In depth
1. Restriction on deductibility of payments to related parties has been softened
From 2023, Kazakhstani companies were no longer able to claim a corporate income tax deduction for certain payments (e.g., for management, consulting, auditing services, etc.) made to their related parties. Instead, these payments could only reduce up to 3% of the “taxable income” (i.e., revenues minus allowable deductions). The change was aimed at preventing aggressive intra-group tax planning, but has sparkled a lot of criticism from the investment community.
Under a change which took effect retroactively from 1 January 2023, the above restriction would apply only if the relevant services are procured from a related party which is incorporated in a tax haven jurisdiction (there is an approved list of such jurisdictions which includes Belize, the British Virgin Islands, and Cayman Islands). Thus, the scope of the restriction on deductibility has been significantly softened.
2. The scope of desk control notices has been expanded
Before the amendments, the local tax authorities could identify tax breaches without conducting a full-scale tax audit, by sending a “desk control” notice to the taxpayer. The taxpayer could in turn provide its objections to the notice and, if such objections met certain technical requirements, the tax authorities could not pursue the matter any further before a commencement of a full-scale audit. The purpose of the desk control was to allow the taxpayer to rectify breaches on a voluntary basis and to prevent the tax authorities from asserting substantive tax claims before conducting an audit.
From 12 February 2024, the tax authorities will have the right to reject the taxpayer’s objections provided in response to desk control notices that identify high-risk violations.2 In other words, by using notices listing high-risk violations, the tax authorities will now be able to assert substantive tax claims even before a full-scale audit is conducted. The only route available to the taxpayer in such case would be an administrative or court appeal of the tax authorities’ desk audit assertions.
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For further information and to discuss what the above developments might mean for you, please get in touch with your usual Baker McKenzie contact.
1 Law of the Republic of Kazakhstan No. 45-VIII ZRK dated 12 December 2023 “On Introducing Changes and Additions to the Code of the Republic of Kazakhstan On Taxes and Other Mandatory Payments to the Budget (Tax Code) and the Law of the Republic of Kazakhstan On Enactment of the Code of the Republic of Kazakhstan On Taxes and Other Mandatory Payments to the Budget (Tax Code)”.
2 Under the tax authorities’ risk management system, violations identified in desk control notices are classified as high-risk, medium-risk, or low-risk violations.
