set a time limit for their correction….

…The submission by a taxpayer, within the period established by the Tax Code, of an explanation regarding the identified violations not specified in paragraph 3 of Article 96 of the Tax Code, which complies with the requirements of subparagraph 2) of paragraph 2 of Article 96 of the Tax Code, shall be recognized as compliance with the notification to remedy violations identified by the tax authorities as a result of desk audit and shall not require an examination of the merits or validity of such violations.

By virtue of part two of Article 135 of the APPC (an action for recognition), the claimant may also seek recognition of an onerous administrative act as unlawful even if it is no longer legally effective. Therefore, claims challenging an executed notification issued as a result of desk audit are subject to consideration by the court.

A claim challenging a notification issued as a result of desk audit shall be considered under administrative judicial proceedings.

When considering claims challenging notifications to remedy violations provided for in subparagraphs 2) and 3) of paragraph 3 of Article 96 of the Tax Code, identified by the tax authorities as a result of desk audit, the court is obliged to assess and examine the evidence submitted by the taxpayer confirming the actual receipt of goods, works, or services specifically from a legal entity and/or an individual entrepreneur whose registration (re-registration) has been declared invalid by a court decision that has entered into legal force, in accordance with paragraph 5 of Article 96 of the Tax Code.

In all other cases, it is sufficient for the court to establish whether the tax authority had the grounds provided by law for issuing the notification, without examining the substantive merits of its requirements. Otherwise, the results of future tax audits, including an unscheduled thematic audit concerning the failure to comply with a notification issued as a result of desk audit, would be prejudged.

The tax authority is entitled to issue a decision recognizing a notification as unfulfilled, including in cases where:

• the taxpayer is not required to submit an explanation under paragraph 3 of Article 96 of the Tax Code and the violations have not been remedied;
• the time limit established by the Tax Code for submitting an explanation or filing a complaint against a notification issued as a result of desk audit has been missed and the violations have not been remedied;
• a court decision that has entered into legal force has dismissed the taxpayer's claim seeking recognition as unlawful of a notification issued pursuant to paragraph 3 of Article 96 of the Tax Code, and the violations have not been remedied.

A complaint (claim) against a decision recognizing a notification as unfulfilled may be filed by the taxpayer within ten working days from the date of its delivery (receipt) with the higher tax authority and/or the authorized body or with the court.

The right to choose the authority with which such a complaint (claim) may be filed belongs to the taxpayer….

…At the same time, it should be borne in mind that, pursuant to paragraph 3 of Article 117 of the Tax Code, penalties shall not be accrued on the amount of arrears in property tax, land tax, and vehicle tax payable by individuals, where such arrears arose as a result of the tax authorities revising the calculated amounts of taxes after the due date for payment of taxes for the relevant tax period….

At all stages of challenging the actions and acts of tax authorities by claimants, the court should consider the possibility of reconciliation between the parties and the possibility of resolving the dispute independently by the tax authority (for example, by making corrections to information systems in the event of technical errors, assigning the status “fulfilled” to desk audit notifications, and so forth) in cases where administrative discretion exists….

…In accordance with part six of Article 98 of the Administrative Procedural and Process-related Code of the Republic of Kazakhstan (hereinafter, the APPC), a complaint may not result in a decision detrimental to the complainant. Since a thematic audit under Article 186 of the Tax Code is appointed during the consideration of a taxpayer’s (tax agent’s) complaint, the authorized body may not, based on the results of such audit, issue a decision assessing additional amounts of taxes, other mandatory payments to the budget, or penalties that were not assessed in the contested notification.

A decision of a higher authority (authorized body) adopted following the consideration of a complaint against a notification of the results of a tax audit may not be the subject of judicial challenge, as it does not entail independent legal consequences. Where the notification of the results of a tax audit is left unchanged, the notification itself may be challenged in court; where it is partially revoked, the notification on the outcome of the consideration of the complaint against the notification of the results of the tax audit may be challenged.

Pursuant to Article 148 of the Tax Code, a prescription constitutes the basis for conducting a tax audit.

As an act authorizing the appointment of an audit, a prescription may be the subject of judicial challenge, since it is issued in the exercise of the tax authority’s public powers and entails legal consequences for the taxpayer (tax agent)….

