Recognition as illegal and cancellation of the act of documentary tax audit and notification

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10 November 2021

Recognition as illegal and cancellation of the act of documentary tax audit and notification

U LLP appealed to the court with an application to the Department of State Revenue for the West Kazakhstan region, the State Revenue Committee of the Ministry of Finance for the recognition and cancellation of the act of documentary tax audit and notification of the Department on the results of the tax audit dated November 23, 2015 No. 551, as well as the decision of the State Revenue Committee dated February 22, 2016. The application was refused by the decision of the Astana City Court dated July 15, 2016. By a ruling of the Astana City Court dated July 15, 2016, the proceedings regarding the claims to challenge the tax audit act and the decision of the State Revenue Committee based on the results of consideration of the applicant's complaint were terminated on the basis of paragraph 1 of Article 277 of the CPC. By the decision of the Astana City Court dated July 15, 2016, the claim of U LLP to the Department of State Revenue for the West Kazakhstan region to declare illegal and cancel the notification of the results of the tax audit dated November 23, 2015 No. 551 was refused. By the resolution of the specialized judicial board dated September 1, 2016, the decision and ruling of the court of first instance remained unchanged. In accordance with paragraph 1 of Article 283 and Article 288 of the Environmental Code, individuals and legal entities whose activities generate production and consumption waste are their owners and are responsible for the safe management of waste from the moment of its formation, unless otherwise provided by the legislation of the Republic of Kazakhstan or an agreement defining the conditions of waste management, and They should be transferred to individuals and legal entities interested in their use who have their own landfills for waste disposal.

The Court of First instance, rejecting the application, proceeded from the legality of the Department's conclusions, since the Partnership is the owner of the production waste generated as a result of its activities. Therefore, by virtue of the law, it is responsible for the safe handling of waste from the moment of its formation. The subject of the agreement dated July 14, 2010 No. 10-0615, concluded with M LLP, is the provision of paid services for the removal of solid and liquid waste from the Amber list for disposal and burial at landfills in Western Kazakhstan. The fact of unauthorized waste disposal was established by the verdict of the court No. 2 of the Zelenovsky district of the West Kazakhstan region dated June 18, 2014, which entered into force, having a preliminary significance by virtue of part 3 of Article 76 of the CPC. The calculation of the fee for emissions into the environment, based on the volume of waste removed, was carried out correctly. By the resolution of the specialized Judicial Board of the Supreme Court dated September 1, 2016, the said decision was left unchanged. 2. LLP "N" has applied to the State Revenue Department of the Karaganda region for the recognition of illegal actions to appoint an unscheduled thematic tax audit on transfer pricing: excess profit tax, corporate income tax based on the order of April 13, 2016 No. 563, the cancellation of the order and the obligation to stop conducting a thematic audit.

By the decision of the Astana City Court dated October 17, 2016, the investor's application was denied. The Court pointed out that the reason for the unscheduled audit was the order of the State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan dated April 12, 2016 No. 205, which instructed the Department to conduct an unscheduled thematic audit on transfer pricing for the period from 2010 to 2014. In accordance with subparagraph 2) paragraph 9 of Article 627 of the Tax Code, the decision of the authorized body is the basis for the appointment of an unscheduled thematic tax audit for the previously verified period. The previous audit was ordered by the senior investigator for particularly important cases of the Department on the basis of Order No. 1498 dated October 8, 2015 on the fulfillment of tax obligations for certain types of taxes and other mandatory payments to the budget.: CPN and VAT for the period from 2010 to the 1st half of 2015. Article 628 of the Tax Code on the frequency of tax audits has been deleted since July 17, 2009. The conclusion in paragraph 10 of the inspection report dated December 25, 2015 No. 1498 that the Company had no violations regarding transfer pricing is a technical error, since transfer pricing issues are not included in the order dated October 8, 2015 No. 1498. The retention period of documents does not affect the legality of the order to appoint a tax audit.

