Tax disputes on the recognition of the decision of the Tax Authority of the documentary tax audit and notification of the audit results as illegal

Paragraph 26 of the regulatory resolution of the Supreme Court of the Republic of Kazakhstan dated December 24, 2010 No. 20 "On certain issues of application by courts of the norms of Chapter 29 of the Civil Procedure Code of the Republic of Kazakhstan" established that the legality of the appealed decision, action (inaction) means that it was made (committed) in accordance with regulatory legal acts, within the limits of the competence of a state body or a local government body, the powers of an official or a civil servant. She filed a lawsuit with the Department for recognition of the decision of the Tax Authority, expressed in: - the act of documentary tax audit dated March 28, 2016 No. 463 (hereinafter referred to as the Act) and in the notification of the results of the audit dated March 28, 2016 No. 463 (hereinafter referred to as the Notification) on the calculation of the amount of individual income tax (hereinafter referred to as the Notification). – IPN) from income that is not taxed at the source of payment in the amount of KZT 4,082,894 and penalties.; - the obligation on the Tax Authority to cancel the Act and Notification, eliminating in full the violations of the rights and legally protected interests of the applicant. By the ruling of the Almaly District Court No. 2 of Almaty dated January 26, 2018, the proceedings regarding the recognition of the decision of the Tax Authority expressed in the Act and Notification as illegal were terminated. The decision of the District court No. 2 of Almaly district of Almaty dated January 26, 2018 denied the application. By the ruling of the Judicial Board for Civil Cases of the Almaty City Court dated May 14, 2018, the ruling of the court of first instance remained unchanged. By the decision of the Judicial Board for Civil Cases of the Almaty City Court dated May 14, 2018, the decision of the court of first instance was canceled. A new decision on the satisfaction of the application was made in the case. The notification was deemed illegal. The Department is responsible for eliminating violations of the applicant's rights and legitimate interests within one month from the date of entry into force of the court's decision. The Judicial Board for Civil Cases of the Supreme Court overturned the decision of the appellate instance, upholding the decision of the court of first instance on the following grounds.

Tax disputes on the recognition of the decision of the Tax Authority of the documentary tax audit and notification of the audit results as illegal

The court found that according to the construction equity agreement dated December 9, 2005 No. 0912/05-P1-E (hereinafter referred to as the Agreement), M. transferred KZT 19,208,393 to T LLP for equity participation in the construction of a house at the address: – Almaty, Zenkova Street, above Kabanbai Batyr Street, for 3-one-room apartment, on the 5th floor in entrance No. 1, with a total area of 91.7 square meters. meters. By the signed agreement on assignment of rights and obligations dated August 16, 2011, T. transferred the rights and obligations under the Agreement to M. free of charge.

Tax disputes on the recognition of the decision of the Tax Authority of the documentary tax audit and notification of the audit results as illegal

Ownership of the acquired real estate was registered for M. with the justice authorities on October 2, 2012. According to the purchase and sale agreement dated June 25, 2013, M. alienated R.'s apartment for 46,810,000 tenge. The purchase and sale agreement was registered with the State Institution "Department of Justice for the City of Almaty" on June 28, 2013. The Department conducted a documentary tax audit in relation to M., based on the order of March 11, 2016 No. 463, on the issues of non-fulfillment by the taxpayer of the notification of the tax authorities on the elimination of violations identified by the results of desk control. Based on the results of the audit, an Act was drawn up and the disputed Notice was issued. The court of first instance, refusing to satisfy the application, proceeded from the fact that the contested decision was made by the Tax Authority in accordance with the requirements of the law, within the competence and powers of the state body. The court cited the omission of a three-month deadline for applying to the court as an independent reason for rejecting the claim. The appeals Board, overturning the court's decision and declaring the Notification illegal, motivated its conclusions by the fact that the accrual of personal income tax from the sale of M.'s real estate by the Tax Authority was made in violation of the law. However, it is impossible to agree with such conclusions of the appellate instance, since they are based on the incorrect application of the norms of substantive and procedural law and on the inconsistency of the court's conclusions set out in the ruling with the circumstances of the case. According to subparagraph 1) of paragraph 1 of Article 180 of the Code of the Republic of Kazakhstan "On Taxes and Other mandatory Payments to the Budget" (hereinafter referred to as the Tax Code), which was in force at the time of the legal relationship, the property income of an individual subject to taxation includes: – income from value added upon sale by an individual, as well as an individual entrepreneur, applying a special tax regime for small business entities and property specified in Article 180-1 of this Code. Paragraph 4 of Article 180-1 of the Tax Code stipulates that in the case of the sale of immovable property acquired as a result of the assignment of the right to claim a share in a residential building under a contract for equity participation in housing construction, the income from the increase in value is the positive difference between the price (cost) of the sale of property and the value at which the taxpayer acquired the right to claim a share in a residential building under the agreement on shared participation in housing construction.

It has been reliably established in the case and is not disputed by the parties that M., being an independent taxpayer, received the rights and obligations under the Contract free of charge. In this regard, the board agrees with the arguments of the petition that subparagraph 1) of paragraph 7 of Article 180-1 of the Tax Code was applicable to the disputed legal relations. It follows from the above rule of substantive law that in the case specified in paragraph 6 of this article, in the absence of a market value determined on the date of ownership of the sold property specified in subparagraphs 1) – 7) of paragraph 1 of this Article, or in case of non-compliance with the deadline for determining the market value established by paragraph 6 of this Article, as well as in other cases where there is no price (cost) for the acquisition of property not specified in paragraph 6 of this Article, the income from the increase in value is: - for the property specified in subparagraph 1) of paragraph 1 of this Article, there is a positive difference between the sale price (value) of the property and the estimated value. In this case, the estimated value is the value determined for calculating property tax by the Government for Citizens State Corporation on January 1 of the year following the reporting tax period in which ownership of the sold property arose. Ownership of real estate for M. was registered on October 2, 2012. This fact is confirmed by the certificate of ownership dated September 26, 2012 No. 035888.

Tax disputes on the recognition of the decision of the Tax Authority of the documentary tax audit and notification of the audit results as illegal

The apartment was alienated under the purchase and sale agreement on June 26, 2013 for the amount of 46,810,000 tenge. The estimated value of the property, according to the justice authority, amounted to 5,981,065 tenge. Thus, M. had property income from the sale of real estate, which, by virtue of paragraph 1 of Article 158 of the Tax Code, is subject to taxation at a rate of 10%. Paragraph 26 of the regulatory resolution of the Supreme Court of the Republic of Kazakhstan dated December 24, 2010 No. 20 "On certain issues of application by courts of the norms of Chapter 29 of the Civil Procedure Code of the Republic of Kazakhstan" established that the legality of the appealed decision, action (inaction) means that it was made (committed) in accordance with regulatory legal acts, within the competence of the state the authority or authority of a local government body, the authority of an official or civil servant. Having recognized the legality of the appealed decision, action (inaction), the court, in accordance with the second part of Article 227 of the CPC, decides to dismiss the application. Since the contested Notification was accepted by the Department in accordance with the requirements of the Tax Code and within the competence of the state body, the board concludes that the arguments of the petition are justified and the decision of the court of first instance is lawful. 

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