Issues of the use of state coercion by tax authorities in private law relations involving investors
It was noted that recently, in practice, it has been necessary to observe situations when tax authorities, under the framework of subsurface use contracts (production sharing agreements), under the auspices of verifying the correctness of tax calculation and payment, are trying to carry out tax control and state enforcement measures in respect of payments of a private legal nature in the forms provided for by public law.
For example, in the case of subsurface use contracts, for which, in accordance with the stabilized applicable law and tax regime, the state's share in the division of products under the production sharing agreement has not yet been established in law as a tax or other public-law payment to the budget, the tax authorities are trying to initiate in respect of such payment, which arose under a privateto comply with a legal obligation from the contract, conduct a tax audit and apply the measures provided for by the Tax Code of the Republic of Kazakhstan to ensure and enforce the collection of tax arrears.
The state, as a sovereign and a subject of political power, may, in accordance with paragraphs 2) paragraph 1 of Article 54 and paragraphs 4) paragraph 3 of Article 61 of the Constitution of the country, establish, collect, control public law payments (taxes, fees) and apply state coercion measures against non-payers of these payments in the person of its tax authorities.
But the state can also enter into civil law relations as a subject of civil law.
And in this case, the state, represented by its authorized bodies, in accordance with Article 111 of the Civil Code, is obliged to participate in civil law relations on an equal basis with other participants in these relations.
Consequently, in property relations based on the equality of their participants, the state and the bodies representing its interests are not entitled to apply the norms of public law, authority, as well as the forms and methods of tax control provided for verifying the correctness of the calculation and payment of public law payments and the collection of tax arrears.
Accordingly, the tax authorities are not authorized by the State to exercise tax control over the implementation of payments owed to the State on private legal grounds, and are not entitled to use their authority to enforce debt collection on such payments out of court.
Determination of jurisdiction
The dispute between the courts of first instance located in different regions, cities of republican significance and the capital is resolved by the Supreme Court of the Republic of Kazakhstan upon the submission of the relevant regional or equivalent court (Part 2 of Article 109 of the CPC).
Defendants in investment disputes
The defendant is "an administrative body or official who is being sued in court" (paragraph 15, part 1, Article 4 of the CPC). In turn, the administrative body according to subclause 7) of the first part of Article 4 of the APPC is a state body, a local government body, a state legal entity, as well as another organization that, in accordance with the laws of the Republic of Kazakhstan, are authorized to adopt an administrative act, commit an administrative act (inaction).
The defendant is "an administrative body or official who is being sued in court" (paragraph 15, part 1, Article 4 of the CPC). In turn, the administrative body according to subclause 7) of the first part of Article 4 of the APPC is a state body, a local government body, a state legal entity, as well as another organization that, in accordance with the laws of the Republic of Kazakhstan, are authorized to adopt an administrative act, commit an administrative act (inaction).
Refunds of claims
Refunds for administrative claims are carried out on the grounds provided for in the second part of Article 138 of the CPC.
The basis (subparagraph, part two of Article 138 of the CPC)
2) the claim does not comply with the requirements of the second part of Article 131 of this Code
5) there is a dispute between the same parties in the proceedings of the same or another court.
6) the plaintiff has withdrawn the filed claim
9) the parties have concluded an agreement on reconciliation, mediation or dispute settlement
11) the case is not subject to consideration in the order of administrative proceedings
15) the court refused to restore the missed deadline
17) the case is beyond the jurisdiction of this court
A large number of refunds based on subparagraphs 11) and 17) of the second part of Article 138 of the CPC are related to errors made by plaintiffs when filing civil lawsuits with the SMAS.
In accordance with the second part of Article 5 of the CPC, the task of administrative proceedings is the fair, impartial and timely resolution of administrative cases in order to effectively protect and restore violated or disputed rights, freedoms and legitimate interests of individuals, rights and legitimate interests of legal entities in public relations.
It is important to note that public law relations arise between subjects of law in connection with the exercise by one of the participants of his powers in relation to the other.
If we are talking about challenging the terms of a contract, which is a civil contract, then the state body acts in it as a party to the contract and is not associated with the exercise of authority.
Consequently, such cases are considered in civil proceedings.
For example, SMAS returned the claim, stating that "the defendant's refusal is not an onerous act, does not contain an authoritative expression of will, and is not aimed at the emergence, modification, and termination of the plaintiff's rights and obligations arising from public law relations.
In these circumstances, the claim should be returned, regardless of the wording of the claims, as not subject to consideration in administrative proceedings" (No. 7194-23-00-4/1127).
Or in another case, SMAS noted that "the plaintiff's claims in this case do not relate to public law relations, the plaintiff's claims are based on the terms of the Contract concluded between the parties.
The plaintiff disputes the defendant's refusal to extend the Contract.
Therefore, if there is an investment contract with the State, this dispute cannot be the subject of an administrative claim.
Based on the above, the court considers that the claim is not subject to consideration in administrative proceedings" (No. 7194-23 00-4/675). This is the issue that accounts for the largest number of refunds.
It is described in more detail in section 4.1 of this analysis.
We also note the following regarding the relatively low level of administrative claims. According to Part 1 of Article 120 of the CPC, reconciliation of the parties is allowed if the defendant has administrative discretion, which is the authority of an administrative body or official to make one of the possible decisions based on an assessment of their legality, for the purposes and limits established by the legislation of the Republic of Kazakhstan.
In this regard, the CPC does not oblige the judge to take measures to reconcile the parties, as established by Part 1 of Article 174 of the CPC.
This causes a difference in the number of reconciliations in administrative and civil cases.
In the future, it should be borne in mind that if the concept of an administrative contract is introduced into the APPC, appropriate changes will affect the reconciliation mechanism.
Abbreviations used
1) APPC – Administrative Procedural Code of the Republic of Kazakhstan;
2) CPC – The Civil Procedure Code of the Republic of Kazakhstan;
3) Civil Code of the Republic of Kazakhstan;
4) PC – Business Code of the Republic of Kazakhstan;
5) NP VS – Normative resolution of the Supreme Court of the Republic of Kazakhstan;
6) NC – The Tax Code of the Republic of Kazakhstan;
7) SCAD of the Astana City Court - the judicial board for administrative cases of the Astana City Court;
8) SCAD VS – judicial board for administrative cases of the Supreme Court of the Republic of Kazakhstan;
9) SMAS – Specialized Interdistrict Administrative Court;
10) SMEC – Specialized Interdistrict Economic Court;
11) The CGO is a central government agency.
Used regulatory sources
The rules of substantive law, which were guided by the courts when considering investment disputes, include the legislative acts currently in force.
The main regulatory legal acts regulating the issues of disputes of the generalized category are:
1) The Constitution of the Republic of Kazakhstan;
2) The Civil Code of the Republic of Kazakhstan dated December 27, 1994 No. 268-XIII;
3) Business Code of the Republic of Kazakhstan dated October 29, 2015 No. 375-V;
4) The Administrative Procedural Code of the Republic of Kazakhstan;
5) The Civil Procedure Code of the Republic of Kazakhstan;
6) Land Code of the Republic of Kazakhstan dated June 20, 2003 No. 442;
7) Budget Code of the Republic of Kazakhstan dated December 4, 2008 No. 95-IV;
8) The Code of the Republic of Kazakhstan dated December 25, 2017 No. 120-VI "On Taxes and other mandatory payments to the Budget" (Tax Code), etc.
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