Relevance of the Tax Inspections on Transfer Pricing

Relevance of the Tax Inspections on Transfer Pricing

The Kazakhstan Tax authorities inspect the matters of transfer pricing. At present, the authorities have activated their inspections on transfer pricing. The consequences for a company subject to such an inspection usually are:

1)  adjustment of the taxable base and consequently additional tax charges (usually, the corporate income tax, the tax on extraction of mineral resources, and the excess profit tax (if it arises)

2)  penalty for each type of tax payment in the amount of 2.5-fold official refinancing rate of the National Bank for each day in arrears

3)  fine in the amount of 50% from additional tax charges and other mandatory payments to the budget

The practice shows that as a result of similar inspections almost all subsoil users were subject to large sums of additional tax charges and other mandatory payments to the budget

If the practice of additional tax charges to be analysed, in the period from 2003 to 2009 150 largest subsoil users of Kazakhstan were subject to inspections, as a result of which income of USD 3 billion US was collected i.e. circa USD 20 million per each subsoil user.

The analysis of the inspections shows that subsoil users were unable or did not know how to confirm the differential (discount) on export and import deals. Furthermore, the facts not proven in the court will be used as proven position of the tax authorities (incontestable fact) in subsequent inspections.

For these reasons, engaging a qualified and experienced consultant to an inspection and proving the subsoil user’s positions and arguments in the course of an appeal to a superior tax authority or court of law will be the subsoil user’s significant argument during the next tax inspections.

GRATA Law Firm won a large number of tax disputes in appeals of the tax inspection results. The success rate of tax cases in the tax authorities with GRATA’s participation, in the majority of cases was 90% of the disputed additional charges, penalties and fines. We have successfully defended the interests of Kazakhstani subsoil users in the very first and complex cases including the first disputes on transfer pricing, the excess profit tax, hedging, expenses on managerial services of the holding company, depreciation of an inert well, the VAT on royalty, royalties on associated gas, etc. For the last 10 years we have accumulated a unique experience on tax disputes which we are ready to use to defend the interest in the most effective way.

Apart from defending the interests of your company during inspections, we offer you the following types of services:

1.   analyse the contracts in force for their compliance with the New Law ‘On Transfer Pricing’ giving the estimates on risks;

2.   monitor deals, remove breaches, and collect documents to be submitted to the tax authorities;

3.   assist, as far as is possible to do so, in reaching an agreement between your company and the tax authorities. The agreement will include:

Ø application of the sources of information, taking the range of prices into account;

Ø application of the methods determining the market price;

Ø inclusion of direct and indirect expenses to the differential;

Ø inclusion of long term prices.

4.   performance of a preliminary audit of the periods not inspected by the tax authorities, i.e. we will calculate using the methods and forms applied by the tax authorities. As a result of the calculation in case of revealing any breaches we will give recommendation on remedying them and strengthening your positions and arguments.

GRATA may organise a seminar for your company’s employees on application of the Law ‘On Transfer Pricing’.

Best Regards,

Transfer Pricing Department

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