Challenging the regulations on the appointment of a tax audit by the State Revenue Department

The Limited Liability Partnership "G" (hereinafter referred to as LLP) appealed to the court to challenge the orders for the appointment of a tax audit, which was received at the request of the state institution "Tax Department for the Pavlodar region of the Tax Committee of the Ministry of Finance of the Republic of Kazakhstan" (hereinafter referred to as the Department). The application was granted by the decision of the specialized interdistrict Economic Court of Pavlodar region dated August 8, 2014. The decisions of the appellate and cassation judicial boards of the Pavlodar Regional Court left the decision of the court of first instance unchanged.

The Supervisory Judicial Board for Civil and Administrative Cases of the Supreme Court annulled judicial acts of local courts and a new decision was made in the case to dismiss the claim of LLP "G" on the following grounds. The case materials established that on July 15, 2014, based on regulations No. 71, 72 dated March 20, 2014, the Department at G LLP initiated an unscheduled thematic audit on the issue of fulfilling tax obligations for certain types of taxes and (or) other mandatory payments to the budget: corporate income tax for the period from January 1, 2008 year to December 31, 2008; value added tax for the period from July 1, 2008 to September 30, 2008. According to the Decree of the President of the Republic of Kazakhstan No. 757 dated February 27, 2014 "On cardinal measures to improve business conditions in the Republic of Kazakhstan", inspections of small and medium-sized businesses were discontinued from April 2, 2014 to January 1, 2015. The Department justified its actions by the fact that since December 1, 2013, amendments have been made to the Law of the Republic of Kazakhstan "On Private Entrepreneurship" (hereinafter referred to as the Law), according to which the criteria for classifying private business entities as small, medium and large enterprises have been changed. The assignment procedure is defined by paragraphs 5, 8, and 9 of Article 6 of this Law. LLP "G" refers to large-scale business entities, since the average annual number of its employees is more than two hundred and fifty people. Satisfying the applications of LLP "G", the courts of the first, appellate and cassation instances concluded that two criteria are used simultaneously for the purposes of providing state support and applying other norms of the legislation of the Republic of Kazakhstan: by average annual population and average annual income. These conclusions of the courts of first instance, appeal and cassation instances do not correspond to the circumstances of the case and contradict the norms of substantive law. In accordance with paragraph 4 of Article 6 of the Law, categorization of private business entities is used for the purposes of: state statistics; provision of state support; application of other norms of the legislation of the Republic of Kazakhstan. Two criteria are used for the purposes of providing state support and applying other norms of the legislation of the Republic of Kazakhstan: by average annual population and average annual income. According to paragraph 9 of Article 6 of the Law, large-scale business entities are individual entrepreneurs without forming a legal entity and legal entities engaged in private entrepreneurship that meet one or two of the following criteria: the average annual number of employees is more than two hundred and fifty people and (or) the average annual income is more than three million times the monthly calculation index (5,556,000,000 tenge) established by by the law on the republican budget and effective on January 1 of the corresponding fiscal year (1852 tenge).  The above indicates that in order to classify private business entities as large business entities, it is sufficient for this enterprise to meet one or two of the above criteria. In this case, LLP "G" meets the criterion of having an average annual number of employees of more than two hundred and fifty people, which is not disputed by the parties, therefore, the actions of the Department to appoint an unscheduled tax audit in LLP "G" as a large business entity are legitimate. The conclusions of the local courts that, in order to be classified as a large business entity, it is necessary that the enterprise simultaneously meet the two above criteria are unfounded. These conclusions of the courts contradict the norms of paragraph 9 of Article 6 of the Law. These significant violations of the law committed by the courts of the first, appellate and cassation instances led to an incorrect resolution of the dispute, which, in accordance with part 3 of Article 387 of the CPC and paragraph 30 of the regulatory resolution of the Supreme Court of the Republic of Kazakhstan No. 2 dated March 20, 2003 "On the application by courts of certain norms of civil procedure legislation", was the basis for the revision in the order of supervision of judicial acts that have entered into legal force. 

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