The recognition of the notification of the UGD of the Tax Authority as illegal, since the Courts made an error in evaluating evidence, interpreting and applying substantive law, and therefore the judicial acts issued in the case are subject to cancellation.
Joint Stock Company "N" (hereinafter referred to as the Company) applied to the court with an application to the state institution "Tax Department for the city of Almaty of the Tax Committee of the Ministry of Finance of the Republic of Kazakhstan" (hereinafter referred to as the Tax Department) to declare the notification illegal. The decision of the specialized interdistrict Economic Court of Almaty dated July 12, 2013 denied the application in full. By the decisions of the appellate and cassation judicial boards, the decision of the specialized interdistrict Economic Court of Almaty dated July 12, 2013 was left unchanged. In the petition, the Company requested that the contested judicial acts be annulled with a new decision on the satisfaction of the application, citing violations of substantive law. Having examined the case materials, the Supervisory Judicial Board for Civil and Administrative Cases of the Supreme Court of the Republic of Kazakhstan came to the following conclusion.The case materials established that the Tax Department conducted an audit of the Company on the correctness of the calculation and timeliness of taxes and other mandatory payments to the budget: the timeliness of transfer pricing for the period from January 1, 2007 to December 31, 2007 (hereinafter referred to as the Law). Based on the results of the audit, a documentary tax audit report was drawn up on December 24, 2012, which shows that individual transactions made by the taxpayer revealed deviations from market prices by more than 10%. Taking into account the requirements of Article 5 of the Law, the tax authority came to the conclusion that it was necessary to adjust the object of taxation. Based on the tax audit report, the Company was issued a notification dated December 24, 2012, according to which the applicant is required to pay an additional accrued amount of taxes, payments, tax penalties and losses in the amount of 4,898,514,819 tenge, including: corporate income tax from resident legal entities, except for income from organizations oil sector, in the amount of 2,983,522,099 tenge, penalties in the amount of 1,914,992,720 tenge. Challenging the said notification from the tax authority, the Company believed that the defendant unreasonably applied in his calculations the Rules (methodology) of Pricing for Natural Uranium concentrate (U3O8) approved by Government Decree No. 74 dated February 3, 2011 (hereinafter referred to as the Pricing Rules), which were not in force during the period of the disputed transactions.
The recognition of the notification of the UGD of the Tax Authority as illegal, since the Courts made an error in evaluating evidence, interpreting and applying substantive law, and therefore the judicial acts issued in the case are subject to cancellation.
In order to determine the correctness and legality of the pricing methodology, according to the applicant, it was necessary to proceed from the Guidelines of the Organization for Economic Cooperation and Development on Transfer Pricing for Multinational Corporations and Tax Authorities. The calculations made by the tax authority are made without taking into account the actual data contained in official sources. In rejecting the application, the courts proceeded from the fact that the new Pricing Rules (methodology) applied during the audit did not worsen the taxpayer's situation, but mitigated liability, therefore, they should be applied. The courts also referred to the fact that in the case under consideration, an important circumstance is the determination of the date of sale of uranium. These conclusions of the courts of first instance, appeal and cassation instances do not correspond to the actual circumstances of the case and contradict the norms of substantive law. The courts motivated their decision by the fact that the Company incorrectly determined the market prices of uranium when making export transactions, while the deviation from the market price was more than 10%.The basis for the tax adjustment was the application of the Rules (methodology) of pricing for natural uranium concentrate. However, in 2007, during the period of transactions, the Pricing Rules for natural uranium concentrate were not in effect, they were adopted and approved only in 2011. In 2007, the Law was in force and applied. Despite this circumstance, the courts considered that the tax authority had lawfully applied a regulatory legal act that was not in force during the period under review. According to article 37 of the Law "On Normative Legal Acts" dated March 24, 1998 No. 213-1, the normative legal act does not apply to relations that arose before its entry into force. An exception to the Rules provided for in paragraph 1 of this article is cases where the retroactive effect of a normative legal act or part of it is provided for by itself or by an act on its enactment, as well as when the latter eliminates or mitigates liability for an offense previously provided for. Regulatory legal acts that establish or strengthen responsibility, impose new responsibilities on citizens, or worsen their situation are not retroactive. Ignoring the requirements of the above-mentioned rule of law, the courts considered it legitimate to calculate the amounts of taxes according to the Pricing Rules, which did not apply during the period under review, and justified this by the fact that if the check had been carried out according to the Law, the accruals would have increased fourfold. However, these conclusions of the courts are untenable, since the pricing mechanism operating in the Company since 2001 has been recognized as compliant with the Law by the decision of the Astana City Court of 2008. According to the second part of Article 71 of the CPC, the circumstances established by a court decision that entered into force in a previously considered civil case are binding on the court and are not proven again in other civil cases involving the same persons.
The above-mentioned court decision confirmed the correctness and legality of the pricing methodology used in the Company. According to paragraph 4 of Article 2 of the Law, the market price of goods (work, services) is the price formed by the interaction of supply and demand in the market of identical (or, in their absence, homogeneous) goods (work, services) under comparable economic (commercial) conditions, assigned between independent parties and determined in accordance with the procedure established by Law..The market price can only be recognized as the price that has developed in comparable economic (commercial) conditions. The Company applied mixed pricing based on both spot and long-term prices, which most closely characterized the price level in the market and minimized the risks of declining profits. At the same time, the conditions affecting the deviation of the price applied at the time of the transaction from the market price were also taken into account, including: 1) the quantity (volume) of goods supplied (for example, the volume of a consignment); 2) the quality of the goods supplied or purchased, the presence or absence of packaging, convenient packaging; 3) deadlines for fulfilling obligations; 4) payment terms usually applied in transactions of this type, as well as other conditions that may affect prices; 5) usual price discounts or price surcharges applied in transactions between non-interdependent persons. Article 9 of the Law stipulates that any information sources are used to determine the market price of a product (work, service), including: 1) officially recognized sources of information on market prices for goods, i.e. sources provided for in the List approved by Government Decree No. 788 of June 9, 2001; 2) officially recognized sources on stock quotes; 3) information provided by participants in transactions to authorized bodies. The Company used information sources approved by a Government decree and applied spot quotations on the date set by the terms of the agreement. In addition, the arguments of the Tax Department that if the transfer pricing legislation in force at the time of the tax audit had been applied, the tax charge would have been significantly higher are unfounded. During the tax audit, the tax authority did not apply this legislation, did not make calculations, and there is no evidence in the case file that the accrual would have been significantly higher.
The recognition of the notification of the UGD of the Tax Authority as illegal, since the Courts made an error in evaluating evidence, interpreting and applying substantive law, and therefore the judicial acts issued in the case are subject to cancellation.
Attention!
Law and Law Law Law draws your attention to the fact that this document is basic and does not always meet the requirements of a particular situation. Our lawyers are ready to assist you in legal advice, drawing up any legal document suitable for your situation.
For more information, please contact a Lawyer / Attorney by phone: +7 (708) 971-78-58; +7 (700) 978 5755, +7 (700) 978 5085.
Attorney at Law Almaty Lawyer Legal Services Legal Advice Civil Criminal Administrative Cases Disputes Protection Arbitration Law Firm Kazakhstan Law Office Court Cases
