Desk control notifications Notification execution methods

As a rule, taxpayers appeal against actions in the form of issuing a notification, the notification itself, and/or the decision of the tax authority to recognize the notification as unfulfilled.

3.5.1.1 According to paragraph 2 of Article 94 of the Tax Code, the purpose of desk control is to provide the taxpayer with the right to independently eliminate violations identified by the tax authorities based on the results of desk control.

Paragraph 2 of Article 96 of the Tax Code provides for two ways of executing notifications on the elimination of violations identified by the results of desk control by the taxpayer: - in case of consent - by eliminating the identified violations; - in case of disagreement, by providing explanations on the violations identified on paper or electronic media.

The notification is executed by the taxpayer (tax agent) within thirty working days from the day following the day of its delivery (receipt). Thus, the submission of an explanation of disagreement with the notification is recognized as the execution of the notification and terminates its effect.

Accordingly, the tax authority may decide to recognize the notification as unfulfilled only in cases where:

1) the explanation does not comply in form and content with the requirements of subparagraph 2) of paragraph 2 of Article 96 of the Tax Code;

2) an explanation is not subject to submission by the taxpayer in the cases specified in paragraph 3 of Article 96 of the Tax Code and violations have not been eliminated.

The above list of grounds for recognizing the notification based on the results of desk control as unfulfilled is exhaustive.

Thus, by resolutions No. 6001-22-00-6ap/114 dated March 3, 2022, the Decision of the SMAS of East Kazakhstan Region dated September 9, 2021 and the decision of the Judicial Board for Administrative Cases of the East Kazakhstan Regional Court dated November 18, 2021 on the claim of VKStroyGroup LLP were upheld.

A similar approach is reflected in Resolution No. 6001-22-00-6ap/3 of March 3, 2022, which left the judicial acts of local courts in the Aktobe region unchanged. At the same time, this resolution emphasizes that it was not necessary to attach documents to the explanation, since all the necessary information was reflected in the tax reporting form.

It follows from the case file that on March 3, 2021, the Office issued notice No. 061682500004 to the Aktobe Copper Company Partnership on the elimination of violations identified by the results of desk control for the 4th quarter of 2019, on the underestimation of the amount of income tax at the source of payment from non-resident income. The Partnership has sent an explanation of the notification to the tax authority.

The Management made a decision to recognize the notification as unfulfilled, since the car provided to the partnership by a non-resident of Uralspetstechnika LLC for rent is classified as equipment. In this regard, non-resident income from the rental of equipment (wagons) is subject to withholding tax at a rate of 15 percent.

The list of grounds provided for in paragraph 2 of Article 96 of the Tax Code for recognizing a notification based on the results of desk control as unfulfilled is exhaustive. The explanation provided by the partnership complies in form and content with the requirements of subparagraph 2) of paragraph 2 of Article 96 of the Tax Code, submitted in compliance with the deadline established by law.

The defendant's arguments that the plaintiff did not attach the lease agreement concluded with Uralspetstechnika LLC to the explanation, and therefore, the explanation of the partnership does not meet the requirements of the law in form and content, are unfounded.

From the explanation of the partnership dated April 20, 2021, it follows that on January 29, 2020, Uralspetstekhnika LLC received income from leasing property located or to be located in the Republic of Kazakhstan in the amount of 4,276,320 rubles. In accordance with Article 648 of the Tax Code, the partnership confirmed that the above-mentioned income was reflected in the tax reporting form 101.04 for the 4th quarter of 2019, with the income type code 1140 indicated.

The above information is reflected in the partnership's financial statements, which are not required to be provided by virtue of subparagraph 2) of paragraph 2 of Article 96 of the Tax Code.

The tax authority, evaluating the taxpayer's explanation of the notification, checks it for compliance with the law in form and content. If it does not comply with the requirements of the law, the state revenue authority has the right to recognize the notification as unfulfilled.

Therefore, the decision of the tax authority to recognize the notification as unfulfilled must contain information about the taxpayer's failure to comply with the notification without substantiating the legality of the notification.