By the resolution of the specialized Judicial Board of the Supreme Court dated December 15, 2016, the said decision was left unchanged. 3. JSC "SNPS-A" filed a statement with the Russian State Institution "Department of the Committee for Regulation of Natural Monopolies and Protection of Competition in the Aktobe region" challenging the Department's orders dated March 9, 2016 No. 40-NK on conducting an investigation into unfair competition and abuse of a dominant position, dated April 18, 2016 No. 73-NK on allocation of materials on abuse of a dominant position in a separate investigation, No. 87-NK dated May 5, 2016 on extending the investigation period until July 5, 2016 and notification No. 02-04/732 dated April 18, 2016 on the presence of signs of abuse of a dominant or monopolistic position in the actions (inaction) of a market entity. By the ruling of the Astana City Court dated November 7, 2016, the civil proceedings regarding the challenge of notification No. 02-04/732 were terminated. By a court decision dated November 7, 2016, the application for challenging Department orders No. 40-NK dated March 9, No. 73-NK dated April 18, and No. 87-NK dated May 5, 2016 was refused. Taking the case into its own proceedings, the Astana City Court proceeded from the fact that the Company, being a major investor, carries out its activities on the basis of a contract for conducting carbon operations at deposits located in the Aktobe region.

Rejecting the application, the court pointed out that the fact that the Company was excluded from the register of market entities occupying a dominant or monopolistic position in regulated markets for the wholesale sale of liquefied petroleum gas was not an obstacle to conducting an antimonopoly investigation based on the existence of factual data indicating signs of violations of competition law in the actions of the entity. market (Part 1 of Article 218 of the PC). The reason for the investigation was the appeals of LLP "L" and LLP "K" received by the Department about the violation of the law on protection of competition by the Company. The Department's Order No. 40-NK dated March 9, 2016 on conducting an investigation complies with the requirements of Article 218 of the Business Code, as it contains instructions to conduct an investigation into unfair competition and abuse of a dominant position. He was duly registered with the authorized body for legal statistics and special accounting. The reason for the Department's allocation of unfair competition issues to a separate investigation by Order No. 73-NK dated April 18, 2016 was information about the possible discrediting of LLP "L", set out in the minutes of the survey of the representative of LLP "L" dated April 7, 2016 and the meeting on the stable supply of liquefied petroleum gas to the population of Aktobe region dated January 15, 2016..

The Department's actions did not violate the provisions of part 4 of Article 218 of the Business Code on the two-month period for conducting an investigation and the possibility of extending it for no more than two months. Therefore, there are no grounds to cancel the order of May 5, 2016 No. 87-NK. The decision was left unchanged by the resolution of the specialized judicial Board of the Supreme Court dated December 29, 2016. The consideration of civil cases in the field of compliance with environmental legislation, as well as on the issues of conducting investigations and inspections of investors in accordance with the procedure provided for by the PC rules, does not cause any special difficulties and difficulties for the courts. At the same time, if environmental cases involve the possibility of recovering significant multimillion-dollar amounts of damage from investors and, as a result, require their resolution in separate investment proceedings, then there is a need to consider simple categories of non-property cases in such proceedings, such as cases of investors appealing acts of government agencies and their officials. The appointment, conduct and results of the inspections carried out require a separate discussion. Examples of civil cases in which Astana City Court decisions have been changed 1. LLP "C" filed an application to the State Revenue Agency "Department of State Revenue in Almaty" for recognition as illegal and cancellation of the notification of the results of the tax audit dated March 18, 2016 No. 1534/1. By the decision of the Astana City Court dated August 19, 2016, the application of LLP "C" to the State Revenue Agency "Department of State Revenue in Almaty" on the recognition of illegal and cancellation of the notification of the results of the tax audit was partially satisfied and it was decided to recognize illegal and cancel the notification in terms of: - adjustments for losses on the CPN for 2010 in the amount of 1,936,195,302 tenge; - accruals of the commercial discovery bonus in the amount of 190,586,843 tenge and the corresponding amount of penalties; - penalties in the amount of 391,119,696.39 tenge for the payment of historical expenses; - accruals of penalties for the period from December 23 to December 29, 2015. To oblige the State Revenue Agency "Department of State Revenue for the city of Almaty" to adjust losses taking into account the start of mining on August 27, 2010, to recalculate the penalty accrued according to the notification of payments for reimbursement of historical costs. To collect from the RSU "Department of State Revenue for the city of Almaty" in favor of LLP "C" the state fee paid at the time of filing the application to the court in the amount of 2,697,585 tenge. By the resolution of the specialized judicial Board of the Supreme Court dated November 3, 2016, the decision of the court of first instance was changed. It was cancelled in terms of recognition as partially illegal and cancellation of notification No. 1534/1 dated March 18, 2016. A new decision was made to refuse to satisfy the specified part of the application. The dispute between the applicant and the Department arose on the issue of determining the moment of the beginning of mining, which, by virtue of the requirements of Articles 111 and 111-1 of the Tax Code, is the basis for switching to calculating the CPI in a generally established manner, reflecting income in total annual income and expenses according to their classification in accounting. 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, the amount 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 this 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) dated April 10, 2007 No. 585-07-P, 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, conducted by the partnership. The Partnership also determined the time of the start of mining after commercial discovery from the date of the issuance of the protocol dated October 29, 2010 GKZ No. 986-10-U 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 the GKZ Protocol No. 959-10-U dated August 27, 2010. Therefore, the losses should be adjusted starting from August 27, 2010. The Specialized Judicial Board of the Supreme Court disagreed with the above conclusions of the court of first instance. In accordance with the requirements of paragraph 2 of Article 57 and paragraph 3 of Article 58 of the Law of the Republic of Kazakhstan "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, mineral reserves of 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 on 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 of April 10, 2007 increased the volume of oil and gas reserves of the field as a whole for the Vostochny Makat field (including the Zhana Makat site) for two contract territories PF "E" and LLP "S", previously approved by the GKZ protocol of February 18, 2005, 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 were drilled in the contract territory of LLP "C". At the same time, there is no indication in the statement part of the protocol about making changes to the State Balance of Reserves. By the GKZ protocol dated October 29, 2010, the approved hydrocarbon reserves of the Vostochny Makat field were divided between two subsurface users – PF "E" and LLP "S".

