The Department of State Revenue declares the notification illegal and cancels it.

A dispute arose over whether the customs value and price of crude oil included the costs associated with the transportation of oil from the Republic of Kazakhstan to the place of its departure from the customs territory of the Eurasian Economic Union. The position of the SRC The price of exported oil does not include transportation and other expenses of companies to the place of export from the territory of the EAEU, in connection with which the SRC increased the customs value and levied additional customs duties and penalties only for exporting companies operating under stable legislation as of the date of signing Production Sharing Agreements (Decree of the President of the Republic of Kazakhstan, which has the force of Law dated July 20, 1995, No. 2368, "On Customs affairs in the Republic of Kazakhstan"). The ambiguous judicial practice is clearly traced by the example of three judicial acts that took place at the request of JSC "K". At the same time, it should be noted that the motives of the decisions taken in favor of exporters are also non-identical. So: 1. By the decision of the Astana City Court dated February 28, 2017, which was left unchanged by the decision of the appellate instance dated May 12, 2017, the application of JSC "K" to the State Revenue Agency "Department of State Revenue for the West Kazakhstan Region" on recognition as illegal and cancellation of notification No. 42 dated June 9, 2016, the decision of the Committee dated December 14 was partially satisfied. in 2016. The applicant appealed against the actions of the Department for additional customs duties, indicating in the inspection report that the Company's expenses incurred for transporting oil to the port of destination were not included in the customs value of the goods. It has been established that the Company supplies crude oil for export under contracts concluded with companies B and E, on FOB (free on board) delivery terms in accordance with Incoterms 2000. In accordance with these rules, the term FOB (free on board) means that the seller delivers the goods on board the ship at the named port of shipment. From this point on, all costs and risks of loss or damage to the goods must be borne by the buyer. The price of the goods under the Company's contracts concluded with companies B and E on FOB Novorossiysk delivery terms is set in US dollars per barrel net and the calculation is made using price quotations for Trend grade oil from Platts Crude Oil Marketwire magazine. The determination of the oil price by quotation on the stock exchange is provided for by the terms of the contracts. By Resolution of the Government of the Republic of Kazakhstan dated December 21, 2011 No. 1568, Platts Crude Oil Marketwire magazine is recognized as a source of information on market prices for crude oil. The case file contains a letter dated February 2, 2017, where the Platts information source confirms the formation of a quote taking into account the costs of transporting oil through the pipeline.

According to the Methodology in the field of statistics on international trade in goods, approved by Order No. 204 of the Chairman of the Committee on Statistics of the Ministry of National Economy of the Republic of Kazakhstan dated December 14, 2015, FOB is the delivery of goods, where the price of the goods includes its cost and the cost of shipping and loading the goods on board the ship. According to Article 122 of the Law "On Customs Affairs in the Republic of Kazakhstan" as amended in 1995 and Article 98 of the Code "On Customs Affairs in the Republic of Kazakhstan", the customs value of goods exported from the customs territory of the Customs Union is determined on the basis of the transaction price actually paid or payable when sold for export. When determining the customs value of goods, transportation costs are included in the transaction price, if they were not previously included. The courts, satisfying the applicant's claims in this part, concluded that when setting the exchange price, the costs of transporting oil on the FOB delivery basis were previously included in the customs value of the goods, therefore their repeated inclusion by the Department is unlawful. The decision of the cassation instance of December 22, 2017 refused to initiate cassation proceedings. 2. By the decision of the Astana City Court dated September 14, 2017, the application of JSC "K" to the State Revenue Agency "Department of State Revenue for the West Kazakhstan region" on recognition as illegal and cancellation of notification No. 278/1 dated June 21, 2017 was partially satisfied. Additional charges of customs duties and penalties for transportation costs have been abolished for the above-mentioned reasons. By the decision of the appellate instance dated December 21, 2018, the decision was changed. In the satisfied part, it was canceled with the issuance of a new decision to dismiss the claim. The Board came to the conclusion about the legality of the contested notification on the following grounds. During the period under review, the Company supplied crude oil for export under contracts concluded with companies "B" and "E" on FOB (free on board) terms in accordance with Incoterms-2000. FOB delivery terms imply loading at the port on a tanker nominated by the buyer, as agreed by the parties, during the loading period. The inclusion of FOB delivery terms in the terms of the contract indicates the burden of cost allocation and the moment of transfer of ownership of the goods, but does not indicate that transportation costs are included in the transaction price. The price of goods under FOB Novorossiysk supply contracts is determined in US dollars per barrel net and calculated using the formula, where Brand is the arithmetic average of the average daily quotes for Brand grade oil published in Platts Crude Oil Market, Spread is the arithmetic average of the average daily quotes of the Urals Mediterranean differential for forward grade oil dated Brent published in Platts Crood Oil Marketer, minus freight quotes.