…Unscheduled audits may not be appointed or conducted in the absence of the grounds listed in paragraph 3 of Article 145 of the Tax Code and paragraph 3 of Article 144 of the Entrepreneurial Code. Such audits shall be declared invalid, and the acts authorizing their appointment shall be recognized as unlawful and cancelled pursuant to paragraph 1 and subparagraph 1) of paragraph 2 of Article 156 of the Entrepreneurial Code, as having been issued in the absence of grounds for conducting an audit.

Based on the provisions of Article 159 of the Tax Code, under which the decision resulting from a tax audit is the notification of the results of the tax audit issued by the tax authority, where a taxpayer (tax agent) disagrees with the assessed amounts of taxes and other mandatory payments to the budget, obligations relating to the calculation, withholding and transfer of mandatory pension contributions and mandatory occupational pension contributions, the calculation and payment of social contributions and/or contributions to compulsory social health insurance, and penalties, the reduction of losses, or the refusal to confirm for refund excess amounts of VAT and/or corporate (individual) income tax withheld at source from the income of non-residents, only the notification shall be subject to judicial appeal. The court shall verify the lawfulness of the assessment of the contested amounts, taking into account the conclusions set out in the tax audit report.

A tax audit report may be challenged if the taxpayer disagrees with its conclusions that did not result in the consequences specified above but nevertheless affect the taxpayer’s rights and obligations, including in future tax periods. A tax audit report shall be challenged in accordance with the procedure established by the legislation of the Republic of Kazakhstan for challenging the actions of officials of tax authorities.

Compliance with a notification of the results of a tax audit does not deprive the taxpayer of the right to challenge the fulfilled notification in accordance with the procedure and within the time limits established by the Tax Code.

The contents of a tax audit report must comply with the requirements of paragraph 1 of Article 158 of the Tax Code. The conclusions of the tax authority regarding violations of tax and other legislation of the Republic of Kazakhstan committed by the taxpayer (tax agent) shall be set out with references to the relevant provisions of legislation, substantiation of the arguments, and disclosure of the circumstances evidencing such violations.

Pursuant to part three of Article 129 of the APPC, when considering a claim challenging the results of a tax audit, the tax authority may rely only on the conclusions and grounds demonstrating violations by the taxpayer of tax and other legislation that are reflected in the tax audit report….

According to the principle of certainty of taxation established by Article 6 of the Tax Code, taxes and payments to the budget of the Republic of Kazakhstan must be clearly defined.

Certainty of taxation means that the tax legislation of the Republic of Kazakhstan must establish all grounds and procedures for the occurrence, fulfillment, and termination of a taxpayer’s tax obligation, as well as the tax agent’s obligation to calculate, withhold, and remit taxes….

…The burden of proving the circumstances that served as the basis for the adoption by the tax authority of the contested act rests with the tax authority….

…Taking into account the provisions of Article 128 of the APPC, the tax authority bears the obligation to submit to the court evidence demonstrating the unlawfulness of the taxpayer’s obtaining of a tax benefit.

Where a taxpayer challenges a notification of the results of a tax audit or a tax audit report on the grounds that the tax authority violated the procedures and time limits for conducting tax audits established by Paragraph 2 of Chapter 18 of the Tax Code, the court should assess the nature of the violations committed and their impact on the lawfulness and validity of the audit results. In particular, the results of an audit conducted without a prescription—which, pursuant to Article 148 of the Tax Code, constitutes the basis for conducting a tax audit—or on the basis of a prescription subsequently declared unlawful, shall be recognized as unlawful.

Similar consequences shall arise if, in violation of paragraph 1 of Article 146 of the Entrepreneurial Code, the prescription authorizing a tax audit, except for a counter-audit, was not registered with the authorized body in the field of legal statistics and special records.

Abbreviations

APPC – Administrative Procedural and Process-related Code

CPC – Civil Procedure Code

Tax Code – Code of the Republic of Kazakhstan “On Taxes and Other Mandatory Payments to the Budget”

DGD, Department – Department of State Revenues

UGD, Administration – State Revenue Administration

CC – Criminal Code

CPC (Criminal Procedure) – Criminal Procedure Code

CIT – Corporate Income Tax

VAT – Value Added Tax

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