On Ratification of the Protocol between the Government of the Republic of Kazakhstan and the Government of the Republic of Azerbaijan on Amendments and Additions to the Convention between the Government of the Republic of Kazakhstan and the Government of the Republic of Azerbaijan on Avoidance of Double Taxation and Prevention of Tax Evasion in Respect of Taxes on Income and on Property dated September 16, 1996

The Law of the Republic of Kazakhstan dated February 28, 2018 No. 141-VI SAM.

      PRESS RELEASE

      To ratify the Protocol between the Government of the Republic of Kazakhstan and the Government of the Republic of Azerbaijan on Amendments and Additions to the Convention between the Government of the Republic of Kazakhstan and the Government of the Republic of Azerbaijan on Avoidance of Double Taxation and Prevention of Tax Evasion in Respect of Taxes on Income and on Property dated September 16, 1996, signed in Baku on April 3, 2017.

     President of the Republic of Kazakhstan

N. NAZARBAYEV

Protocol between the Government of the Republic of Kazakhstan and the Government of the Republic of Azerbaijan on Amendments and Additions to the Convention between the Government of the Republic of Kazakhstan and the Government of the Republic of Azerbaijan on Avoidance of Double Taxation and Prevention of Tax Evasion in Respect of Taxes on Income and on Property dated September 16, 1996

      (* Entered into force on April 27, 2018 - Bulletin of International Treaties of the Republic of Kazakhstan, 2018, No. 3, Article 40)

     The Government of the Republic of Kazakhstan and the Government of the Republic of Azerbaijan,

      Desiring to conclude a Protocol on Amendments and Additions to the Convention between the Government of the Republic of Kazakhstan and the Government of the Republic of Azerbaijan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Property dated September 16, 1996 (hereinafter referred to as the Convention),

     have agreed on the following:

Article 1

     1. In the name of the Convention, delete the words "and on property".

     2. Throughout the text of the Convention, the words "administrative division" should be replaced with the words "administrative-territorial division" in the appropriate case.

Article 2

      1. In paragraph 1 of article 2 of the Convention, delete the words "and on property".

      2. In paragraph 2 of article 2 of the Convention, delete the words "and on property", ", the total value of property", "or property".

      3. Paragraph 3 of Article 2 of the Convention shall be worded as follows:

     "3. The existing taxes to which this Convention applies are, in particular,:

     a) in the Republic of Kazakhstan:

     (i) Corporate income tax;

     (ii) Individual income tax

     (hereinafter referred to as "Kazakhstan Taxes");

     b) in the Republic of Azerbaijan:

     (i) Corporate income tax;

     (ii) personal income tax

     (hereinafter referred to as "Azerbaijani taxes");".

Article 3

      1. Sub-paragraphs (i) and (ii) of subparagraph (a) of paragraph 1 of Article 3 of the Convention should read as follows:

     "(i) the term "Kazakhstan" means the Republic of Kazakhstan and, when used geographically, the term "Kazakhstan" means the State territory of the Republic of Kazakhstan and the zones in which Kazakhstan exercises its sovereign rights and jurisdiction in accordance with its legislation and international law.;

     (ii) the term "Azerbaijan" means the territory of the Republic of Azerbaijan, including the internal waters of the Republic of Azerbaijan, the sector of the Caspian Sea (lake) belonging to the Republic of Azerbaijan, the airspace over the Republic of Azerbaijan, as well as any other territory designated or to be designated in the future in accordance with international law and the national legislation of the Republic of Azerbaijan as a territory within which the Republic of Azerbaijan exercises its sovereign rights and jurisdiction over the subsoil, seabed and natural resources;".

      2. Subparagraph (e) of paragraph 1 of Article 3 of the Convention should read as follows:

     (e) The terms "enterprise of one Contracting State" and "enterprise of the other Contracting State" mean respectively an enterprise which is a resident of one Contracting State and an enterprise which is a resident of the other Contracting State;".

      3. Subparagraph (ii) of subparagraph (g) of paragraph 1 of Article 3 of the Convention should read as follows:

     "(ii) in Azerbaijan: the Ministry of Taxes and the Ministry of Finance;".

      4. Paragraph 2 of Article 3 of the Convention should be supplemented with the following sentence:

     "Any meaning under the tax laws of that Contracting State shall prevail over the meaning given to the term under the other laws of that Contracting State.".

Article 4

      1. In paragraph 1 of article 4 of the Convention:

     (i) delete the following sentence:

     "It also includes any organization established in accordance with the laws of a Contracting State and whose income is normally exempt from taxation in that State.";

     (ii) delete the words "or from property in that State".

      2. Subparagraph (d) of paragraph 2 of Article 4 of the Convention should read as follows:

     "(d) If the residence status of an individual cannot be determined in accordance with the provisions of subparagraphs (a), (b) and (c) of this paragraph, the competent authorities of the Contracting States shall resolve the matter by mutual agreement.".