The price of the goods, which is determined by the formula in accordance with the Contract, does not include the seller's transportation costs. The costs of transporting oil through the main oil pipeline were not presented by the Company when applying for the customs procedure for export, respectively, these costs are not included in the customs value. The decision of the cassation instance of April 2, 2018 refused to initiate cassation proceedings. Thus, in relation to the same investor, for the same circumstances, there are two directly opposite judicial acts that have entered into force. Similar applications were also denied in the cases of: – "C" to the State Duma of the Aktobe region on the recognition of the illegal and cancellation of the notification of the results of consideration of the complaint dated August 1, 2017 No. 258; – "A" LLP to the State Duma of the Mangystau region on the recognition of the illegal and cancellation of the notification dated June 18, 2018 No. 479/1. 3. The decision of the city court was refused. By a resolution of Astana dated October 31, 2018, in satisfaction of KPO's application to challenge the notification of additional taxes and customs payments due to the non-inclusion of oil transportation costs in the customs value, the decision of the appellate instance was amended on March 29, 2019, and the decision was reversed in terms of the refusal to satisfy the application for cancellation of the notification, with a new decision in this part about the satisfaction of the application. The appellate instance pointed out that the provisions of Articles 121, 122 of the Decree of the President of the Republic of Kazakhstan "On Customs affairs in the Republic of Kazakhstan" dated July 20, 1995 No. 2368 (hereinafter referred to as the Decree) are applicable to the legal relations that have arisen. In accordance with Article 121 of the Decree, the basis for calculating customs duties, with the exception of customs duties for which specific rates are applied in accordance with Article 112 of this Decree, is the customs value of goods and vehicles transported as goods. According to Article 122 of the Decree, the customs value of goods exported outside the customs territory of the Republic of Kazakhstan is determined based on the price of the goods indicated on the invoice. The provisions of Article 122 of the Decree do not define any specific features in determining the customs value for the export of exchange-traded goods, therefore, the specifics of the formation of the market value (selling price) of the exchange-traded goods have no legal significance. The key point is to determine the following circumstance, namely whether shipping costs are included in the invoice or not. The Department has not provided calculations for the delivery of goods to a port or other place of export of goods from the customs territory of the Republic of Kazakhstan, and therefore the conclusions of the court of first instance on the legality of the notification in this part are subject to cancellation with a new decision declaring the notification illegal and canceling additional customs duties on transportation costs.

By the decision of the judge of the Judicial Board for Civil Cases of the Supreme Court of the Republic of Kazakhstan dated September 2, 2019, it was refused to transfer the petition for review of the decision for consideration at a court session of the Judicial Board for Civil Cases of the Supreme Court. When determining the customs value of exported goods, national customs legislation is applied (paragraph 4 of Article 38 of the EAEU Customs Code). When determining the customs value of goods exported from the customs territory of the Eurasian Economic Union, additional charges are added to the price actually paid or payable for these goods, if they were not previously included, namely: ... 2) the costs of loading, unloading or reloading exported goods and other operations related to their transportation (transportation) to the place of departure of such goods from the customs territory of the Eurasian Economic Union, and if the Commission, depending on the type of transport, by which the exported goods are transported (transported), and other places are determined for the specifics of their transportation (transportation), to the place determined by the Commission; (Article 73 of the Code of the Republic of Kazakhstan "On Customs Regulation in the Republic of Kazakhstan") These additional charges to the price actually paid or payable for exported goods are made on the basis of reliable, quantifiable and documented information. 3. With respect to unstable subsurface use contracts, the following applies: – a fixed rate of customs clearance fees; – current customs legislation; – an increase/decrease in the customs value does not matter in principle; - the amount of export customs duty is also fixed and calculated in relation to 1 ton. 4. In the law enforcement practice of oil transportation, issues arise related to the inclusion or non-inclusion of transportation costs to the border of Kazakhstan and Russia in the customs value of exported raw materials. This circumstance is important only for customs-stabilized subsurface use contracts. That is, those to whom the customs clearance fee rate of 0.2% – 0.4% of the customs value of goods is applied. The rate of customs duties in the amount of 0.2% – 0.4% of the customs value was established by the Decree of the Government of the Republic of Kazakhstan dated November 7, 1995, No. 1479, as part of the implementation of Article 118 of the Law of the Republic of Kazakhstan "On Customs in the Republic of Kazakhstan" dated July 20, 1995, No. 2368.5. The Customs Law was applied from July 28, 1995 to May 1, 2003. The customs value of goods exported outside the customs territory of the Republic of Kazakhstan is determined on the basis of the price of the goods indicated on the invoice, as well as the following actual expenses, if they are not included in the invoice: 1) the costs of delivering the goods to the airport, port or other place of export of the goods from the customs territory of the Republic of Kazakhstan: cost of transportation; costs of loading, unloading, reloading and transshipment of goods; insurance amount (Article 122 of the Law on Customs)

