CIT and VAT assessments of 296 million tenge overturned — tax authority breached audit deadlines

← 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

An unscheduled thematic tax audit was appointed against the client — a major manufacturing enterprise — on CIT and VAT for the period 2019–2022. Following the audit a notice was issued with assessments: CIT of 192,941,787 tenge and interest of 68,152,119 tenge, VAT of 31,456,417 tenge and interest of 4,262,593 tenge — totalling 296,812,917 tenge. The tax authority excluded expenses from deductions on two grounds. First: consulting services provided by a foreign company within the same group were deemed fictitious — without a single court act on invalidity of the transaction, only on the basis of assumptions about the "formality of mutual settlements". Second: marketing expenses were excluded as advertising of alcoholic products — the tax authority qualified advertising of hops (raw material) and sampling for persons aged 21+ as prohibited advertising of alcohol.

Our actions

We identified two independent grounds for reversing the notice. First — breach of audit deadlines. The tax authority systematically issued suspension notices 1–3 days before actually serving demands for documents, that is, the suspension was applied before the lawful basis for it had arisen. As a result the actual duration of the audit was 129 working days instead of the permissible 105. Breach of deadlines is an independent ground for declaring an administrative act unlawful under art. 84 of the Administrative Procedure Code (АППК РК). Second — unjustified exclusion of deductions on consulting services. Under clause 4 of the Supreme Court of Kazakhstan's normative ruling of 22.12.2022, exclusion of expenses from deductions on grounds of fictitiousness is permissible only when a court act on invalidity of the transaction has entered into legal force. The tax authority provided not a single such act — only assumptions. The reality of the services was confirmed by primary documents and data from counter-checks of counterparties, which showed participation of the foreign company's staff in tender procedures.

Result

The СМАС of Almaty granted the claim in full. The tax authority's notice was declared unlawful and reversed. The state fee of 2,968,130 tenge was returned to the client. The court stated: breach of audit deadlines is an independent ground for reversing its results. Exclusion of expenses from deductions without a court act on invalidity of the transaction having entered into legal force is impermissible.

Project team

Alibayev Yerkebulan

Director

Khassanov Yerbolat

Managing partner

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Часто задаваемые вопросы

Yes. Under art. 84 of the АППК РК, a breach of the legislation on administrative procedures is a ground for declaring an administrative act unlawful if it led or could have led to an incorrect decision. Conducting an audit beyond the established deadlines is an independent ground for reversing the notice on its results.

No. Under clause 4 of the Supreme Court of Kazakhstan's normative ruling of 22.12.2022, exclusion of expenses from deductions on grounds of fictitiousness is permissible only when a court act on invalidity of the transaction has entered into legal force. Assumptions and subjective assessments of the tax authority without a court act have no legal significance.

No. The basis for suspension is service of a demand for documents. Suspension before actual service of the demand breaches art. 146(4) of the НК РК. Such days are unjustifiably counted as part of the suspension period, effectively extending the audit beyond the permissible term.

This question is the subject of court dispute. The tax authority's position — yes, because the main activity is beer production. The taxpayer's position — no, because hops is an independent food product. In this case the court reversed the notice on a procedural ground (breach of deadlines) without giving a final assessment of this issue on the merits.

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