Supreme Court reversed CIT and VAT assessments — tax audit conducted before the court ruling entered into force

← All cases 01Tax audit declared unlawful — protected CIT and VAT deductions of 36 million tenge 02Error in VAT taxpayer account — recovered 60.7 million tenge of unlawfully withheld balance 03Unlawful VAT write-off during reorganisation — court reversed 48 million tenge of assessments and interest 04Customs authority's decision on non-execution of notice reversed by court 05Filed objections to the preliminary decision on an unscheduled audit — the tax authority withdrew the audit after our arguments 06Reversal of IIT on sale of inherited apartments — the tax authority incorrectly determined the holding period 07Supreme Court reversed CIT and VAT assessments — tax audit conducted before the court ruling entered into force 08CIT and VAT assessments of 296 million tenge overturned — tax authority breached audit deadlines 09Assessments of 1 billion tenge overturned — audit appointed without an order of the authorised body 10Unscheduled transfer pricing audit cancelled — КГД order issued without specific facts of breaches 11CIT assessments of 1.1 billion tenge overturned — audit appointed without specific grounds 12CIT and VAT assessments of 43 million tenge overturned — audit conducted for a period outside the instruction

Situation

The client received notices following desk control. The client disagreed with them, submitted written responses and at the same time challenged the notices in court. Despite this, while the case was before the court and the deadline for executing the notices was suspended by operation of law, the tax authority initiated and conducted a thematic tax audit on grounds of non-execution of those same notices. Following the audit the client was assessed CIT, VAT and interest totalling 34,040,102 tenge. In parallel the tax authority issued four decisions deeming the notices not executed — even though the client fell within a category of taxpayers who, under the express prohibition of art. 96(3) of the НК РК, are not entitled to submit explanations on those grounds. The appeal instance court upheld the tax authority's position.

Our actions

We challenged the court rulings before the Supreme Court of Kazakhstan on two independent grounds. First: the decisions deeming the notices not executed were issued unlawfully. Under art. 96(3) of the НК РК, a taxpayer is not entitled to submit explanations on notices based on transactions with legal entities whose re-registration has been declared invalid. Since the client had no right to execute the notice by submitting an explanation, the tax authority had no legal grounds to issue decisions deeming the notices not executed — such decisions may be issued only after the taxpayer has performed one of the two actions under art. 96 of the НК РК. Second: the audit was conducted with a gross breach — in the absence of grounds. Under art. 96(5) of the НК РК, when a notice is challenged in court the deadline for its execution is suspended until the court ruling enters into force. The tax authority appointed and conducted the audit during the suspension period — before the court ruling entered into force. Under art. 156 of the Entrepreneurial Code of Kazakhstan, conducting an audit in the absence of grounds is a gross breach rendering the audit invalid.

Result

The Judicial Board for Administrative Cases of the Supreme Court of Kazakhstan granted the client's cassation appeal. The appeal instance ruling was reversed and the first-instance court's decision granting the claim in full was upheld. Four decisions deeming the notices not executed and the notice on the audit results with assessments of 34,040,102 tenge were declared unlawful and reversed.

Project team

Alibayev Yerkebulan

Director

Khassanov Yerbolat

Managing partner

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Часто задаваемые вопросы

No. Under art. 96(5) of the НК РК, when a court claim is filed to challenge a notice the deadline for its execution is suspended until the court ruling enters into legal force. Conducting an audit on grounds of non-execution of the notice during the suspension period is a gross breach and renders the audit invalid (art. 156 of the Entrepreneurial Code of Kazakhstan).

A decision deeming a notice not executed may be issued only after the taxpayer has performed one of two actions: remedied the breach or submitted an explanation. If the taxpayer is, by the express prohibition of art. 96(3) of the НК РК, not entitled to submit an explanation on those grounds, there are no legal grounds for issuing the non-execution decision.

Under art. 156 of the Entrepreneurial Code of Kazakhstan, the absence of grounds for conducting an audit is a gross breach. If the notice that served as the basis for the audit was being challenged in court at the time of the audit's appointment and the deadline for its execution was suspended, there were no grounds for the audit, and all its results are subject to reversal.

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