From 1 January 2017 numerous changes to the tax and customs legislation of the Republic of Kazakhstan has become effective. The majority of these changes were introduced by the Law of the Republic of Kazakhstan dated 30 November 2016 No 26-VI "On amendments and additions to some legislative acts of Kazakhstan on tax and customs administration issues" (the 2016 Law on Amendments). At the same time, certain provisions of the earlier laws on amendments became effective, while some provisions of such earlier laws were suspended or changed.
Apart from the Tax Code, the 2016 Law on Amendments introduced changes into 25 legal acts of the Republic of Kazakhstan, including the Customs Code, the Code on Administrative Offences, as well as a number of laws. Changes have been made in about 140 articles of the Tax Code, in the following areas: definitions, administrative and registration issues, procedures for appealing the results of tax audits, taxation of non-residents, subsoil users, financial institutions, large taxpayers subject to monitoring, etc.
Among various changes to the Tax Code and Customs Code, of the greatest interest are the novelties in the field of tax and customs administration and procedures for appealing the results of audits, to which our brief overview below is dedicated.
1. Appealing tax audit results
1.1 Introduction of a preliminary tax audit report
Since 1 July 2017 the procedure for appealing tax audit results will be changed. The Tax Code will be supplemented with the term "preliminary tax audit report", which means the document containing the preliminary findings on the results of the tax audit that should be provided to the taxpayer prior to the final tax audit report. In addition the Tax Code will be supplemented with a new Article 636-1 "Preliminary tax audit report".
Taxpayers will be granted the right to provide written objections to the preliminary tax audit report (Article 13.1(9-1) of the Tax Code), which the tax authority will be obliged to consider (Article 20.1(26-2) of the Tax Code).
It should be noted that the categories of taxpayers, to which the preliminary tax audit reports will be provided, as well as the relevant procedures, will be determined by the authorized body.
1.2. Changing the out-of-court appealing procedure in respect of tax audit results
The description of the procedure for appealing a notification on the tax audit results was clarified. According to the amended Tax Code, an appeal against the results of the tax audit should be filed with the "authorized body" instead of the "higher tax authority". It appears that the wording of the Tax Code was aligned with the existing practice of conducting tax audits by the state revenues departments, in relation to which the higher tax authority is the State Revenue Committee of the RK Ministry of Finance - the authorized body.
Starting from 1 July 2017, Article 671 of the Tax Code will be presented in the new edition, which envisages consideration of appeals and making decisions on them by the "Appellate Commission". Under the new procedure for the consideration of a taxpayer’s appeal on the results of a tax audit, the Appellate Commission should be established. The structure and the regulation on the Appellate Commission are to be approved by the authorized body.
The procedure and the terms for suspension of consideration of appeals on the results of tax audits set out in Article 672 of the Tax Code were also clarified (effective 1 July 2017). In particular, the terms for consideration of an appeal may be suspended up to fifteen business days in case of conducting thematic tax audits (from the date of receipt of a completed tax audit report), as well as in the case of sending requests to the state authorities, including authorities of foreign states. Notice on the suspension should be sent to the taxpayer within three business days.
1.3 Appealing actions (failure to act) of the tax authorities
The procedure for appealing against actions (failure to act) of the tax authorities under the Tax Code was not changed: same as before taxpayers have the right to appeal actions (failure to act) of tax authorities in a higher tax authority or in the court.
At the same time, certain changes were made in Article 3 of the Law on the Consideration of Petitions, which was supplemented with Clause 2-4 (effective 1 July 2017) as follows: "The procedure for the consideration of appeals on tax and customs issues is provided in accordance with this Law taking into consideration peculiarities set out by the tax and customs legislation of the Republic of Kazakhstan".
2. Changes relevant to the provision and exchange of information
2.1. Exchange of tax information with the competent authorities of foreign states
Based on the amendments to Article 19 of the Tax Code, the rights of tax authorities were supplemented with the right to exchange information with the competent authorities of foreign states on the basis of an international agreement, including information that constitutes commercial, banking or other secrets protected by Kazakhstan laws. Moreover, the list of information that the tax authorities are entitled to request from banks and other financial institutions was expanded.