In this case, the contested decision of the tax authority does not contain conclusions about non-fulfillment of the notification due to non-compliance with the law of the explanation of the partnership in form and content, it again indicates the identified violations on the merits of the notification, which is unacceptable.

3.5.1.2 In this case, if it is necessary to attach documents, but they are not attached, such notification cannot be considered executed despite timely submission of explanations. Thus, Resolution No. 6001-21-00-6ap/198 of March 17, 2022 describes the following.

It follows from the case file that, based on the results of desk control, the Management of the Partnership issued a notification on the elimination of identified violations dated April 15, 2021 regarding the underestimation of sales turnover in the form of tax reporting 300.00 for the period 2020 for the amount of violation of 106,890,500 tenge.

On May 31, 2021, the Partnership provided the Management with an explanation of disagreement with the notification, referring to violations of the terms of the contract for payment for the goods by the buyer. On June 15, 2021, the tax authority issued a decision declaring the notification unfulfilled.

The court of first instance, rejecting the claim, proceeded from the fact that the contested decision of the tax authority was made and based on the requirements of part 4 of Article 96 of the Tax Code, since the plaintiff's explanation of disagreement with the notification was not accompanied by documents confirming the plaintiff's arguments.

If documents are indicated in the explanation as the basis for the disagreement of the person who submitted the explanation, then copies of the documents indicated in the explanation, except for tax reports, must be attached to the explanation.

The case materials established that on April 15, 2021, the defendant sent notification No. 27181Q200608 to the plaintiff about the elimination of violations identified by the results of desk control, indicating that in 2020, goods were sold to Kaspiy Hausing LLP in the amount of more than 106,890,500 tenge. According to these mutual settlements, no ESF has been issued and sales turnover in TNF 300.00 has not been reflected, i.e. an underestimation of income for the period 2020 has been allowed.

It was established that the plaintiff in the explanation refers to the reconciliation report dated March 14, 2020 and information on accounts receivable. However, these documents were not attached to the explanation, which was also not denied by the plaintiff's representative at the hearing.

The representative of the interested party, Kaspiy Hausing LLP, explained to the court at the hearing that he had not signed any reconciliation report with the plaintiff.

Thus, the explanation provided by the plaintiff did not comply with the requirements of Article 96 of the Tax Code, and therefore the defendant reasonably decided not to execute the notification.

In such circumstances, there were no grounds for satisfying the cassation appeal, and the judicial acts issued in the case should be upheld.

3.5.1.3 The same approach was applied in case 6001-22-00-6ap/206 dated March 31, 2022 on a dispute with between LLPПромСпецСнаб.KZ " to the UGD in the city of Temirtau.

On April 07, 2021, the UGD issued a notification to the LLP based on the results of desk control for No. 30129Y300007, which stated that: "During desk control, an overestimation of VAT was found to be offset against the amount of VAT on electronic invoices (hereinafter referred to as – ESF), for which the civil law transaction exceeds 1000 times the amount of the MCI, and payment for which is highly likely to be made in cash due to the absence of a current bank account for you and (or) your supplier (as of the date of turnover or statement of the ESF) in the amount of VAT violation 3587816 tenge for the tax period of the 4th quarter 2019 (October, November, December)".

The parties do not dispute that the service provider is Useful Area – S LLP, according to the submitted ESF and fiscal receipts, the sale of services for cash in the period from October 01 to December 31, 2019 is confirmed. The payment was made in cash to the supplier's cash desk according to the cash receipts for a total amount of 33,486,282 tenge based on the submitted invoices.

The local courts concluded that the tax authority does not have the right to make a decision to declare the notification unfulfilled if there is an explanation provided on time and in accordance with the requirements of tax legislation, and it does not have the right to decide on the legality of the grounds indicated in the plaintiff's explanation without conducting a documentary tax audit.

