Assessments of 1 billion tenge overturned — audit appointed without an order of the authorised body

← 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

On the basis of a prosecutor's requirement the tax authority conducted a comprehensive unscheduled audit of the client for three years and issued a notice with assessments totalling 1,056,544,704 tenge: CIT of 308,616,713 tenge and interest, VAT of 261,222,210 tenge and interest, VAT on imports of 162,765,758 tenge and interest, excise of 153,481,433 tenge and interest. The basis for the assessments: exclusion of expenses on transactions with a counterparty whose supplier had been deemed invalid by a third-party court act; assessment of VAT and excise on fuel imports based on accompanying invoices (СНТ) that the tax authority itself had previously recognised as erroneously issued. A complaint to the Ministry of Finance was unsuccessful.

Our actions

We identified a procedural breach that was an independent and unconditional ground for reversing all the audit results. Under sub-clause 11) of art. 145(3) of the НК РК, an unscheduled tax audit on the prosecutor's requirement is appointed on the basis of a decision (order) of the State Revenue Committee (КГД МФ РК). On receiving the prosecutor's requirement the Committee forwarded it to the Department for execution — without issuing a corresponding order. The audit order was issued by the Department directly, bypassing the mandatory stage of a decision by the authorised body. We demonstrated: the existence of a prosecutor's requirement and coordination with the Prosecutor General's Office does not replace or eliminate the need for a КГД order. Changing the status of the law on the prosecutor's office to constitutional did not endow prosecutors with additional powers in the appointment of tax audits. Under art. 156 of the Entrepreneurial Code of Kazakhstan, the absence of grounds for an audit is a gross breach rendering it invalid.

Result

The first-instance court granted the claim and reversed the notice. The appeal panel of the Pavlodar Regional Court upheld the decision, rejecting the tax authority's appeal. All assessments exceeding 1 billion tenge were declared unlawful. The court stated: the absence of a КГД order appointing the audit is an unconditional independent ground for reversing all its results — regardless of the lawfulness or unlawfulness of the breaches identified on the merits.

Project team

Alibayev Yerkebulan

Director

Khassanov Yerbolat

Managing partner

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Часто задаваемые вопросы

No. Under sub-clause 11) of art. 145(3) of the НК РК, an unscheduled audit on the prosecutor's requirement is appointed exclusively on the basis of a decision (order) of the State Revenue Committee (КГД МФ РК). Forwarding the prosecutor's requirement directly to the territorial body without issuing a КГД order is a gross breach of the procedure for appointing the audit.

Yes. Under sub-clause 1) of art. 156(2) of the Entrepreneurial Code of Kazakhstan, the absence of grounds for conducting an audit is a gross breach rendering the audit invalid and reversing all its results — regardless of the substantive merits of the breaches identified.

No. If on the basis of the same accompanying invoices (СНТ) the tax authority accepted the taxpayer's explanation under a desk control notice and gave the notice the status of "executed", this constitutes recognition of the absence of a breach. Using the same documents as evidence of a breach in the course of a subsequent audit contradicts the principle of legal certainty.

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