Jurisdiction - tax disputes between subsurface users and tax authorities
Until January 1, 2016, tax disputes between subsurface users and tax authorities were mainly considered by specialized interdistrict economic courts, since the applicants were subsurface users – legal entities. With the adoption of the Civil Procedure Code of the Republic of Kazakhstan dated October 31, 2015, significant changes have taken place in the jurisdiction of this category of cases. A significant part of the subsoil users are investors, including large ones. In accordance with part 4 of Article 27 of the CPC, taking into account the amendments and additions introduced by the Law of the Republic of Kazakhstan dated July 11, 2017, the Astana City Court, according to the rules of the court of first instance, hears civil cases on investment disputes, except for cases within the jurisdiction of the Supreme Court of the Republic of Kazakhstan. The Astana City Court also considers other disputes between investors and government agencies related to the investor's investment activities, involving: 1) a foreign legal entity (its branch, representative office) engaged in business activities in the territory of the Republic of Kazakhstan;
2) a legal entity established with foreign participation in accordance with the procedure established by the legislation of the Republic of Kazakhstan, fifty or more percent of the voting shares (participation shares in the authorized capital) of which belong to a foreign investor; 3) investors in the presence of a concluded contract with the state for investments. According to part 5 of the same article, other disputes arising from legal relations involving an investor that are not related to investment activities, as well as disputes involving an investor that are subject to simplified proceedings, are subject to the jurisdiction of district (city) and equivalent courts in accordance with the jurisdiction established by Chapter 3 of this Code. The jurisdiction of civil cases to the Supreme Court of the Republic of Kazakhstan is established by Article 28 of the CPC. Subparagraph 2) stipulates that the Supreme Court of the Republic of Kazakhstan considers and resolves, according to the rules of the court of first instance, civil cases on investment disputes in which a major investor is a party. This year, the specialized judicial board of the Supreme Court of the Republic of Kazakhstan conducted a summary of judicial practice on the consideration of civil cases on investment disputes for 2016-2017, which clarified the issues of jurisdiction of cases. The summary indicates that other disputes related to investment activities include disputes between an investor and a government agency related to violations of the legislation of the Republic of Kazakhstan. These include, among other things, cases on claims for the recognition of illegal decisions of state bodies on the accrual of tax, customs and other mandatory payments to the budget to investors. Regardless of the status of the investor (large or small), such cases are within the jurisdiction of the Astana City Court. The practice of considering cases by local courts, a specialized judicial board and the cassation instance of the Supreme Court indicates that the courts have issues with the correct determination of the jurisdiction of the case. There are cases when disputes related to the investment activities of investors are considered by specialized economic courts in the regions in violation of the rules of jurisdiction. Incorrect determination of the jurisdiction of the case by both the parties and the local courts leads to unjustified red tape. In several cases, the issue of jurisdiction was resolved only at the stage of cassation proceedings in the Supreme Court. So, this year, the court of cassation in three civil cases on challenging the notifications of tax authorities by subsurface users cancelled the judicial acts of local courts with the referral of cases under the jurisdiction of the Astana city court.
These are two cases on the applications of LLP "B", considered in violation of the rules of jurisdiction by the courts of the East Kazakhstan region, and the case on the application of JSC "K", considered by the courts of the Mangystau region. In the decision in the JSC "K" case, the court, with reference to part 3 of Article 451 of the CPC, reasonably pointed out that it was impossible to give an appropriate legal assessment of the applicant's arguments, since, having considered the present case on its merits and decided on it, the courts of the Mangystau region violated the jurisdiction established by the procedural law for this case. During the analyzed period, the Supreme Court considered one case of this category according to the rules of the court of first instance. This case is based on the application of a major investor, Zh LLP, to challenge the notification of the results of the audit of the Department of State Revenue for the West Kazakhstan region dated December 31, 2015 No. 554. The application was satisfied by the decision of the specialized judicial board dated April 27, 2016. The notification of the results of the audit on the additional payment of CPI in the amount of 1,211,983,835 tenge and penalties in the amount of 153,959,190 tenge was declared illegal. The state duty of 13,659,430 tenge was collected from the state body. Thus, the investor carries out activities for the extraction and exploration of hydrocarbons on the basis of a Subsoil Use Contract concluded with the State Committee of the Republic of Kazakhstan for Investments. The terms of the contract establish the stability of its provisions and the inapplicability to it of legislative changes that worsen the situation of the plaintiff. When issuing a notification on the additional assessment of the CPN amount, the state body indicated that the taxpayer had unlawfully deducted the costs of his own construction from the total annual income.
However, during the trial, it was established that when concluding a Subsurface Use Contract, the state granted the investor the right to deduct the costs of its own construction as an investment benefit, which was the basis for satisfying the claim. Unlike other tax disputes with investors, this dispute is related to the violation by the authorized body of the terms of the contract for the provision of targeted benefits, in this regard, the case was considered by a specialized judicial board of the Supreme Court according to the rules of the court of first instance. Following the consideration of the dispute by the Supreme Court, a private ruling was issued to the State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan on violations of legislation by the regional Department in order to take response measures. According to the Committee's response, the private definition was discussed and sent to the regional departments in order to prevent violations of the law.
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