In this case, the issue of the possibility of actually providing services and performing work is subject to resolution only during the tax audit, but not within the framework of desk control. By virtue of Article 12 of the CPC, all doubts, contradictions and ambiguities of the legislation of the Republic of Kazakhstan on administrative procedures are interpreted in favor of the participant in the administrative procedure.

The arguments of the DGD, UGD, and CGD are based on the fact that, according to the requirements of paragraph 9 of Article 25 of the Law of the Republic of Kazakhstan "On Payments and Payment Systems", it is established that payments under a transaction, the amount of which exceeds a thousand times the monthly calculation index established by the law on the republican budget and effective on the date of payment, are made by individual entrepreneurs registered as a value-added tax payer, or by legal entities in favor of another individual entrepreneur, registered as a value-added tax payer, or a legal entity only by wire transfer.

Accordingly, the LLP "ПромСпецСнаб.KZ " in violation of these provisions of the legislation, it made a cash payment to the supplier's cash desk according to cash receipts for a total amount of 33,486,282 tenge. Payments are confirmed by the ESF, acts of completed works (services rendered), contracts, and fiscal receipts, with payments exceeding 1,000 MCI.

At the same time, the judicial board examined the materials submitted by the taxpayer to the defendant, and the UGD's response to them. As follows from these materials, in fact, the UGD in its decision evaluates the received contracts, annexes to these contracts, reconciliation reports, and reports of work performed not in favor of the taxpayer, whereas desk control is aimed at verifying only the form (submission of documents) and the timing of the submission of explanations. The Tax Code does not contain the grounds on which the decision was made.

The board reached similar conclusions in case No. 6001-22-00-6ap/207 dated April 14, 2022.

It follows from the case file that on November 7, 2019, the participants of Ekibastuz Trans Coal LLP decided to reorganize the legal entity by joining the Partnership, with the transfer of all rights and obligations under all obligations of the reorganized enterprise in respect of all creditors and debtors, including obligations disputed by the parties, as well as the drafting and approval of the transfer act..

On August 12, 2020, the registration authority registered the termination of the activities of Ekibastuz Trans Coal LLP in connection with joining the Partnership.

On March 25, 2021, the Management issued a notification to the Partnership about the elimination of violations identified by the state revenue authorities based on the results of desk control No. 07000023562.

An explanation was provided to this notification in a timely manner. In this regard, the issue of the legality of the transfer of property rights and obligations of the reorganized legal entity Ekibastuz Trans Ugol LLP to the newly formed legal entity Partnership is subject to resolution only during the tax audit, but not within the framework of desk control.

3.5.1.4 The Judicial Board also concludes that when determining whether an explanation has been submitted, it does not matter whether the document from the taxpayer is named as such. Thus, Resolution No. 6001-22-00-6ap/569 of June 23, 2022 overturned the decision of the judicial board of the Karaganda Regional Court of February 9, 2022 on the claim of Crocus Group LLP and upheld the Decision of the SMAS of the Karaganda region of September 28, 2021.

The notifications were issued on June 04, 2021. The plaintiff, within 30 working days from the day following the day of delivery (receipt), namely, on July 9, 2021 (until July 21), sent a document to the UGD explaining the plaintiff's position that the notifications are illegal and requires their cancellation. Also, on July 9, 2021, a complaint ("application") was sent to the DGD, where the plaintiff also requests to cancel the notifications and the application to the UGD for the provision of tax documents. In total, the tax authorities received three separate applications from the plaintiff with applications.

The UGD's argument, voiced at the court hearing that a document that lacks the heading "explanation" is not an explanation, cannot be valid, since the taxpayer essentially explained and argued in support of his position on the notification.

Thus, the plaintiff fulfilled the requirements of paragraph 2 of Article 96 of the Tax Code, explaining his position in a timely manner. Based on this, according to this rule, the notification should be considered executed, unless the tax authority decides otherwise within the prescribed period.

3.5.1.5 The judicial board makes the same conclusion in Resolution No. 6001-22-00-6ap/23 dated April 14, 2022, where it also agrees with the local courts of East Kazakhstan region. At the same time, it is also noted that the UGD does not have the right to make more than one decision on one notification. There were two judgments in this dispute.    