When considering cases in this category, based on the provisions of the legislation, it is necessary to take into account: 1) presence/absence in the subsoil use contract (SRS/PSA) a direct condition for the application of the provisions of the Law on Customs; 2) the contents of the invoice. By-laws (Instructions) adopted as part of the implementation of the Law on Customs regulated and detailed the cases of importation of goods, while any specifics of the export of goods were not regulated.

Article 306 of the Customs Code of the Republic of Kazakhstan (in force from May 1, 2003 to June 30, 2010) stipulated that when determining the customs value of goods, the following expenses were included in the transaction price, if they had not previously been included: 1) the costs of delivering the goods to the airport, port or other place of export of the goods from the customs territory of the Republic of Kazakhstan: the cost of transportation; the costs of loading, unloading, reloading and transshipment of goods.

In the absence of a transaction price, the customs value of the exported goods is determined based on an extract provided by the declarant from the accounting documentation of the exporting seller on the costs associated with the production or acquisition, storage and transportation of the exported goods.

Article 372 of the Customs Code of the Customs Union (applied from July 1, 2010 to January 1, 2018) guaranteed the application of the customs legislation in accordance with which the relevant contracts for subsurface use were in force (guarantees of stability and immutability of the fixed customs legislation).

Article 98 of the Code of the Republic of Kazakhstan "On Customs Affairs in the Republic of Kazakhstan", adopted in the implementation of the Customs Code of the Customs Union, which retained the rules for determining the customs value of exported goods, with the words "... from the customs territory of the Republic of Kazakhstan" being changed to "... from the customs territory of the Customs Union".

Article 460 of the current EAEU Customs Code (applicable from January 1, 2018) identically provides for the application of the norms of the customs legislation in accordance with which subsurface use contracts operate.

According to Article 108 of the Code of the Republic of Kazakhstan "On Customs Affairs in the Republic of Kazakhstan" dated June 30, 2010, the declaration of the customs value of exported goods is carried out by stating information: – on the amount of the customs value of goods, – on the circumstances and conditions of a foreign economic transaction related to determining the customs value of goods, – supporting documents. Consequently, when verifying the arguments of the parties to the dispute exporting goods, the following must be studied: – the circumstances and conditions of the foreign economic transaction, – the type of goods, – the specifics of pricing, – the place of formation of the market price, – the terms of delivery according to Incoterms, determining the distribution of costs between the seller and the buyer, – the place of departure of the goods from the customs territory of the Eurasian Union. This rule actually refers to the need to analyze the economic content of an oil export transaction, since it is a specific product with special pricing that is independent of the will of the parties to the transaction.

Crude oil is an exchange-traded commodity in accordance with the resolution of the Government of the Republic of Kazakhstan dated May 6, 2009 No. 638, the price of which is formed on the market and is directly dependent on global conditions. It is not formed from the cost of the deposit using the "cost plus" method. The exporter incurs the costs of producing and delivering oil to the sales market for transfer to the buyer, selling oil at the price of the sales market. The exporter cannot sell oil at a price higher than the market price, adding the incurred transportation and other costs to the market price, and therefore there is no economic justification for increasing the customs value for such costs. The basis of the customs value of goods exported from the customs territory of the EAEU for exchange-traded goods is the transaction price actually paid or payable upon sale for export. According to the oil export contracts, in the reviewed cases, oil was sold on FOB terms from ports of the Russian Federation (port of Novorossiysk, Yuzhnaya Ozereevka, Ust-Luga, Primorsk, etc.) based on price quotations from independent agencies. Such quotations are evaluated and published by agencies in relation to a specific geographical market, the basis of supply, and the grade/quality of the oil sold. The term FOB according to Incoterms-2010 means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of loading or ensures the provision of the goods delivered in this way. In accordance with article A.6 of Incoterms 2010, the seller is obliged to bear all costs related to the goods until the goods pass through the ship's handrails at the designated port of loading and, if necessary, pay all costs related to the fulfillment of customs formalities for export. Since the sale of oil is carried out at the point of delivery of the goods on FOB seaport terms, all costs incurred by the seller prior to the transfer of ownership to the buyer, including transportation and port costs, are included in the quotation.

