Mining is the basis for the transition of the calculation of KPN in a generally established manner with the reflection of income in total annual income and expenses according to their classification in accounting.
According to the results of the inspections, the basis for calculating the CPI amounts or adjusting the losses on the CPI is an incorrect determination by the taxpayer of the moment of the beginning of mining. Thus, LLP "C" challenged the conclusions of the tax authority on determining the moment of the beginning of mining. In accordance with Article 111 of the Tax Code, expenses actually incurred by the subsurface user prior to the start of production after commercial discovery, for geological exploration, exploration, preparatory work for mining, including assessment, development, general administrative expenses, amounts of the subscription bonus and commercial discovery bonus paid, acquisition and (or) creation of fixed assets and intangible assets, and other expenses deductible in accordance with this Code, They form a separate group of depreciable assets. For the purposes of this Article and Article 111-1 of the Tax Code, mining after commercial discovery means, under exploration contracts, as well as for combined exploration and production with unapproved mineral reserves, the beginning of mining after the reserves are approved by the authorized state body of the Republic of Kazakhstan. According to the contested notification, the start of production after commercial discovery is determined from the date of the issuance of the protocol of the State Commission on Mineral Reserves of the Republic of Kazakhstan (hereinafter – GKZ) No. 585-07-P dated April 10, 2007, which adopted the increase in initial oil and gas reserves of the Vostochny Makat field within the additional productivity areas determined as a result of geological work carried out a partnership.
The Partnership also determined the time of the start of mining after commercial discovery from the date of the issuance of the GKZ protocol No. 986-10-U dated October 29, 2010 on the approval of oil and gas reserves at the Zhana Makat field. Partially satisfying the applicant's claims, the court of first instance concluded that the mineral reserves in the applicant's contract territory had been approved by GKZ Protocol No. 959-10-U dated August 27, 2010. Therefore, the loss adjustment must be made from the specified date. The Specialized Judicial Board disagreed with the conclusions of the court of first instance on the following grounds. In accordance with paragraph 2 of Article 57 and paragraph 3 of Article 58 of the Law "On Subsoil and Subsoil Use" as amended on January 27, 1996, paragraphs 3 and 5 of the Rules for the inclusion of mineral reserves in the State Balance Sheet and their write-off from the State Balance sheet, approved by Resolution of the Government of the Republic of Kazakhstan dated August 14, 2006 No. 762, reserves mineral resources, explored deposits, are subject to state expertise, and mining is possible only after conducting a state examination and giving an opinion., which is the basis for their registration with the state register, issued in the form of the GKZ protocol. The Board found that the GKZ protocol dated February 18, 2005 approved the initial geological and recoverable oil and gas reserves of the Vostochny Makat field, with their inclusion in the State Balance Sheet in quantities and categories. The GKZ Protocol dated April 10, 2007 increased the volume of oil and gas reserves in the Vostochny Makat field as a whole (including the Zhana Makat site) for two contract territories PF "E" and LLP "S", previously approved by the previous GKZ protocol, as a result of exploration work carried out by the Partnership. The GKZ protocol dated August 27, 2010 recalculated reserves for the entire Vostochny Makat field, due to the fact that 18 additional wells were drilled in the contract territory of PF "E", and 2 wells in the contract territory of LLP "C". At the same time, there is no indication in the statement part of the protocol on making changes to the State Balance of Reserves.
The GKZ Protocol dated October 29, 2010 divided the approved hydrocarbon reserves of the Vostochny Makat field between two subsurface users PF "E" and LLP "S". Consequently, the 2010 GKZ protocols cannot be used as a basis for determining the start date of production after commercial discovery. The case materials confirmed the facts of the Partnership's production of oil reserves approved for PF JSC "E" since 2007, as well as oil production in 2008 and 2009 in volumes identical after the start of the commercial operation phase (in 2012-2013). In this regard, the board correctly recognized the conclusions of the tax authority on determining the start of production after commercial discovery - from the date of the GKZ protocol dated April 10, 2007.
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