The tax authority's decision of October 21, 2020 indicates the completion of the desk control procedure for the partnership based on the notification dated August 21, 2020.

However, the tax authority again issued a decision dated June 21, 2021 recognizing notification No. 182467700001 dated August 21, 2020 as unfulfilled.

The norms of tax legislation do not provide for a repeated decision to declare the same notification unfulfilled after the completion of desk control.

The defendant's actions to accept the plaintiff's repeated explanation dated June 16, 2021, after thirty working days after his decision not to comply with the notification dated October 21, 2020 violate the requirements of paragraphs 2 and 4 of Article 96 of the Tax Code.

In addition, failure by a taxpayer to notify the tax authorities of the elimination of violations identified by the results of desk control in accordance with the procedure established by Article 96 of this Code is the basis for conducting a thematic audit provided for in subparagraph 9) of paragraph Article 142 of the Tax Code.

In this case, if the tax authority recognized the notification addressed to the partnership as unfulfilled, which the latter did not agree with, then a thematic check should have been carried out that the defendant had not done so.

In the circumstances described, the conclusions of the local courts about the execution of the notification by the partnership by providing an explanation and the absence of legal grounds for the defendant to make a decision on recognizing the notification as unfulfilled are correct.

3.5.1.6 In Resolution No. 6001-22-00-6ap/121 dated May 19, 2022, the judicial board assesses the situation when the taxpayer's actions are also determined strictly by what is indicated in the notification (administrative act). So, a taxpayer cannot know all the reasons and grounds for which the notification was issued, unless this is stated in the administrative act itself. In this case, the resolution on termination of the pre-trial investigation dated December 28, 2020 under Article 216 of Part 3 of the Criminal Code confirms the fact of issuing invoices without actually performing work or providing services on behalf of the plaintiff's counterparties, AntikaLogist LLP and Grandbusinessstroy LLP.

The plaintiff's representative requests that the contested resolution remain unchanged, pointing out that the partnership's explanation complies with the requirements of the Tax Code, which excludes recognition of the notification as unfulfilled. The plaintiff claims that the tax authority of the partnership has never notified about the criminal case against the counterparties, and the plaintiff learned about the existence of a decision to terminate the pre-trial investigation during the trial.

It follows from the case file that the Office issued a notice to the partnership dated May 20, 2021 No. 60099C300067 on the elimination of violations identified by the results of desk control for the period from April 1 to June 30, 2019 on tax reporting forms 300.00 "VAT".

The violation according to Appendix 2 to the notification consisted in overstating the VAT charged, the deviation amounted to 8,395,983 tenge.

On July 8, 2021, in response to the notification, the partnership submitted an explanation stating that during the specified period the partnership had contractual relations with Antika Logistics LLP and Grandbusinessstroy LLP, which completed the work in full. In confirmation of the explanation, contracts, invoices and certificates of completed work with contractors are attached.

On July 14, 2021, the Office issued decision No. D60099C300067001 declaring the notification unfulfilled (hereinafter referred to as the decision). The Management indicated non-elimination of violations as the basis for the decision.

The applicants' arguments that the plaintiff was not entitled to provide an explanation for the notification are untenable, since the violations provided for in paragraph 3 of Article 96 of the Tax Code are not indicated by the tax authority in the notification.

By virtue of the third part of Article 129 of the CPC, the defendant can only refer to those grounds that are mentioned in the administrative act.

In addition, according to the order of the First Deputy Prime Minister of the Republic of Kazakhstan - Minister of Finance of the Republic of Kazakhstan dated April 30, 2019 No. 411 "On approval of the form of the decision to recognize the notification of elimination of violations identified by the State Revenue authorities based on the results of desk control, not executed, and the timing of its issuance," the decision specifies the specific reasons for recognizing the notification. not executed.

