CIT and VAT assessments of 43 million tenge overturned — audit conducted for a period outside the instruction

← 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

The tax authority initiated an unscheduled thematic audit on CIT and VAT. The КГД order was issued for the period 2020–2021, but the Department's instruction specified only 2020. Following the audit the following were assessed: CIT of 20,777,972 tenge and interest, VAT of 10,195,541 tenge and interest — totalling 43,457,598 tenge. Two working days before the audit ended, the Department issued a supplementary instruction changing the audited period to 2021 — without requesting documents for 2021 from the client. The audit report included a counterparty that was not mentioned in the Department's request, in the КГД order, or in the hearing protocol. The first-instance court dismissed the claim. The client filed an appeal.

Our actions

In the appeal we documented four independent breaches, each rendering the audit invalid. First: there were no grounds for appointing the audit. The order and instruction contained only assumptions about the "unreliability" of counterparties — without specific facts of breaches, without documented analysis of financial and business activity, without establishing the fictitiousness of transactions. A subjective opinion about "unreliability" is not a lawful basis for an unscheduled audit under art. 144(4) of the Entrepreneurial Code of Kazakhstan. Second: the audit was conducted for a period not specified in the instruction. Changing the period by a supplementary instruction two days before the audit ended — without requesting documents for the new period — breaches the audit procedure. Third: the Department exceeded the grounds of the audit by including in the report a counterparty that was not mentioned in the КГД order or in the hearing protocol. Fourth: the tax inspection act on the impossibility of serving documents was witnessed by only one witness instead of two — a breach of art. 70 of the НК РК, rendering the recorded circumstances unreliable.

Result

The appeal court reversed the first-instance ruling and issued a new decision granting the claim in full. The tax authority's notice was declared unlawful and reversed. The state fee was recovered from the tax authority in favour of the client.

Project team

Alibayev Yerkebulan

Director

Khassanov Yerbolat

Managing partner

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Часто задаваемые вопросы

Formally, a supplementary instruction may change the audited period. However, if it is issued two working days before the audit ends, documents for the new period were not requested, and the client is deprived of the opportunity to present its position, such a change breaches the audit procedure and the principle of good-faith tax administration.

No. A tax audit is conducted within the scope of matters defined by the order appointing it. Including in the report counterparties not specified in the order and not raised at the hearing means exceeding the grounds of the audit and renders the corresponding part of its results invalid.

No. Assumptions of unreliability without specific evidence of fictitiousness of transactions are not lawful grounds for an unscheduled audit under art. 144(4) of the Entrepreneurial Code of Kazakhstan. Specific facts are required: court acts on invalidity of transactions, recognition of the counterparty as a sham enterprise, or other documented circumstances of breaches.

Under art. 70 of the НК РК, a tax inspection act must be witnessed by at least two witnesses. An act signed by only one witness does not meet the statutory requirements and cannot be considered reliable evidence of the circumstances recorded in it.

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