On the recognition of illegal and cancellation of the notification of the results of the audit of the Department of State Revenue
No. 6001-24-00-6ap/2729 dated March 13, 2025
Plaintiff: KT LLP
Respondent: RSU "Department of State Revenue" (hereinafter referred to as the Department)
The subject of the dispute: on the recognition as illegal and cancellation of the notification of the audit results dated September 29, 2023
Review of the defendant's cassation complaint PLOT:
Based on the order dated September 12, 2023, the Department conducted an unscheduled tax audit of the LLP, covering the period from January 1 to December 31, 2020.
The audit was conducted from September 18 to September 29, 2023 and related to corporate income tax (CIT) and value added tax (VAT) obligations in mutual settlements with G LLP (counterparty). The latter, as indicated, was engaged in fictitious billing without actually performing work, providing services, or shipping goods.
The order, handed over on September 18, 2023, ordered the LLP to submit the necessary documents.
On September 26, 2023, the delivery contract, invoices, electronic invoices, reconciliation reports, as well as related accounting and constituent documents were provided.
Based on the results of the audit, on September 29, 2023, an act confirming violations was drawn up and a notice was issued on the accrual of VAT in the amount of 10,540,384 tenge, penalties for 14,871,814.32 tenge, VAT for 6,324
230 tenge and penalties for 2,131,673.12 tenge.
Earlier, the Department conducted an audit of G LLP, which ended with the issuance of an act dated November 16, 2022. This act was mentioned in Act No. 914, but its conclusions were declared untenable in the court of first instance.
In support of the charges, it is indicated that the amounts related to the relationship with the counterparty, recognized as unreliable, were unlawfully excluded from the deductions for the CPN and from the VAT offset.
In the act, the Department referred to articles 242 and 400 of the Tax Code prohibiting deductions for transactions with fictitious suppliers.
Disagreeing with the notification of the audit results, the LLP appealed to the court.
Judicial acts:
1st instance: the claim is satisfied. The notification of the audit results dated September 29, 2023, issued by the Department in relation to KT LLP, was declared illegal and canceled. At the same time, a private ruling was issued to the Committee on the revealed violations of the law.
Appeal: the decision and the private ruling of the court of first instance are left unchanged.
Cassation: Judicial acts are upheld.
Conclusions: resolving the dispute on the merits and satisfying the claim, the local courts came to the conclusion that the plaintiff legitimately excluded the amounts for fictitious transactions with the counterparty from the deductions for the CPN and from the VAT offset.
Subparagraph 1) of Article 242 of the Tax Code provides that a taxpayer's expenses in connection with carrying out activities aimed at generating income are deductible when determining taxable income, taking into account the provisions established by this Article and Articles 243-263, with the exception of expenses that are not deductible in accordance with the Tax Code.
Deductions for the CPN are made by the taxpayer according to the actual
expenses incurred if there are documents confirming such expenses related to his activities aimed at generating income.
According to paragraph 1 of Article 400 of the Tax Code, the amount of value-added tax offset by the recipient of goods, works, and services who is a value-added tax payer in accordance with subparagraph 1) According to paragraph 1 of Article 367 of the Tax Code, the amount of value-added tax payable for goods, works and services received is recognized if they are used or will be used for the purposes of taxable sales turnover.
Paragraph 5 of Article 163 of the Tax Code establishes that when determining objects of taxation and (or) objects related to taxation, in accordance with this article, expenses of a taxpayer (tax agent) that are not confirmed by primary documents are not deductible for calculating corporate income tax and offset for calculating value-added tax.
By virtue of Article 372 of the Tax Code, turnover in the sale of works and services means any performance of work or provision of services.
Tax accounting is based on accounting data, which, in accordance with paragraph 1 of Article 7 of the Law of the Republic of Kazakhstan
"On Accounting and Financial Reporting" includes primary documents, accounting registers, financial statements and accounting policies.
The above rules provide for the conditions for obtaining the right to deduct amounts for CPN and VAT amounts in accordance with supporting documents: establishing the actual receipt of goods, provision of services, performance of work, reflection of transaction data in accounting based on primary documents, compliance with the requirements for the preparation of invoices, as well as the use of goods, works and services. for taxable turnover purposes.
Paragraph 31 of the Regulatory Resolution of the Supreme Court of the Republic of Kazakhstan No. 9 dated December 22, 2022 "On certain issues of the application of tax legislation by courts" clarified that the content of the tax audit act must comply with the requirements of paragraph 1 of Article 158 of the Tax Code. The conclusions of the tax authority on violations of the tax and other legislation of the Republic of Kazakhstan committed by a taxpayer (tax agent) are subject to presentation with reference to the legislation, substantiating the arguments and disclosing the circumstances indicating violations. Accrual of tax amounts or adjustment of income, expenses and offsetting by the tax authority is possible, according to the requirements of the Tax
the Code, upon confirmation of the relevant facts.
At the same time, it was established that the LLP's activities are aimed at generating income, and its expenses are documented.
At the same time, the arguments of the tax authority cited in support of the notification are refuted by the following circumstances:
There is no analysis of the primary documentation submitted by the Partnership in the inspection report.;
the data of Act No. 45, previously issued in relation to the counterparty, has not been investigated, which indicates insufficient fact-checking;
The interrogation protocols and resolutions submitted during the audit do not contain data confirming the fact of the relationship between the counterparty and the Partnership.;
The initiation of a criminal case against a counterparty cannot be considered as a sufficient basis for additional charges, especially in the context of an incomplete investigation and the absence of a final procedural document.;
The act does not contain exhaustive grounds, established by Articles 264 and 402 of the Tax Code, for refusing deductions or excluding VAT from the offset.
The Judicial Board, having checked the indicated conclusions of the local courts, agreed with them, since:
according to the priority of rights, 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 (Article 12 of the CPC);
During the court sessions, the defendant did not prove or provide exhaustive evidence that the disputed notification of the audit results dated September 29, 2023 was made lawfully and reasonably.;
there are no facts and circumstances in the tax audit report that could serve as a basis for calculating taxes, adjusting income, expenses, and offsetting;
the defendant's requirements for substantiating the conclusions were not fulfilled;
there is no reliable documentary evidence that would confirm actual violations of tax legislation on the part of the LLP, but only indirect;
The Department has not disclosed the relationship between the audit findings and the documents submitted by the LLP, as well as between the established circumstances and tax obligations.
Thus, due to the absence of documented violations on the part of the LLP, the disputed notification cannot be considered legitimate and justified.
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