The size of the trader's margin, or the trader's commission, or the commission for performing trade mediation functions
The plaintiff for DAP Posin transactions for 2017-2018 took into account the trader's margin of 10 US dollars per ton based on a letter from the buyer – Aroil Limited
No.58/2605 dated May 26, 2020.
The defendant reduced this margin to 3 US dollars per ton according to letter No. 3/12 dated May 18, 2012 from the official source of information Argus Media.
The plaintiff and the experts believe that the buyer's letter is subject to application, since it is specifically applicable to the transaction in question in terms of transaction dates and shipping direction.
However, the judicial board believes that the plaintiff's approach cannot change depending on the type of expense (confirmation by an official source or primary documentation), since in any case the European quotation is taken as the basis, and not the actual basis of delivery. Therefore, the differential should also be taken based on European data, rather than possibly the actual cost incurred.
At the same time, the judicial board notes that the letter from the official source of information referred to by the Department indicates the amount of the trader's margin, or the trader's commission, or the commission for performing trade mediation functions for 20062010, while the Partnership is appealing the results of the tax audit for 20172018.
Margin is an economic category. It can be influenced by supply and demand in global markets. So, according to publicly available information (www. marcotrends.net ) in the period 2006 to 2018, the price of a barrel of oil could vary from 50 to 180 US dollars.
Accordingly, the margin may change over time if the oil supply technology remains unchanged. In this regard, the Department's letter used is not applicable to the Partnership's export transactions, due to the discrepancy between the applicable period and the Plaintiff's period of appeal.
At the same time, due to the fact that the defendant has Argus Media data from a later period, the specified data from the official source is subject to application. In view of the above, the respondent should recalculate this differential based on the updated data.
Thus, the applicable sources of information on exported petroleum products of the Partnership should be determined in accordance with the requirements of subparagraph 2) of paragraph 4 of Article 13 of the Law.
Guided by Article 169 of the CPC, subparagraph 8) of the second part of Article 451 of the CPC, the judicial board changed the judicial acts of local courts.
The claim regarding the recognition of illegal and cancellation of the notice to reduce the loss in respect of railway costs, transshipment at the port and the trader's margin (differentials 2, 4 and 6) was satisfied. The SCAD of the Supreme Court ordered the Department to recalculate the KPN, losses and penalties in the satisfied part, taking into account the use of updated Argus data regarding the trader's margin. Conclusions: transfer pricing is very specific in terms of taxation. In this case, it may not be the actual income of the enterprise that is subject to taxation, but the income that it could receive based on the average data of competitors.
At the same time, there are not always clearly defined markers on the basis of which such a calculation can be made. Accordingly, the price of the sales market should be taken into account and potential shipping costs should be discounted from it.
A separate issue is exports to China. The Chinese market has a demand for oil, petroleum products, and food products from Kazakhstan. At the same time, for example, regarding oil, there are special agreements between the governments of the two states.
Resolution No. 600122006ap/1563 of January 24, 2023 assessed such a dispute, where judicial acts were upheld.
KOR Oil Company JSC filed a lawsuit against the Department to challenge the notification of audit results No. 189 dated May 14, 2019.
Thus, the tax authority conducted a thematic tax audit of the plaintiff on transfer pricing issues for the period from January 1, 2013 to December 31.
in 2015.
The notification based on the results of the audit has been appealed to the court. By the decision of the SMAS dated February 24, 2022 and the decision of the SCAD of the Supreme Court of the Kyzylorda Regional Court dated June 9, 2022, the claim was satisfied.
In the cassation appeal, the defendant provides the following arguments.
Argument 1.
By the definition of the SMAS No. 439422004/7 dated February 4, 2022, the application of JSC KOR Oil Company for the restoration of the missed deadline for filing a lawsuit was satisfied. Thus, a complaint about a disputed notification was filed with a higher authority within the established time frame. However, the higher authority did not consider the complaint on its merits for more than 2 years, and therefore the plaintiff exercised the right to appeal the notification to the court.
