Business Proposal for Transfer Pricing Reporting

Arman Mendybayev, Partner of GRATA, Head of Transfer Price Formation Department, earlier he worked as the Head of Transfer Pricing Department in Tax Committee of the Ministry of Finance of the Republic of Kazakhstan. Arman participated in development and implementation of the Law of the Republic of Kazakhstan “On State Supervision When Applying Transfer Prices” in 2001, the Law of the Republic of Kazakhstan “On Transfer Pricing" from 05.07.2008 and bylaws on transfer pricing.








As you are aware, on 1 January 2009, the new Law of the Republic of Kazakhstan “On Transfer Pricing” dated 5 July 2008, was enacted. This Law significantly toughens the regulations for the state control over transfer pricing in international business transactions. One of the main innovations is that all companies engaged in transactions for the import and export of certain goods, works and services are required to prepare reports on transactions monitoring and submit them to the Tax Committee of the Ministry of Finance of the Republic of Kazakhstan. The deadline for submission of such reports for 2009 is 15 April 2010.

The transaction monitoring shall apply to international business transactions with the following goods, works, and services:

• Oil and oil products, oil gas;
• Non-ferrous, ferrous and precious (gold and silver) metals;
• Other base metals, including beryllium, chromium, germanium, etc.;
• Ores and concentrates;
• Inorganic chemicals, including uranium;
• Wheat and meslin;
• Cotton, sugar;
• Construction operations, equipment installation;
• Marketing, forwarding services.
  

In other words, all companies engaged in the export and / or import of the said goods, works and services are required to prepare reports on monitoring transactions performed in 2009 and to submit such reports to the Tax Committee of the Ministry of Finance of the Republic of Kazakhstan prior to 15 April 2010.

Reporting on transactions monitoring is a fairly bulky and complicated in the content package of documents, which a taxpayer must submit to the tax authority. Thus, reporting includes documentation on the justification for the prices applied, methods and informational sources for the determination of the market prices, data on international business transactions with supporting documents thereon and the rationale for the differential, a detailed description of the goods, works and services, a description of the contractual relationship and the strategy of business transactions, broker’s margin information, etc.

Reporting on transactions monitoring submitted to the tax authority will be taken into account during the cameral control and tax audits performed by tax specialists. In this respect, the accuracy and completeness of reporting on transactions monitoring is really important for any taxpayer in order to avoid the risks of additional charges of taxes, penalties and fines.

The structure of GRATA Law Firm includes a successfully operating Transfer Pricing Department, which focuses exclusively on the transfer pricing of our clients. The transfer pricing experts have unique experience in this area: Monitoring of transactions, pre-control audits of import / export transactions of a taxpayer in order to discover violations of the laws of the Republic of Kazakhstan on transfer pricing and to minimize the risk of additional charges, supporting and appealing the results of tax audits on transfer pricing, the development of methodology for determining prices for exported commodity items, etc.

We can offer a full range of services for the preparation and submission of reporting on transactions monitoring, including:

• Preliminary analysis of the export-import transactions subject to monitoring, as well as information on binding of the parties, sources of information on market prices, business strategy, contract terms, etc.;
• Preparation of the documents that are not available with a taxpayer, for example, transfer pricing methodology, proving the application of the transaction price (calculation of the differential), etc. Alternatively, analysis and amendment of the documents prepared by the client in order to minimize the risk of adverse effects;
• Completion of the special forms of established reporting on the exports and imports of goods, works and services, or analysis and verification of the forms completed by the client to minimize the risk of adverse effects;
• Submission of reporting on transactions monitoring to the Tax Committee of the Ministry of Finance of the Republic of Kazakhstan.   

Consequences of the failure to report on transactions monitoring.

Pursuant to Article 206-1 of the Code of the Republic of Kazakhstan "On Administrative Violations” the failure to submit reporting on transactions monitoring entails an administrative penalty to a legal entity in the amount of 70 MCI and to an officer - 30 MCI.

Moreover, according to Article 13 of the Law "On Transfer Pricing" the differential (costs and other conditions affecting the deviation of transaction price from the market price) is taken into account when determining the market price in the event of a timely and supported provision of the information on transactions monitoring. In other words, the justification from the taxpayer in respect of the prices applied in transactions for 2009 will be taken into account by the tax auditors provided that proved reporting on transactions monitoring is submitted to the Tax Committee of the Ministry of Finance on or before 15 April 2010. Thus, in the case of the extension of the period for the submission of the tax return for corporate income tax, the deadline for the submission of reporting on transactions monitoring is also extended.

The cost of our services is dependent on the volume of export/import transactions, which will be analyzed and finalized in reports on transactions monitoring. We would be happy to pre-examine your documents in order to determine the time and cost of the task.

If you are interested in our proposal, we would be happy to discuss cooperation issues with you at your convenience.

Regards,

Arman Mendybayev
Partner (Almaty)

Tel.: +7 (727) 2 445-777
Fax: +7 (727) 2 445-776
Mob.: +7 (701) 717-20-10
amendybayev@gratanet.com

Almat Daumov
Partner, Director of Almaty Office

Mob.: +7 (701) 725-87-69
adaumov@gratanet.com

Nurbol Kissembayev
Partner, Director of Aktau Office

Mob.: +7 (701) 718-39-64
nkissembayev@gratanet.com

Samat Daumov
Director of Astana Office

Mob.: +7 (701) 761-08-82
sdaumov@gratanet.com

Ildar Jumiyan
Director of Aktau Office

Mob.: +7 (701) 744-13-66
ijumiyan@gratanet.com