Practical Recommendations for VAT Refunds

Practical Recommendations for VAT Refunds

It can be said that the VAT refund procedure is complicated and time-consuming as it requires numerous documents to be confirmed and involves a tax audit of the taxpayer and its suppliers.

The more suppliers and export deliveries involved in VAT turnovers, the more complex the tax audit will be. In order to pass the VAT procedure successfully, following recommendations could be considered.

1.  Submitting the application for a VAT refund in due time

In accordance with the Tax Code, a declaration requesting a refund of VAT must be submitted within 5 years.

The application for a VAT refund for turnovers occurring before 1 January 2009 however should be submitted no later than 12 month from the tax period in which the export turnovers were performed. Such limitation of term is stipulated by the Law Enacting the Tax Code № 100-IV dated 10 December 2008 (hereinafter referred as “the Law Enacting the Tax Code). A lack of compliance with these conditions will cause the VAT refund to be rejected.

In spite of this limitation period for submitting an application however, there is a position that the provisions of the Law Enacting the Tax Code should not be applied due to the fact that they contradict the Law about normative legislative acts dated 24 March 1998. According to such Law, a normative legal act should not affect relationships that existed before the adoption of such act. The exception, when retrospective force is applied, is when an act directly provides for such retrospective force and in cases in which an act minimises the responsibility that was existed before. If two terms are compared, namely the general term of 5 years to refund and recover paid taxes and a special term set out by the Law Enacting the Tax Code with a limitation of 12 months, it should be noted that sub point 3 of point 15 of Article 25 of Law Enacting the Tax Code should not be applied.    

2.  Export revenue should be enrolled in banks located in Kazakhstan

For VAT refund purposes, it is necessary for export contracts to consider that the buyer of goods should pay the money into a bank account located in Kazakhstan. Such provisions are stipulated by amendments to the Tax Code (Law on Changing Legislative Acts for Customs and Tax Legislation № 297-IV dated 30 July 2010), which sets out new conditions that export revenue should be enrolled into banks located in Kazakhstan. Such amendments applied from 1 July 2010.

Before such amendments, the old Tax Code and the Law Enacting the Tax Code allowed taxpayers to receive export revenue into foreign bank accounts. Many exporters used this right and received export revenue into foreign bank accounts. As practise shows however, the tax authorities refused to refund VAT for the branches of foreign companies due to the absence of confirmation issued by the National Bank or local banks that export revenue had been received. For residents of currency control, such as LLPs or stock companies (Kazakh companies), VAT refunds were provided without any problems. Such residents of currency control should submit reporting documents to the National Bank, including information on funds in foreign bank accounts. Since the National Bank had information on funds in foreign bank accounts, they were able to confirm the received export revenue and the VAT refund proceeded successfully. For non-residents of currency control, the National Bank and local banks did not have any information about export revenue and therefore could not issue such conclusions. Unfortunately at present time there is negative court practise on such cases and in fact branches of freeing companies could not implement their right to refund VAT.   

3.  To control enquiry letters sent by tax authorities

As practise shows, many enquiry letters from the tax authorities could be delivered late or could be delivered to the wrong recipient. In court practise, cases have arisen where the tax authority has not confirmed that the VAT should be refunded because they have argued that they did not receive response letters to their enquiries. Such actions and omissions of the tax authority were contested in court. The court evoked all evidence, especially all enquires and response letters from them. It was discovered by the court that the tax authority had wrongly determined the exact location of the customs body and had sent only half of all enquires to other tax authorities. As a result, the actions and omissions of the tax authority were recognised as illegal and the court obliged the tax authority for one month to send all enquires in a due manner and on a quarterly basis, so that the response letters would be received, thus enabling them to issue conclusion on the confirmed VAT amounts.

In order to control enquires, it is recommended that an exporter send the letter to the tax authority with a request to send all enquires in due time with enclosed details of the banks and customs body in which the export operations were declared. It is also useful to note in the letter that the payer of VAT will be ready to assist in providing all documents related to the tax audit. A letter such as this could enable the tax authority to send all enquires to the correct place and in due time, which will result in them receiving the right responses in due time.  

4.  Collecting the documents before the tax audit is performed

As was mentioned earlier, the tax authority might not be able to refund the VAT in due time because the procedure for VAT refunds can be postponed whilst enquires are sent. Moreover, the procedure for VAT refunds can be complicated as the number of suppliers and export operations has increased. To minimise this effect and in order to refund VAT promptly, it is recommended that a payer of VAT have all prepared documents in advance before the tax audit is performed.

VAT payer can prepare and send enquires to the banks and customs body, in order to confirm the export operations and the amount of export revenue received. Such enquires will significantly impact the VAT refund procedure. The tax authority will send the same enquiry that was used by the taxpayer and will receive the same answer that the state authority/bank gave to the VAT payer.     

The most burdensome part from a tax administration point of view is the stage when the tax authority sends enquires in order to inspect the suppliers of a taxpayer. At this stage, it is recommended to prepare a list of suppliers with comprehensive information: the supplier’s legal and actual address, VAT amounts, the name of the tax authority in which the supplier is registered as a taxpayer. It is also recommendable to check whether any supplier was recognised as a false entrepreneur, a non-existent taxpayer, or is under liquidation. By preparing a list, certain recommendations could be proposed, such as adjustments to the VAT amount or the submission of adjustable tax reporting documents.      

These measures concerning preparation for a tax audit and collecting required documents with possible recommendations will enable the VAT payer to be prepared for the tax audit and avoid an extended VAT refund procedure.

Best Regards,

Tax Law Department

Tel.: +7 (727) 2445-777
Fax: +7 (727) 2445-776
info@gratanet.com
tax@gratanet.com