The Department considers that this restoration was illegal, as the notice was served to the plaintiff on May 14, 2019. It was appealed out of court, but the plaintiff did not receive a response. Accordingly, there is no decision of the authorized body based on the results of consideration of the complaint, which also serves as the starting date for appealing the act of the administrative body.
Argument 2.
The Defendant does not agree that the Argus China Petroleum source used by the Department does not contain information on daily quotes for goods, which does not comply with the requirements of paragraph 1 of Article 13 of the Law of the Republic of Kazakhstan "On Transfer Pricing" (hereinafter referred to as the Law).
The oil price published by Argus China Petroleum reflects the price at the border of Kazakhstan and China for actual transactions and allows for a comparative analysis of supplies between unrelated parties with transactions involving related parties. Therefore, such a price is appropriate for comparable economic conditions.
Argument 3.
The Agreement between the Government of the Republic of Kazakhstan and the Government of the People's Republic of China "On Certain Issues of Cooperation in the Development and Operation of the Kazakhstan China Oil Pipeline" dated December 8, 2012 No. 1559 (hereinafter referred to as the Agreement), referred to by the plaintiff, does not regulate the taxation of subsurface users and the application of legislation on transfer pricing, nor does it establish a specific formula price determination in oil purchase and sale transactions in the direction of China.
Argument 4.
The resolution of the specialized judicial board of the Supreme Court of the Republic of Kazakhstan dated October 26, 2020 has no prejudice to the case under consideration, since there are other parties to it, JSC SNPS Aktobemunaygas and the Department of State Revenue for the Aktobe region of the State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan.
However, the SCAD of the Armed Forces did not establish violations by the local courts due to the following.
According to argument 1.
According to paragraph 7 of Article 126 of the CPC, the court's ruling on the extension or restoration of the procedural period is not subject to appeal or review at the request of the prosecutor. Accordingly, the definition of the SMAS on this issue is not subject to revision.
According to argument 2.
The plaintiff supplied oil in the direction of China, where there is no price from the source of information. The absence of stock quotes in this area is also confirmed by the defendant.
Due to the lack of such quotations, the Company used the Brent quotation (DTD) published in Europe as the basis for the market price. The Company used price quotations from the publications "Crude Oil MarketWire Basic Service", published by The McGrawHill Companies (Platts) (Platts companies).
In accordance with the Resolution of the Government of the Republic of Kazakhstan dated March 12, 2009 No. 292 "On approval of the List of officially recognized sources of information on market prices", the above companies are the official sources of information on market prices for oil.
At the hearing, the defendant's representative also confirmed that he did not dispute the legality of the Platts data application.
The Department's Inspection Report did not state requirements regarding the incorrect size of the differential ($6.7 per barrel) applied to the information source in order to bring the price from the information source in the relevant market to comparable economic conditions with the transaction price, taking into account the price range.
Accordingly, the judicial board considers it unnecessary for the defendant to verbally present these arguments at the stage of the cassation appeal.
During the inspection, the Department applied the prices published in Argus China Petroleum, published by Argus Media Limited. However, as the local courts correctly point out, the data published in Argus China Petroleum are statistical customs prices that have not been calculated from the minimum and maximum values, and are not an exchange quotation (market price) for oil, have not been determined on the basis of conducted exchange trading and are not published in their official documents..
Thus, the data published in Argus China Petroleum are monthly average statistical prices, and not daily quotes, as required by Law. In addition, since 2018, the publication of data in this area has been stopped.
Accordingly, the judicial board agrees with the conclusions of the local courts that in this case the prices published in Argus China Petroleum cannot be applied for taxation and transfer pricing purposes.
According to arguments 3 and 4.