2.2. Obligations of banks and financial institutions for provision of information to the tax authorities
Amendments to the Law on Banks and Banking Activities extended the list of actions that are not considered as disclosure of bank secrecy with the following: provision by banks of information on bank accounts opened by non-residents and(or) by residents, beneficial owners of which are non-residents of Kazakhstan, as well as provision of information on bank accounts of individuals and legal entities named in a request of the competent authority of a foreign state. Similar changes were made to Article 581 of the Tax Code, which establishes the obligation of banks and organizations carrying out certain types of banking operations to provide such information to the authorized body.
The definition of the term "commercial secret on the market of securities" provided in the Law on the Market of Securities was changed to permit the disclosure to the authorized body of the information that constitutes a trade secret in the market of securities in respect of individuals and non-resident legal entities, as well as legal entities beneficial of which owners are non-residents. The Tax Code is supplemented with Article 583-1 that obliges custodians, single registrars, brokers and(or) dealers having the right to manage clients’ accounts as nominal holders of securities, managers of investment portfolio, and insurance companies to provide similar information to the authorized body. Failure to comply with these requirements entails administrative liability.
3. Changes in respect of the documents confirming tax residency
Paragraphs 4 and 5 of Article 219 of the Tax Code that contain requirements in respect of documents confirming the status of tax residence of foreign entities deriving income from sources in Kazakhstan were amended. Before these changes, the tax authorities recognized only original documents issued by competent authorities of foreign states, apostilled or legalized in accordance with the requirements of international agreements.
Based on the amendments effective 1 January 2017 a document confirming residency of a foreign entity may be provided in the form of: (i) original of such document; (ii) a notarized copy of such a document; (iii) paper-based copy of an electronic document confirming residency published on the web-site of the competent authority of a foreign state. It should be noted that the requirement for diplomatic or consular legalization does not apply to a paper-based copy of an electronic document confirming tax residence, or if an international agreement establishes for a different procedure for the recognition of such documents.
The Tax Code does not contain any references to the official list of Internet resources of the competent authorities of foreign countries, which may be used for the confirmation of the tax residence of a foreign recipient of income. It was only mentioned in the comments provided by the tax authority that some competent authorities of foreign states (Georgia, Spain, Moldova, Czech Republic) switched to electronic confirmation of tax residency.
4. Changes relevant to VAT
4.1 Gradual reduction of the minimum turnover for obligatory registration as a VAT payer
The existing minimum turnover for the obligatory registration as a VAT payer, which is currently 30,000 Monthly Calculation Indexes (MCI), will be preserved until 31 December 2017. It is expected that subsequently this minimal threshold will be gradually reduced as follows: from 1 January 2018 to 25 000 MCI, from 1 January 2019 to 20 000 MCI, from 1 January 2020 - to 15 000 MCI.
4.2 Gradual introduction of electronic tax invoices
The list of entities obliged to issue tax invoices in electronic form (E-invoices) provided in Article 263.2 of the Tax Code was changed: from 1 January 2017, this list, in addition to authorized economic operators, customs representatives, owners of temporary storage warehouses and owners of customs warehouses, will also include other taxpayers, if the obligation to issue E-invoices is provided in international agreements concluded by the Republic of Kazakhstan. This amendment first of all will affect taxpayers engaged in import and conduct other transactions with goods in respect of which reduced rates of customs duties were granted in connection with the accession of Kazakhstan to the World Trade Organization.
Furthermore, it is expected that from 1 January 2018 the requirement for issuing E-invoices will apply to large taxpayers subject to monitoring, and from 1 January 2019 issuing E-invoices will become mandatory for all VAT payers.
5. Unification of the procedures for appealing the results of customs audits
From 1 July 2017 in order to unify the procedures for appealing notifications of the customs authorities on the results of customs audits and notifications on elimination of violations, relevant provisions of the Customs Code will be amended. Same as in the Tax Code, appeals on the results of customs audits should be filed with the "authorized body in the sphere of customs affairs" and should be considered by the Appellate Commission established for such purpose. The structure and the regulation of the Appellate Commission are to be approved by the authorized body.
6. Definition of the term "foreign economic transaction"
The clarification is made to the notion of "Declarant". From 1 January 2017 Article 284 of the Customs Code is supplemented with the definition of the term "foreign economic transaction" which means "a transaction made between an entity of a member state of the Customs Union and a foreign entity, as well as a transaction made between entities of different member states of the Customs Union based on which goods are crossing the customs border of the Customs Union".
We assume that based on the aforementioned amendment, Kazakhstan importers will be able to act as declarants in case of import of goods from the third countries under transactions concluded with other entities of the Eurasian Economic Union.