The decision of the Customs Union Commission of September 20, 2010 No. 378 "On classifiers used in filling out customs declarations" approved Appendix 8 – classifier of types of documents. In paragraph 4 of Appendix 8, "Commercial documents and documents confirming the declared customs value of goods", code 04121 provides for the use of "Quotations from world stock exchanges". Thus, the customs legislation of the EAEU establishes quotations as confirmation of the declared customs value of goods, taking into account the relevant sales market.

The calculation of customs duty rates is also carried out by the State Revenue Committee based on the market prices of crude oil prevailing on world crude oil markets in accordance with Appendix 2 of the Order of the Ministry of National Economy dated February 17, 2016 No. 81. Calculations are not made based on the cost of oil sold.

The form and procedure for filling out the goods declaration were approved by the Decision of the Customs Union Commission No. 257 dated May 20, 2010. Column 20 "Terms of delivery" is located in the established form of the goods declaration. According to the order of filling in column 20 of the goods declaration: "The column contains information on the terms of delivery if the declared goods are exported from the customs territory or the customs procedure for previously exported goods is completed due to the fulfillment of obligations under the agreement (contract) concluded during the transaction.

The second subsection of the column indicates the delivery condition code (delivery basis) in accordance with the classifier of delivery conditions and the name of the geographical location (agreed place of delivery). " In turn, the Decision of the Customs Union Commission dated September 20, 2010 No. 378 "On classifiers used in filling out customs declarations" approved Appendix 13 – classifier of delivery conditions. The classifier of the terms of delivery consists of codes and their interpretations in accordance with Incoterms, for example, "FOB - FREE ON BOARD SHIP - Specified port of shipment". Thus, the terms of Incoterms are used to fill in column 20 of the goods declaration in order to determine the place where the customs value is formed and, accordingly, the costs of delivering goods to the EAEU border. Confirmation of this conclusion is the order in which column 46 "Statistical cost" of the goods declaration is filled in.

According to the procedure for filling in column 46 of the goods declaration: "The column indicates in numeric characters without separators and spaces the statistical value of the product in US dollars, rounded mathematically to two decimal places. The statistical value of the goods is calculated on the basis of the customs value of the goods indicated in column 45 of the DT, with the exception of the cases specified in paragraphs four and five (after the table) of this subparagraph." The fifth paragraph (after the table) contains the following instruction: "The statistical value of the goods is calculated by bringing the customs value of the goods, and in the cases specified in the fourth paragraph (after the table) of this subparagraph, the price of the goods to the delivery condition FOB - the last port of departure from the territory of the member state of the Union, which is the country of origin of the goods (DAP – the place of crossing the border of the member State of the Union, which is the country of departure of the goods)". Therefore, in order to determine the statistical value, the costs incurred by the seller outside the territory of the Republic of Kazakhstan must be deducted from the customs value of exported goods. Thus, the provisions of the regulatory documents of the Eurasian Economic Union on customs issues confirm the use of Incoterms and world quotations of the value of goods to determine the customs value of exported goods and comply with the provisions of Article 122 of the Law of the Republic of Kazakhstan dated July 20, 1995 No. 2368 "On Customs in the Republic of Kazakhstan", Article 98 of the Code of the Republic of Kazakhstan dated June 30, 2010 No. 296-IV "On Customs in the Republic of Kazakhstan", Article 73 of the Code of the Republic of Kazakhstan dated December 26, 2017 No. 123-VI "On Customs Regulation in the Republic of Kazakhstan". In the case of market pricing of exchange-traded commodities such as oil, based on independent sources of information on market prices officially recognized in the Republic of Kazakhstan, the costs defined in Article 98 of the Code of the Republic of Kazakhstan "On Customs in the Republic of Kazakhstan" are included in the transaction price based on the terms of Incoterms specified in the contract, except in cases where the contract There are special conditions for reimbursement of expenses by the seller or buyer.

It should be borne in mind that in the presence of a foreign economic transaction in which the value of goods is determined by stock quotes, the requirements of the customs authorities to provide extracts from the accounting documentation of the exporting seller on the costs associated with the production or acquisition, storage and transportation of exported goods are unlawful, since such a requirement can only be made in the absence of prices according to paragraph 7 of Article 73 of the Code of the Republic of Kazakhstan. In this regard, the requirements of the customs authorities on the breakdown of oil quotations provided by international sources of market prices for the costs of production, sale and transportation of oil cannot constitute an evidence base for price formation. Conclusions and suggestions The market price of oil, reduced to the FOB supply basis, is the transaction price actually paid and payable upon sale for export, including the cost of transporting goods and other costs to the place of export from the customs territory of the Eurasian Economic Union. 

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