By Article 5 of the Agreement, the Government of the Republic of Kazakhstan and the Government of the People's Republic of China support the intentions of the authorized organizations of the Parties to ensure the competitiveness of the transportation route through the Kazakhstan-China oil pipeline. The price level under oil purchase and sale agreements is determined on the basis of international oil quotations in units of oil volume "barrel" and will be uniform on the border of the Republic of Kazakhstan and China for oil from all Kazakhstani shippers, regardless of the region of production.
Thus, the Agreement assumes the application of a single price by all Kazakhstani exporters to China, taking into account international quotations.
As the defendant's representatives confirmed, in general, eight companies shipped crude oil to China via this pipeline during the period under review to one buyer. Everyone uses a single pricing approach.
The resolution of the specialized judicial board of the Supreme Court of the Republic of Kazakhstan dated October 26, 2020 established the illegality of the use by state revenue authorities of the Argus China Petroleum information source for oil exports from Kazakhstan to China, and the inconsistency of this approach with the requirements of the Agreement. The decree also established the legality of applying a differential of 6.70 US dollars per barrel in 20142015.
According to the sixth part of Article 76 of the CPC, the facts that, according to the law, are assumed to be established are not proved during the civil proceedings.
In this case, there is not a prejudice of circumstances, but a prejudice of facts. Such facts are not proven again.
Thus, this resolution established the legality of the pricing approach of one of the eight exporting companies. Due to the fact that, according to the Agreement, a single pricing approach must be observed, the same pricing approach must be maintained with respect to the plaintiff. In such circumstances, the defendant's cassation appeal was dismissed.
Conclusions: International agreements and prejudice must be respected. The fulfillment of government obligations and the corresponding sequence of actions of the administrative body represented by the State Duma are an integral part of public administration.
According to subparagraph 4) of paragraph 2 of Article 19 of the Tax Code, tax authorities are required, within their competence, to provide explanations and comments on the occurrence, fulfillment and termination of a tax obligation. Such clarifications and comments, as well as methodological recommendations, including those of the authorized body, do not apply to regulatory legal acts. They are subject to assessment by the court, taking into account their compliance with the norms of tax legislation....
...Tax policy (a set of measures to establish new and cancel existing taxes and payments to the budget, to change rates, objects of taxation and objects related to taxation, the tax base for taxes and payments to the budget) is carried out by the authorized body in the field of tax policy…
...If an international treaty ratified by the Republic of Kazakhstan establishes rules other than those contained in the Tax Code, the rules of the said treaty shall apply (paragraph 5 of Article 2 of the Tax Code). In accordance with paragraph 3 of Article 4 of the Constitution, the procedure and conditions of operation in the territory of the Republic of Kazakhstan of international treaties to which Kazakhstan is a party are determined by the legislation of the Republic of Kazakhstan.…
...If an internationally ratified treaty grants the right of taxation to the Government of the Republic of Kazakhstan, but this right is not implemented in national legislation (there is a benefit), then national legislation is subject to application.…
...When interpreting conventions for the avoidance of double taxation, the general rules of interpretation provided for by international treaties and the legislation of the Republic of Kazakhstan apply, if such rules of interpretation comply with the provisions of the Vienna Convention on the Law of Treaties, to which the Republic of Kazakhstan acceded on the basis of a Resolution of the Supreme Council.
Resolution of the issue of tax control in the event of satisfaction of a claim for liquidation (invalidation of registration (re-registration) of a legal entity is within the authority of the tax authority, and only when taking the measures provided for by tax legislation may the rights and legitimate interests of counterparties be affected, who are entitled to protect their rights and legitimate interests in challenging decisions, actions (inaction) of the tax authorities…
13. Explain to the courts that, according to subparagraph 3) of paragraph 2 of Article 49 of the Civil Code, the courts may decide to liquidate a legal entity in the absence of a legal entity at its location or actual address, as well as founders (participants) and officials, without whom the legal entity cannot function for one year.
