Recognition of illegal actions to classify as high risk and cancellation of the order approving the schedule of inspections in a special order

No. 6001-23-00-6ap/421 dated 11/14/2023

Plaintiff: LLP "P" (hereinafter referred to as the Partnership)

Respondents: State Institution "Ministry of Finance of the Republic of Kazakhstan" (hereinafter referred to as the Ministry), State Institution "State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan" (hereinafter referred to as the Committee)

The subject of the dispute: on the recognition of illegal actions related to a high degree of risk, recognition as illegal and cancellation of the order regarding inclusion in the schedule of inspections in a special order for the second half of 2022, recognition as illegal and cancellation of the order approving the schedule of inspections in a special order regarding inclusion in it

Review of the plaintiff's cassation appeal

PLOT: 28 By Order of the Deputy Prime Minister - Minister of Finance of the Republic of Kazakhstan No. 480 dated May 6, 2022, the schedule of inspections by the territorial bodies of the Committee for the second half of 2022 was approved in the field of ensuring the receipt of taxes and other mandatory payments to the budget, completeness and timeliness of the transfer of social payments (hereinafter – the Order).

The assessment of the degree of risk of the Partnership for selection for tax audit was carried out by the Committee in accordance with the criteria approved by the joint order of the Minister of Finance of the Republic of Kazakhstan dated November 28, 2018 No. 1030 and the Minister of National Economy of the Republic of Kazakhstan dated November 28, 2018 No. 86 "On approval of criteria for assessing the degree of risk for the selection of subjects (objects) of tax audit conducted in accordance with a special procedure based on a risk assessment" (hereinafter referred to as the Joint Order) and the order of the Acting Minister of National Economy of the Republic of Kazakhstan dated July 31, 2018 No. 3 "On Approval of the Rules for the Formation of a risk assessment system by State bodies and the form of checklists".

The Partnership filed a lawsuit against the Ministry and the Committee with the above-mentioned claim, arguing that the Partnership should not be classified as a high-risk company and the assignment of such an assessment is unjustified, and therefore, the inclusion in the schedule of inspections based on a special risk assessment is illegal, which violates the rights and freedoms of legitimate interests.

Judicial acts:

1st instance: the claim was denied.

Appeal: the court's decision remains unchanged.

Cassation: the decision of the judicial board was overturned with the referral of the case for a new hearing to the court of appeal in a different composition of the court.

Conclusions: according to paragraphs 7 and 8 of the Joint Order, the general indicator of the degree of risk of the subject (object) of the tax audit is calculated according to the criteria for assessing the degree of risk specified in paragraph 6 of these Criteria and criteria for assessing the degree of risk related to confidential (official) information. In terms of the degree of risk, the subject (object) of a tax audit is classified as: high risk – with a probability index of over 51 percent.

According to the results of the assessment, the plaintiff was classified as a high-risk taxpayer, since his probability of risk was above 51 percent.

The Court of first instance motivated the refusal to satisfy the claim by the fact that the inclusion of the Partnership in the schedule of inspections according to a special procedure was carried out in accordance with the powers of the tax authorities granted to them by law. The appellate judicial board agreed with the conclusions of the court of first instance. At the same time, it is impossible to agree with the conclusions of the local courts due to the incorrect application by the courts of the norms of substantive and procedural law.

Thus, the local courts also indicated the conclusions that the result of calculating any criterion is not the establishment of violations of the law, but only a tool for assessing the degree of risk. Attributing a Partnership to a high degree of risk does not indicate that it violates legislation in the field of ensuring tax revenues and other mandatory payments to the budget. These circumstances are the basis for the appointment of a tax audit, which the Partnership has not had for more than 15 years.

According to the criteria related to confidential (official) information, that is, closed, the degree of risk of the taxpayer was determined by the program itself in an automated form based on all the data available in the databases of both the tax authority and other government agencies. During the consideration of the case by the local courts, closed criteria were requested under the heading "for official use" (hereinafter referred to as the DSP), which, in the opinion of the courts, showed the validity of classifying the Partnership to a high degree of risk.

At the same time, the plaintiff's representative was not acquainted with the specified information by the court, limiting himself to the opinion that the specified information about confidential criteria should not be disclosed, since their list and calculation algorithm are classified as DSP and are official information of limited distribution.

However, in accordance with article 28 of the CPC, the plaintiff has the right to familiarize himself with the materials of the administrative case, make extracts from them and make copies, file petitions and challenges, give evidence and explanations on all issues arising during the consideration of the administrative case, to know about the decisions taken affecting his interests, to participate in the consideration of the administrative case in any judicial to object to petitions and arguments of other participants in the administrative process. The plaintiff is obliged to declare to the court the actual circumstances of the administrative case fully and truthfully, to speak out or submit to the court documents refuting the facts alleged by other participants in the administrative process.

According to paragraph 48 of the Rules for Classifying Information as Official Information of Limited Distribution and Working with it, approved by Resolution of the Government of the Republic of Kazakhstan No. 429 dated June 24, 2022 (hereinafter referred to as the Rules), individuals and (or) legal entities of the Republic of Kazakhstan are allowed to familiarize themselves with and work with documents and publications marked "chipboard" and (or) "Confidential" only with the permission of the head of the organization in charge of these documents, if there is a reasonable request.

At the same time, individuals and (or) legal entities of the Republic of Kazakhstan are familiarized with documents and publications marked "DSP" and (or) "Confidential" on the terms of confidentiality after signing an obligation not to disclose official information of limited distribution in accordance with Appendix 8 to these Rules. Signed obligations are kept in the file together with requests from individuals and (or) legal entities of the Republic of Kazakhstan.

In such circumstances, the judicial board believes that the court unreasonably denied the plaintiff access to documents marked "chipboard", since, in accordance with paragraph 48 of the Rules, individuals and (or) legal entities of the Republic of Kazakhstan are allowed to view and work with documents and publications marked "chipboard" only with the permission of the head of the organization responsible for where the specified documents are located, if there is a reasonable request.

In this case, the court did not request or send a corresponding request to the head of the Committee for permission to familiarize the plaintiff with the above documents, since according to the requirements of article 28 of the CPC, the plaintiff has the right to familiarize himself with the materials of the administrative case.

The above indicates that the procedural rights of the plaintiff were violated during the consideration of the case by the court, therefore, in order to fully clarify the circumstances relevant to the case, a comprehensive and objective review of the case, it is necessary to send the administrative case for a new hearing to the court of appeal.

When reviewing the case again, the court of appeal must carefully review the arguments of the parties, familiarize the plaintiff with the documents marked "DSP" requested from the Committee, observing the requirements of paragraph 48 of the Rules, evaluate the evidence presented and make a legitimate and reasoned decision on the case. 

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