Consequently, the GKZ protocols of August 27, 2010 and October 29, 2010 cannot be used as a basis for determining the start date of production after commercial discovery. In addition, explanatory notes to the reports on forms F-1, F-2 and F-6 on changes in balance oil reserves for 2007-2009, information on reserves and production volumes of the Zhana Makat site provided by the Committee of Geology and Subsoil Use, in court confirmed the facts of extraction by the partnership since 2007 of oil reserves approved for PF JSC "E", 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 recognized as legitimate the notification on the determination of the moment of the start of production after commercial discovery – from the date of the issuance of the GKZ protocol dated April 10, 2007 No. 585-07-P. The reason for changing the said decision was the erroneous conclusions of the court of first instance, their inconsistency with the norms of substantive law and the factual circumstances of the case. 2. JSC "SNPS-A" applied to the Russian State Institution "Department of State Revenue for Aktobe region" for recognition as illegal and cancellation of the notification dated January 28, 2016 No. 94/1 on the results of the tax audit. By the decision of the Astana City Court dated August 1, 2016, the investor's application was satisfied regarding the recognition of illegal and cancellation of the notification regarding the accrual of bonuses from oil sector organizations in the amount of 1,657,775 tenge and penalties in the amount of 378,450 tenge. The rest of the application was denied. By the resolution of the specialized judicial Board of the Supreme Court dated November 2, 2016, the decision of the court of first instance was changed. It was canceled in terms of recognition as illegal and cancellation of notification No. 94/1 dated January 28, 2016 on the accrual of a commercial discovery bonus in the amount of 1,657,775 tenge and penalties in the amount of 378,450 tenge, in this part a new decision was made to dismiss the application. The rest of the court's decision remains unchanged. Canceling the notification regarding the accrual of the commercial discovery bonus, the court of first instance took as a basis the explanations of an independent expert, GKZ A. the illegality of accruing the commercial discovery bonus, since standard work on geophysical research, laboratory tests of oil and gas samples from an already discovered field do not relate to exploration work. The court also stated in the decision that the tax authority had not proven the increase in reserves of the deposit as a result of additional exploration. The Board considered the conclusions of the court of first instance to be erroneous, contrary to the norms of substantive law and the factual circumstances of the case.