The absence of the above-mentioned features in combination is the basis for refusing to satisfy the plaintiff's claim, since there are other ways to respond by the tax authorities.…
...The state re-registration of a legal entity is an administrative act of the registering authority, and therefore a claim for invalidation of such re-registration is subject to consideration in administrative proceedings.…
...Courts should take into account that from January 1, 2020, participants in tax legal relations, when performing actions in the current tax period in relation to previous tax periods, are not entitled to apply the expired five-year statute of limitations of the Tax Code, since such a period under the current Tax Code is three years, unless otherwise provided by the Tax Code.
The tax authorities have no right to make claims to the taxpayer and/or tax agent beyond the limitation period. At the same time, the Tax Code does not limit the calculation of penalties to the limitation periods.…
...The total limitation period, taking into account its suspension during the transfer pricing tax audit, may not exceed seven years.
When suspending an audit on these issues, the tax authority must comply with the requirements of Article 8 of the Law of the Republic of Kazakhstan dated July 5, 2008.
No. 67IV "On transfer pricing". The limitation period may be suspended when sending a request that must comply with the following requirements:
it is addressed to the competent authority (organization) of the State;
be personalized, compiled in relation to the taxpayer being audited;
submitted on issues included in the subject of verification.
Courts should take into account that if a request does not comply with the above requirements, such a request is not considered to have been sent.…
...For tax claims for the payment of taxes and other payments to the budget, calculated, accrued by state revenue authorities and submitted to taxpayers for payment within the limitation period, the expiration of the limitation period does not terminate the tax obligation that has arisen and does not release the taxpayer from its fulfillment…
It is necessary to separate the right of the tax authority to calculate or revise the calculated, accrued amount of taxes and other mandatory payments to the budget and the taxpayer's right to demand a set-off and (or) refund of taxes and payments to the budget, penalties. Thus, when exercising a taxpayer's right to refund taxes from the budget, the tax authority does not calculate or review the calculated amount of taxes, but confirms or refuses to confirm the refund of taxes from the budget.
In this regard, with regard to the right of taxpayers to demand a set-off and (or) refund of taxes and payments to the budget, penalties, when calculating the limitation period, the date of receipt (registration) by the tax authority of the tax application provided for in subparagraph
1) paragraph 4 of Article 101 of the Tax Code, or the requirement to refund the amount of excess VAT provided for in subparagraph 2) paragraph 1 of Article 431 of the Tax Code, and not the date of the decision on the results of the tax audit, including notification of the results of the tax audit…
...If the state fee is paid by the plaintiff for an incorrect budget classification code or not in full, then in accordance with part four of the article
138 of the Administrative Procedural Code of the Republic of Kazakhstan (hereinafter referred to as the APPC), the judge indicates these deficiencies to the plaintiff and sets a time limit for their correction.…
...The submission by a taxpayer, within the time period established by the Tax Code, of an explanation on the violations identified not specified in paragraph 3 of Article 96 of the Tax Code and corresponding to the requirements of subparagraph 2) of paragraph 2 of Article 96 of the Tax Code, is recognized as the fulfillment of a notification on the elimination of violations identified by the tax authorities based on the results of desk control, and does not require verification of their validity. the creature.
23. By virtue of the second part of Article 135 of the CPC (claim for recognition), the plaintiff may also demand that an onerous administrative act that is no longer legally binding be declared illegal, therefore, claims challenging the executed notification based on the results of desk control are subject to court review.
A claim to challenge the notification based on the results of desk control is subject to consideration in administrative proceedings.
When considering claims challenging notices of elimination of violations provided for in subitems 2) and 3) of paragraph 3 of Article 96 of the Tax Code, identified by the tax authorities based on the results of desk control, the court is obliged to evaluate and examine the evidence provided by the taxpayer to confirm the actual receipt of goods, works, services from a legal entity and (or) an individual an entrepreneur whose registration (re-registration) has been declared invalid by a court decision that has entered into force in accordance with paragraph 5 of Article 96 of the Tax Code.
