When determining whether the transaction price deviates from the market price by more than 10 percent, the tax authority must determine the specific amount of the deviation.
In accordance with paragraph 1 of Article 3 of the Law on State Control over the Application of Transfer Prices, State control over the application of transfer prices in International Business transactions (hereinafter referred to as State control) is carried out in order to establish whether the prices applied deviate from market prices for transactions specified in paragraph 2 of this article and to adjust taxable items. Paragraph 2 establishes that for international business transactions that do not fall within the scope of subparagraphs 1) to 6) of this paragraph, state control is carried out if it is established that the transaction price deviates by more than 10 percent in one direction or another from the market price of goods (work, services). The current Law on Transfer Pricing requires that the transaction price deviate by more than 10 percent from the market price only for transactions involving agricultural products. The requirement specified in the law indicates that, based on the results of the audit, the tax authority must establish a specific deviation exceeding 10 percent. The review of cases has shown that the tax authorities do not always comply with these requirements.
Thus, the Department of State Revenue for the Mangystau region conducted a documentary thematic audit of the branch of the Corporation "C" on transfer pricing for 2008-2012. Since the Corporation sold oil to an unrelated party in 2008, the tax authority applied the above-mentioned provision of the 2001 Law. On pages 3 and 4-5 of the inspection report, it is indicated that there is a deviation of the transaction price by more than 10% from the market price and the amount of adjusted income in the amount of 40,196,374 tenge. It is also indicated that a table for calculating the deviation of the branch's transaction prices from market prices is attached (Appendix 2008-2). In a statement, the Corporation pointed out that there was no description of the violation of the law in the inspection report for 2008. As shown by the review of the case by the supervisory instance of the Supreme Court, the courts of the Mangystau region did not properly examine the applicant's arguments. The 11-page inspection report attached to the case file did not contain any attachment. Moreover, the calculation application was not included in the case file at all. Having indicated in the verification report that the transaction price deviated by more than 10% from the market price in 2008, the tax authority did not determine the specific amount of the deviation. At the meeting of the supervisory instance court, the tax authority was unable to provide an answer on this issue, explaining that the issue had not been raised or investigated in the local courts. The annex to the inspection report was also not submitted to the court of the supervisory instance. These circumstances, together with other violations, led to the cancellation of judicial acts and the referral of the case for a new hearing to the court of appeal. As a result of the retrial, the court of appeal found the applicant's arguments justified.
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