Article 5

      1. Subparagraph (b) of paragraph 3 of Article 5 of the Convention should read as follows:

     "(b) The provision of services, including consulting services, by the enterprise through employees or other personnel employed by the enterprise for such purposes, but only if activities of that nature continue (for such or a related project) in a Contracting State for a period or periods exceeding 6 months within any 12-month period.".

      2. Paragraph 6 of Article 5 of the Convention should be supplemented with the following sentence:

     "However, when the activities of such an agent are carried out entirely or almost entirely on behalf of such an enterprise, and conditions are created between such an enterprise and the agent in their commercial and financial relations that differ from those that could be established between independent enterprises, he is not considered an agent with an independent status in accordance with this paragraph.".

      3. Add paragraph 8 to Article 5 of the Convention as follows:

     "8. Notwithstanding the preceding provisions of this article, an insurance organization of one Contracting State, excluding reinsurance, shall establish a permanent establishment in the other Contracting State if it collects contributions in the territory of the other Contracting State or insures risks arising there through a person other than an agent with an independent status to whom the provisions of paragraph 6 of this article apply..".

Article 6

      The second sentence of paragraph 1 of Article 7 of the Convention should read as follows:

     "If an enterprise carries on business activities as indicated above, the profits of such enterprise may be taxed in the other Contracting State, but only in the part that relates to:

     (a) Such permanent establishment (mission);

     (b) The sale in that other Contracting State of goods or merchandise that are similar or identical to goods or merchandise sold through a permanent establishment (representative office); or

     (c) Other business activities carried on in that other Contracting State which are similar or identical in nature to business activities carried on through a permanent establishment (representative office).".

Article 7

      1. Paragraph 3 of Article 11 of the Convention shall be worded as follows:

     "3. Notwithstanding the provisions of paragraph 2 of this article, interest arising in a Contracting State shall be exempt from taxation in that Contracting State if the beneficial owner of the interest is:

     (a) In the case of Kazakhstan:

     (i) The Government,

     (ii) a central or local authority,

     (iii) The National Bank,

     (iv) any other financial institution wholly owned by another Contracting State;

     (b) In the case of Azerbaijan:

     (i) The Government,

     (ii) a central or local authority,

     (iii) The Central Bank,

     (iv) any other financial institution wholly owned by another Contracting State.".

      2. Paragraph 6 of Article 11 of the Convention shall be worded as follows:

     "6. Interest shall be deemed to arise in a Contracting State if the payer is a resident of that Contracting State. If, however, the person paying the interest, regardless of whether he is a resident of a Contracting State or not, has a permanent establishment or permanent base in a Contracting State in connection with which an obligation to pay interest arises, and the costs of such interest are borne by a permanent establishment or permanent base, such interest shall be deemed to arise in the Contracting State in which such permanent establishment (representative office) or permanent base is located.".

Article 8

      Paragraph 5 of article 12 of the Convention should read as follows:

"5. Royalties shall be deemed to arise in a Contracting State if the payer is a resident of that Contracting State. If, however, the person paying the royalties, regardless of whether he is a resident of a Contracting State or not, has a permanent establishment (representative office) or a permanent base in a Contracting State, in connection with which the obligation to pay royalties arises, and the costs of such royalties are borne by a permanent establishment (representative office) or a permanent base, then Royalties are deemed to arise in the Contracting State in which the permanent establishment (representative office) or permanent base is located.".

Article 9

      1. Paragraph 4 of Article 13 of the Convention shall be worded as follows:

     "4. Income earned by a resident of a Contracting State from the alienation of shares, interests or other rights in the capital of a company, the value of which is more than 50 percent directly or indirectly related to immovable property located in the other Contracting State, may be taxed in that other Contracting State.".

      2. Add paragraph 5 to article 13 of the Convention as follows:

     "5. Gains from the alienation of any property other than that provided for in the preceding paragraphs of this article shall be taxable only in the Contracting State of which the alienator is a resident.".

Article 10

      Paragraph 1 of article 14 of the Convention should read as follows:

     "1. Income earned by a resident of a Contracting State in respect of professional services or other activities of an independent nature shall be taxable only in that Contracting State, except in the following cases, in which such income may also be taxed in the other Contracting State:

     (a) If he has a permanent base at his disposal in the other Contracting State for the purpose of carrying out his activities; in this case, only that part of the income which relates to that permanent base; or

     b) if he stays in the other Contracting State for a period or periods exceeding a total of 183 days in any twelve-month period; in this case, only that part of the income derived from activities carried on in that other Contracting State.".

Article 11

      In subparagraph (a) of paragraph 1 of article 19 of the Convention, the words "in respect of services rendered to that State or administrative subdivision or local authority" should be replaced by the words "for services rendered to that Contracting State or its administrative-territorial subdivision, central or local authority".