In all other cases, it is sufficient for the court to determine whether the tax authority had the legal grounds for issuing a notification without verifying the validity of its claims on the merits. Otherwise, the results of future tax audits will be predetermined, including an unscheduled thematic audit on the issue of non-compliance with the notification based on the results of desk control.
The tax authority has the right to make a decision on recognizing the notification as unfulfilled, including in cases where:
The explanation is not subject to submission by the taxpayer (paragraph 3 of Article 96 of the Tax Code) and violations have not been eliminated.;
23. By virtue of the second part of Article 135 of the CPC (claim for recognition), the plaintiff may also demand that an onerous administrative act that is no longer legally binding be declared illegal, therefore, claims challenging the executed notification based on the results of desk control are subject to court review.
A claim to challenge the notification based on the results of desk control is subject to consideration in administrative proceedings.
When considering claims challenging notices of elimination of violations provided for in subitems 2) and 3) of paragraph 3 of Article 96 of the Tax Code, identified by the tax authorities based on the results of desk control, the court is obliged to evaluate and examine the evidence provided by the taxpayer to confirm the actual receipt of goods, works, services from a legal entity and (or) an individual an entrepreneur whose registration (re-registration) has been declared invalid by a court decision that has entered into force in accordance with paragraph 5 of Article 96 of the Tax Code.
In all other cases, it is sufficient for the court to determine whether the tax authority had the legal grounds for issuing a notification without verifying the validity of its claims on the merits. Otherwise, the results of future tax audits will be predetermined, including an unscheduled thematic audit on the issue of non-compliance with the notification based on the results of desk control.
The tax authority has the right to make a decision on recognizing the notification as unfulfilled, including in cases where:
The explanation is not subject to submission by the taxpayer (paragraph 3 of Article 96 of the Tax Code) and violations have not been eliminated.;
the deadline set by the Tax Code for submitting an explanation or filing a complaint against the notification based on the results of desk control has been missed and violations have not been eliminated.;
By a court decision that has entered into legal force, the taxpayer has been denied a claim for recognition of the notice issued in accordance with paragraph 3 of Article 96 of the Tax Code as illegal, and the violations have not been eliminated.
A complaint (claim) against the decision to declare a notification unfulfilled may be filed by a taxpayer within ten working days from the date of its delivery (receipt) to a higher tax authority and (or) an authorized body or court.
The taxpayer has the right to choose the body to which a complaint (claim) can be filed.…
...It should be borne in mind that, by virtue of paragraph 3 of Article 117 of the Tax Code, no penalty is charged on the amount of arrears in property tax, land tax and vehicle tax from individuals resulting from the revision by the tax authorities of the calculated amounts of taxes after the due date for the relevant tax period…
...28. At all stages of the plaintiffs' appeal against the actions and acts of the tax authorities, the court should consider the possibilities of reconciling the parties and resolving the dispute by the tax authority independently (for example, making changes to information systems in the presence of technical errors, indicating the status "executed" for desk control notifications, and so on) in cases of administrative discretion…
...In accordance with the sixth part of Article 98 of the CPC, filing a complaint to the detriment of the applicant is not allowed. Since a thematic audit in accordance with Article 186 of the Tax Code is appointed during the consideration of a taxpayer's (tax agent's) complaint, the authorized body cannot decide on the calculation of additional amounts of taxes, other mandatory payments to the budget, or penalties not accrued in the disputed notification based on the results of the audit.
The decision of a higher authority (authorized body), adopted based on the results of consideration of a complaint against notification of the results of a tax audit, cannot be the subject of judicial challenge, as it does not entail legal consequences. If the notification of the results of the tax audit remains unchanged, the said notification may be challenged in court, and if it is canceled, the notification of the results of consideration of the complaint against the notification of the audit results may be challenged.