However, the contested decision contains only the conclusion that the violation was not eliminated upon notification. In the notification and in the appendices, the tax authority also does not indicate that there are other grounds for sending a notification in addition to overstating VAT with a deviation of 8,395,983 tenge.

Consequently, the tax authority can only refer to the grounds mentioned in the administrative act, in this regard, the defendant cannot refer to the failure to comply with the notification in view of the plaintiff's lack of the right to submit an explanation.

In the circumstances described, the conclusions of the court of appeal on the execution of the notification by the partnership by providing an explanation and the absence of legal grounds for the defendant to make a decision on recognizing the notification as unfulfilled are correct.

There are no grounds for revoking the contested decision and satisfying the defendant's cassation appeal and the prosecutor's cassation petition.

3.5.2 Correlation of the notification requirements and the conclusions of the notification decision

It should be noted that in this case No. 6001-22-00-6ap/114, the court's attention was drawn to the fact that in appendix No. 1 to the notification, the UGD indicated to the partnership that, according to the analysis, the financial and economic transactions reflected by the ESF partnership have a low probability of their implementation. The explanation of the violations is reflected in appendix No. 2 to the notification. Appendix No. 2 contains a list of 57 purchasing companies with BIN information.

In relation to the specified notification, the LLP is provided with an explanation on October 22, 2020, with the attachment of supporting documents in relation to the relevant counterparties of the buyers, according to the BIN in Appendix No. 2. The provision of an explanation within the time limit of the UGD is not disputed.

On November 13, 2020, when making a decision to declare notification No. 181668200008001 unfulfilled, as explained by the partnership (hereinafter referred to as the decision), the defendant indicates the following:

1) the main supplier of MAG-StroyGroup LLP has a high degree of risk, there is no material and technical equipment, fixed assets, storage facilities, vehicles. The Department did not accept the submitted explanation, since the circumstances that are the grounds and evidence of disagreement with the violations indicated in the notification are not indicated.

2) Level 1 and 2 suppliers of MAG-StroyGroup LLP did not have the opportunity to perform work and provide services due to the lack of labor resources. In this regard, the explanation provided is not a basis for the execution of the notification, since only contracts, invoices and reconciliation reports were attached to the explanation.

The Board notes that the notification was initially issued in relation to 57 specific buyers (clients) of the LLP. In this case, the decision is made not against the buyer, but against the supplier of the LLP. With such a contradictory statement of the issue in the desk control, the taxpayer is effectively deprived of the opportunity to execute the notification, which is unacceptable and is the basis for canceling such a decision.

The judicial board came to a similar conclusion in the case 6001-22-00-6ap/322 (2) dated June 21, 2022, where the decision of the SMAS of the West Kazakhstan Region was left unchanged, and the decision of the appellate instance was overturned.

According to paragraph 3 of the Order[1], the participants of the pilot project are: 1) VAT payers who are classified as high-risk, determined on the basis of a risk management system based on the analysis of data on purchased and sold goods, works and services; 2) taxpayers (counterparties) who are recipients of goods, works and services according to the ESF issued by taxpayers who are classified as high-risk.

The UGD has not provided evidence according to which the plaintiff can be considered a participant in the pilot project, as determined by the established criteria.

In general, the judicial board notes that the pilot, as indicated in paragraph 1-1 of Article 68 of the Tax Code, is being implemented in order to modernize tax administration. At the same time, by its very nature, such a project should be temporary in nature and, if successfully tested, these measures should become part of the legislation through appropriate amendments to the Tax Code.

At the same time, the specified pilot is 4 years old in 2022, which indicates that the project should cease to be a pilot, and in order to ensure the certainty of tax legislation, appropriate amendments should be made to the Tax Code in compliance with coordination procedures with interested parties and authorized bodies.

At the same time, also in the order in question, all the requirements were not met, as required by the second part of paragraph 1-1 of Article 68 of the Tax Code (region and timing of the pilot). The local courts have not evaluated this argument.