Article 12

      Delete article 22 of the Convention.

Article 13

      Article 23 of the Convention should be worded as follows:

     "Article 23 Elimination of double taxation

     1. In the case of Kazakhstan, double taxation is eliminated as follows:

     a) if a resident of Kazakhstan earns income that, in accordance with the provisions of this Convention, may be taxed in Azerbaijan, Kazakhstan will allow an amount equal to the income tax paid in Azerbaijan to be deducted from the tax on such resident's income.

     In any case, such a deduction should not exceed the amount of tax that would be charged on such income at the rates applicable in Kazakhstan.

     (b) If a resident of Kazakhstan receives income that, in accordance with the provisions of this Convention, is taxable only in Azerbaijan, Kazakhstan may include that income in the tax base, but only for the purpose of determining the tax rate on such other income as is taxable in Kazakhstan.

     2. In the case of Azerbaijan, double taxation will be eliminated as follows:

     If a resident of Azerbaijan receives income that, in accordance with the provisions of this Convention, may be taxed in Kazakhstan, the amount of tax on that income paid in Kazakhstan shall be deductible from the tax levied on such income by a resident in Azerbaijan. Such a deduction, however, will not exceed the amount of Azerbaijan's tax on such income calculated in accordance with its tax legislation.".

Article 14

      Article 26 of the Convention should be worded as follows:

     "Article 26 Exchange of information

      1. The competent authorities of the Contracting States shall exchange information necessary for the implementation of the provisions of this Convention or the administration or application of national legislation relating to taxes of any kind and description levied on behalf of the Contracting States, their administrative-territorial subdivisions, central or local authorities, insofar as taxation does not contradict this Convention.. The exchange of information is not limited to articles 1 and 2 of this Convention.

     2. Any information received by a Contracting State in accordance with paragraph 1 of this Article shall be considered confidential, as well as information received in accordance with the national legislation of that Contracting State, and shall be disclosed only to persons or authorities (including courts and administrative authorities) engaged in both assessment or collection, enforcement or prosecution, or consideration of appeals in respect of taxes referred to in paragraph 1 of this article, as well as supervision of all of the above. Such persons or authorities may use the information only for such purposes. They may disclose information during an open court hearing or when making court decisions.

     3. The provisions of paragraphs 1 and 2 of this article may not be interpreted as imposing obligations on a Contracting State.:

     (a) To take administrative measures contrary to the laws and administrative practices of that or another Contracting State;

     (b) To provide information that cannot be obtained under the laws or in the ordinary course of the administration of that or the other Contracting State;

     c) provide information that would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to government policy (ordre public).

     4. If information is requested by one Contracting State in accordance with this Article, the other Contracting State shall take measures to collect the requested information, even if such information is not required by that other Contracting State for its own tax purposes. The obligation contained in the previous sentence is subject to the limitations of paragraph 3 of this article, but such limitations cannot be interpreted as allowing a Contracting State to refuse to provide information solely because there is no intrinsic interest in such information.

     5. The provisions of paragraph 3 of this Article may not be interpreted as authorizing a Contracting State to refuse to provide information solely because the holder of the information is a bank, another financial institution, a nominee holder or a person acting as an agent or attorney, or because the information concerns a person entitled to ownership.".

Article 15

     The Convention should be supplemented with article 28-1 as follows:

     "Article 28-1 Limitation of benefits

     1. In no case shall the provisions of this Convention prohibit a Contracting State from applying the provisions of its national legislation and measures against tax evasion or evasion actually described as such.

     2. A resident of a Contracting State shall not be entitled to the application of this Convention if his affairs were arranged as if the main purpose or one of the main purposes was to benefit from this Convention.".

Article 16

     1. This Protocol shall enter into force on the 30th day after the date of receipt through diplomatic channels of the last written notification that the Contracting States have completed the procedures for its entry into force provided for by the national legislation of each Contracting State.

     2. This Protocol applies:

     (a) Taxes withheld at source on income received on or after the first of January of the calendar year following the year of entry into force of the Protocol;

     (b) Other income taxes for any taxable period beginning on or after the first of January of the calendar year following the year of entry into force of the Protocol.

     In witness whereof, the undersigned, being duly authorized thereto, have signed this Protocol, which forms an integral part of the Convention.

     Done in Baku on April 3, 2017, in two copies in the Kazakh, Azerbaijani and Russian languages, all texts being equally authentic. In case of discrepancies in the interpretation of the provisions of this Protocol, the Russian text shall prevail.

For the Government of the Republic of Kazakhstan

For the Government of the Republic of Azerbaijan

      RCPI's note!

      The text of the Protocol in Azerbaijani is attached.

President    

Republic of Kazakhstan     

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