The minutes of the meeting of the GKZ dated September 25, 2012 No. 1201-12-U on "Recalculation of oil and dissolved gas reserves of the above-salt deposits of the Kenkiyak field of the Aktobe region of the Republic of Kazakhstan as of February 2, 2012" additionally approved the increase in dissolved gas in the amount of 30 million cubic meters. The Board, guided by the provisions of subparagraph 1) of part 1 of Article 317, Articles 318 and 319 of the Tax Code, subparagraph 54) of Article 1, part 1 of Article 83, Article 121 of the Law of the Republic of Kazakhstan "On Subsoil and Subsurface Use", concluded that the approval of the GKZ to increase the initially established recoverable gas reserves by 30 million tons. cubic meters in combination with information about the Company's geophysical research, corresponding to the concept of additional exploration, are the basis for additional BKO charges for the physical volume of the increase in reserves. The decrease in reserves of another type of mineral, recoverable oil, established by paragraph 2.11 of the 2012 GKZ Protocol does not negate the fact of an increase in gas reserves compared to the approved GKZ Protocol No. 206-03-U dated February 20, 2003. Therefore, the accrual by the authorized body of the BKO in the amount of 1,657,775 tenge and a penalty of 378,450 tenge is legitimate.

JSC "K" appealed to the court with an application to the Russian State Institution "Department of State Revenue for the Mangystau region" to declare illegal and cancel notification No. 258/1 dated January 12, 2016, issued following consideration of the taxpayer's complaint against notification of the results of the tax audit dated September 26, 2014 No. 258 regarding the accrual of the amount of CPI in the amount of 657 125,316 tenge, penalties - 108,337,408 tenge, tax on excess profits from oil sector organizations in the amount of 540,516,212 tenge and penalties - 164,988,870 tenge, social tax in the amount of 10,679,477 tenge and penalties - 2,439,914 tenge. The application was partially satisfied by the decision of the Astana City Court dated August 1, 2016.

The notification of the results of the tax audit dated January 12, 2016 No. 258/1 regarding the accrual of CPN and NSP was declared illegal and canceled, due to the exclusion from deductions of logging costs, social tax in the amount of 10,679,477 tenge and penalties in the amount of 2,436,914 tenge. The Court ordered the Department to recalculate the penalties due to the exclusion of logging costs from deductions. The rest of the application was denied. The state duty in the amount of 154,652 tenge was refunded in favor of the Company. By the resolution of the specialized judicial Board of the Supreme Court dated October 24, 2016, the decision of the court of first instance was changed. It was canceled in terms of recognition as illegal and cancellation of the notification of social tax in the amount of 10,679,477 tenge and penalties in the amount of 2,436,914 tenge, and a new decision was made in this part to reject the investor's application. By partially canceling the notification of the social tax and penalty, the court of first instance assumed that this tax had been paid by the applicant in the 2nd quarter of 2010, so the budget had not suffered any losses. The Board did not agree with such conclusions of the court of first instance, recognizing them as inconsistent with the law and the circumstances relevant to the case. The court of first instance did not take into account that when submitting the declaration, the taxpayer did not comply with the procedure for compiling tax reporting forms provided for by the Rules for Compiling Tax Reporting Forms approved by Order No. 574 of the Chairman of the Tax Committee of the Ministry of Finance of the Republic of Kazakhstan dated December 24, 2009, which led to incorrect calculation of social tax. According to the Company's personal social tax account, it follows that according to the next declaration for the 2nd quarter of 2010, no social tax was accrued, since the "accrued" column indicated a zero value and, accordingly, there is no decrease in the "settlement balance" column.

The reason for the discrepancy was that when submitting tax reports on form 210 for the 2nd quarter of 2010, the taxpayer did not fill in line 210.00.039: "Total social tax calculated", respectively, these lines with a zero result were transferred to the Notification./Confirmation "On the provision of tax reports by the taxpayer (tax agent) in electronic form", where the amount of 0 tenge is indicated in the "Amount" line for accrual. Consequently, the amount of social tax has not been received by the budget. In such circumstances, the actions of the tax authority to issue a notification regarding the calculation of social tax were recognized by the board as correct. The results of the generalization show that judicial acts on civil cases in the field of taxation of investors – subsurface users have undergone changes, as they are particularly complex categories of cases. As the board considers a sufficient number of such cases, certain issues of taxation of subsurface users require more detailed study and analysis.

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