Unscheduled transfer pricing audit cancelled — КГД order issued without specific facts of breaches

← 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

During a scheduled comprehensive audit the tax authority identified an alleged understatement of the interest rate on loans issued to non-residents. Without waiting for completion of the scheduled audit, the tax authority initiated a separate unscheduled thematic audit on transfer pricing matters for the period 2018–2022. The client filed objections to the preliminary decision appointing the audit. Despite this, the Department sent a request to the State Revenue Committee, which issued an order appointing the unscheduled audit. The audit instruction was issued after completion of the scheduled audit. The client challenged both acts in court.

Our actions

We identified the key breach: the Committee's order did not contain specific facts and circumstances that would constitute grounds for appointing the unscheduled audit. Under art. 144(4) of the Entrepreneurial Code of Kazakhstan, an unscheduled audit is appointed only on specific facts — not on a request from a lower body and not on general assumptions of breaches. We demonstrated: the Entrepreneurial Code does not provide for the appointment of an unscheduled audit on the request of a lower administrative body. Such an approach contradicts the principle of clear demarcation of competence (art. 36 of the Administrative Procedure Code, АППК РК) and constitutes excess of the limits of administrative discretion. This position is confirmed by a ruling of the Supreme Court of Kazakhstan. Since the Department's instruction was issued on the basis of an unlawful order, it was also subject to reversal as a derivative act.

Result

The СМАС of the Pavlodar region granted the claim in full. The КГД МФ РК order and the Department's instruction were declared unlawful and reversed. The unscheduled transfer pricing audit was terminated without any assessments. The state fee was returned to the client.

Project team

Alibayev Yerkebulan

Director

Khassanov Yerbolat

Managing partner

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Часто задаваемые вопросы

No. The Entrepreneurial Code of Kazakhstan does not provide for the appointment of an unscheduled audit on the request of a lower body. Issuing a КГД order requires specific facts and circumstances of breaches (art. 144(4) of the Entrepreneurial Code). An order issued solely on the basis of the Department's request without independent justification exceeds the limits of administrative discretion.

The instruction is automatically subject to reversal as a derivative administrative act. The territorial body's instruction was issued on the basis of the КГД order — when the basis is unlawful, the instruction is also unlawful.

This fact alone does not prevent appointment of an unscheduled audit. However, its appointment still requires specific facts of breaches rather than general assumptions. Identification of indications of a breach during another audit may be a ground only if those facts are concretely documented and reflected in the order appointing the unscheduled audit.

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