30. According to Article 148 of the Tax Code, an order is the basis for conducting a tax audit.
As an act on the appointment of an audit, the order may be the subject of judicial challenge, since it is issued within the framework of the exercise of authority by the tax authority and entails legal consequences for the taxpayer (tax agent).…
...Unscheduled inspections may not be appointed and conducted in the absence of the grounds listed in paragraph 3 of Article 145 of the Tax Code and paragraph 3 of Article 144 of the Entrepreneurial Code. Such inspections are subject to invalidation, and the acts on their appointment are illegal and canceled on the basis of paragraph 1 and subparagraph 1) of paragraph 2 of Article 156 of the Business Code, as issued in the absence of grounds for conducting an inspection.
31. Based on the provisions of Article 159 of the Tax Code, which states that the decision based on the results of a tax audit is a notification issued by a tax authority on the results of a tax audit, in case the taxpayer (tax agent) does not agree with the accrued amounts of taxes and other mandatory payments to the budget, obligations to calculate, withhold, transfer mandatory pension contributions, mandatory professional pension contributions, calculation and payment of social contributions and (or) contributions to compulsory social health insurance and penalties, reduction of losses, If the amounts of excess VAT and (or) corporate (individual) income tax withheld from the source of payment from non-resident income are not eligible for refund, only the notification is subject to judicial review. The court verifies the legality of the calculation of the disputed amounts, taking into account the conclusions set out in the tax audit report.
A tax audit report may be challenged if the taxpayer does not agree with its conclusions, which did not entail the above consequences, but which affect his rights and obligations, including in future tax periods. An appeal against an inspection report is carried out in accordance with the procedure provided for by the legislation of the Republic of Kazakhstan for appealing actions of tax officials.
The execution of the notification of the results of the tax audit does not deprive the taxpayer of the right to appeal the executed notification in the manner and within the time limits provided for by the Tax Code.
The content of the tax audit report must comply with the requirements of paragraph 1 of Article 158 of the Tax Code. The conclusions of the tax authority on violations of the tax and other legislation of the Republic of Kazakhstan committed by a taxpayer (tax agent) are subject to presentation with reference to the legislation, substantiating the arguments and disclosing the circumstances indicating violations.
According to the third part of Article 129 of the CPC, when considering a claim to appeal the results of a tax audit, a tax authority may refer only to conclusions and justifications indicating a violation by a taxpayer of tax and other legislation, which is reflected in the tax audit report.…
...32. According to the principle of certainty of taxation, established by Article 6 of the Tax Code, taxes and payments to the budget of the Republic of Kazakhstan must be certain.
Certainty of taxation means the establishment in the tax legislation of the Republic of Kazakhstan of all the grounds and procedure for the occurrence, fulfillment and termination of a taxpayer's tax obligation, the duty of a tax agent to calculate, withhold and transfer taxes…
...The duty to prove the circumstances that served as the basis for the adoption of the disputed act by the tax authority is assigned to the tax authority…
...Taking into account the provisions of Article 128 of the CPC, the tax authority is obliged to submit to the court evidence of the illegality of the taxpayer's tax benefit.
35. When challenging a taxpayer's notification of the results of a tax audit or an audit report on the grounds of violations by the tax authority of the procedure and deadlines for conducting tax audits established by paragraph 2 of Chapter 18 of the Tax Code, the court should proceed from an assessment of the nature of the violations and their impact on the legality and validity of the audit results. In particular, the results of an audit conducted without an order, which, according to Article 148 of the Tax Code, is the basis for conducting a tax audit, or on the basis of an order that is subsequently recognized as illegal, are subject to recognition as illegal.
Similar consequences occur if, in violation of paragraph 1 of Article 146 of the Business Code, an order for conducting a tax audit, with the exception of a counter audit, has not been registered with the authorized body in the field of legal statistics and special accounting.
Abbreviations
APPC – Administrative Procedural Code
CPC – Code of Civil Procedure
Tax Code – The Code "On Taxes and Other Mandatory Payments to the Budget"
DGD Department – Department of State Revenue
UGD, Management – State Revenue Department
CC – The Criminal Code
CPC – Code of Criminal Procedure
CPN – corporate income tax
VAT – value added tax
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