The Judicial Board agrees with the plaintiff's position that, according to Article 96 of the Tax Code, the submission of an explanation within the prescribed period, indicating the arguments and attaching the necessary documents, is the execution of the notification. At the same time, Article 96 of the Tax Code does not imply an analysis of the submitted documents on their merits, otherwise the fate of future tax audits will be predetermined.

In this part, the conclusions of the SMAS are legitimate and well-founded.

At the same time, the Order, being a by-law, cannot establish requirements regarding the substance of the submitted documents. According to paragraph 3 of Article 10 of the Law "On Legal Acts", each of the normative legal acts of the lower level should not contradict the normative legal acts of the higher levels. The existence of additional/other requirements in relation to the Tax Code leads to the fact that the provisions of the Tax Code are subject to application.

The Judicial Board also sees that the notification was generated by the buyers. At the same time, Spec Region LLP BIN 190240003068 is the plaintiff's supplier, not the buyer. Thus, the notification requirement and the conclusions in the UGD decision do not correlate with each other and are not justified. The local courts have not evaluated this argument.

On the argument of the tax authority regarding the omission of the deadline for providing an explanation, the judicial board notes that the contested decision of the UGD does not provide arguments regarding the omission of the deadline for the provision of notification by the plaintiff. According to paragraph 3 of Article 129 of the CPC, the defendant can only refer to those grounds that are mentioned in the administrative act. Thus, the arguments regarding the omission of the deadline for submitting an explanation cannot be accepted by the court. Accordingly, in this part, the position of the court of appeal contradicts the requirements of the APPC.

3.5.3 Recognition of the notification as executed in the absence of a decision of the UGD to the contrary.

In resolution No. 6001-22-00-6ap/569 dated June 23, 2022, the judicial board on the claim of Crocus Group LLP also expresses its opinion as to whether the court can conclude that the notification has been executed if the tax authority does not make an appropriate decision to declare such notification unfulfilled.

According to paragraph 2 of the Order of the First Deputy Prime Minister of the Republic of Kazakhstan - Minister of Finance of the Republic of Kazakhstan dated April 30, 2019 No. 411, the decision to recognize the notification of elimination of violations identified by the state revenue authorities based on the results of desk control as not executed is made by the state revenue authorities within 5 (five) working days from the date of the actions provided for in subitems 1), 2) of paragraph 2 of Article 96 of the Tax Code.

Thus, the tax authority had to respond to the plaintiff on the merits within 5 working days from the date of receipt of the specified document (explanation and request for documents on the criminal case of the counterparties), that is, by July 16, 2021 inclusive in the specified case. However, no such decision was made.

At the same time, at the court hearing, representatives of the UGD and the DGD explained that the taxpayer's appeals were considered, and a response was submitted on July 14, 2021, according to which the tax authority refused to provide the documents. The case file contains a photo (screenshot) of the monitor screen, where the DGD responds to the plaintiff and indicates the plaintiff's letters for No. FL-S-760/1, no. FL-S-760, no. FL-S-759 dated July 09, 2021. At the same time, the UGD/DGD did not indicate that the taxpayer's position was accepted (not accepted), and the explanation is fulfilled (not fulfilled).

In accordance with part 5 of Article 7 of the CPC, in the absence of a separate rule of law, its analogy is possible. According to part 5 of Article 100 of the CPC, if the body reviewing the complaint has not made a decision on the results of the complaint within the prescribed time, it is considered that the body has refused to satisfy the complaint.

Based on the above, the SMAS correctly concluded that the explanation was actually provided, and the UGD considered it unfulfilled, despite the provisions of paragraph 2 of Article 96 of the Tax Code. Thus, the SMAS did not assign the authority of the UGD, and legitimately ruled on the merits of the plaintiff's claims.

[1] Order No. 1084 of the First Deputy Prime Minister of the Republic of Kazakhstan - Minister of Finance of the Republic of Kazakhstan dated October 3, 2019 "On Approval of the Rules and Deadlines for the implementation of a pilot project to improve the administration of value Added Tax based on an electronic invoice information system using a risk management system (pilot project)" (hereinafter – The order)

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