Dias Turkenov, Associate
Ravil Kassilgov, Partner
Due to various geopolitical developments in the post-Soviet space, an increasing number of foreign companies are relocating their operations and focusing their entrepreneurial activity in Kazakhstan. In practice, one common method of such relocation involves the transfer of goods to structural subdivisions located in Kazakhstan for further sale.
For such structural subdivisions (branches), the receipt of goods from the head office gives rise to a number of tax obligations, which are currently insufficiently regulated by national legislation. This article analyzes existing legislative inconsistencies and arbitrary actions of tax authorities—resulting in unlawful tax assessments—using the example of a Russian company importing goods for its branch in Kazakhstan.
The importation of goods by Russian companies into their own branches registered in Kazakhstan is considered an import of goods into the Republic of Kazakhstan from the territory of EAEU member states, due to the transfer occurring within the same legal entity. Under subparagraph 3 of paragraph 6 of Article 72 of the EAEU Treaty (hereinafter, the “EAEU Treaty”), no indirect taxes are levied in such cases. However, in accordance with paragraph 7 of Article 440 of the Tax Code, taxpayers must submit Form 016.00 “Notice of Import (Export) of Goods” (hereinafter, “Form 016.00”) to the state revenue authorities.
In applying the above provisions, taxpayers face several difficulties:
First, territorial divisions of the state revenue authorities often misinterpret the legal norms. According to these local authorities, if the imported goods are intended for subsequent sale, the taxpayer must submit Form 328.00 “Declaration of Import of Goods and Payment of Indirect Taxes” and pay VAT—regardless of the legal basis for the import.
This results in a discrepancy between the positions of the central office of the State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan and its territorial divisions, as confirmed by the Committee Chairman’s response dated 28 March 2018 to inquiry No. 487185 of 3 March 2018.
Second, the Explanatory Notes on completing the notice form for import (export) of goods, approved by Order No. 131 of the Minister of Finance of the Republic of Kazakhstan dated 6 February 2018 (hereinafter, the “Explanatory Notes”), conflict with the provisions of the EAEU Treaty and the Tax Code. According to the Explanatory Notes, in order to apply Form 016.00 and benefit from exemption from indirect taxes, the transfer of goods within the same legal entity must be temporary in nature, meaning such goods should not be subject to further sale.
However, the same Explanatory Notes state:
“In line 3 ‘Movement of goods’:
cell 3 I is checked for goods imported into the territory of the Republic of Kazakhstan from the EAEU for subsequent export, or when goods are moved within a single legal entity.”
The above wording does not impose an export requirement in cases of intra-entity transfers—otherwise, there would be no distinction between temporary import and intra-entity movement. Thus, branches are entitled to import goods without any obligation of subsequent export.
However, the Explanatory Notes further state:
“In line 14 ‘Term of import of goods’:
in cell ‘from’ – the date of import is indicated;
in cell ‘to’ – the expected export date under the contract. This line is to be completed if cell 3 I is checked.”
This requirement effectively obligates taxpayers to export the imported goods, regardless of the basis for their import. As a result, the Explanatory Notes and Form 016.00 preclude the tax exemption available for intra-entity transfers. This leads to an internal contradiction within the Explanatory Notes (lines 3 and 14) and conflicts with subparagraph 3 of paragraph 6 of Article 72 of the EAEU Treaty and subparagraph 2 of paragraph 6 of Article 440 of the Tax Code.
A similar issue arises in the case of exports of goods from Kazakhstan to EAEU member states under intra-entity transfers.
Consequently, due to inconsistencies in the Explanatory Notes and the absence of a unified approach among territorial revenue authorities, taxpayers receive unlawful notices and face significant additional tax assessments.
It is worth noting that in our experience with similar disputes, the State Revenue Committee generally adopts a progressive approach and invalidates unlawful decisions made by local authorities. Nevertheless, the issue requires legislative clarification.
In view of the above, Tax Disputes Team offers the following proposals to improve tax administration related to the import and export of goods within the EAEU in the context of intra-entity transfers:
We emphasize that the primary purpose of taxation and the role of the tax authorities is to establish a fair and unified tax system that fosters entrepreneurship and enhances national economic indicators.
Reforming tax legislation and ensuring the proper application of international law by tax authorities will not only fulfill Kazakhstan’s international obligations but also significantly contribute to attracting foreign investment.
Ravil Kassilgov, Partner
Due to various geopolitical developments in the post-Soviet space, an increasing number of foreign companies are relocating their operations and focusing their entrepreneurial activity in Kazakhstan. In practice, one common method of such relocation involves the transfer of goods to structural subdivisions located in Kazakhstan for further sale.
For such structural subdivisions (branches), the receipt of goods from the head office gives rise to a number of tax obligations, which are currently insufficiently regulated by national legislation. This article analyzes existing legislative inconsistencies and arbitrary actions of tax authorities—resulting in unlawful tax assessments—using the example of a Russian company importing goods for its branch in Kazakhstan.
The importation of goods by Russian companies into their own branches registered in Kazakhstan is considered an import of goods into the Republic of Kazakhstan from the territory of EAEU member states, due to the transfer occurring within the same legal entity. Under subparagraph 3 of paragraph 6 of Article 72 of the EAEU Treaty (hereinafter, the “EAEU Treaty”), no indirect taxes are levied in such cases. However, in accordance with paragraph 7 of Article 440 of the Tax Code, taxpayers must submit Form 016.00 “Notice of Import (Export) of Goods” (hereinafter, “Form 016.00”) to the state revenue authorities.
In applying the above provisions, taxpayers face several difficulties:
First, territorial divisions of the state revenue authorities often misinterpret the legal norms. According to these local authorities, if the imported goods are intended for subsequent sale, the taxpayer must submit Form 328.00 “Declaration of Import of Goods and Payment of Indirect Taxes” and pay VAT—regardless of the legal basis for the import.
This results in a discrepancy between the positions of the central office of the State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan and its territorial divisions, as confirmed by the Committee Chairman’s response dated 28 March 2018 to inquiry No. 487185 of 3 March 2018.
Second, the Explanatory Notes on completing the notice form for import (export) of goods, approved by Order No. 131 of the Minister of Finance of the Republic of Kazakhstan dated 6 February 2018 (hereinafter, the “Explanatory Notes”), conflict with the provisions of the EAEU Treaty and the Tax Code. According to the Explanatory Notes, in order to apply Form 016.00 and benefit from exemption from indirect taxes, the transfer of goods within the same legal entity must be temporary in nature, meaning such goods should not be subject to further sale.
However, the same Explanatory Notes state:
“In line 3 ‘Movement of goods’:
cell 3 I is checked for goods imported into the territory of the Republic of Kazakhstan from the EAEU for subsequent export, or when goods are moved within a single legal entity.”
The above wording does not impose an export requirement in cases of intra-entity transfers—otherwise, there would be no distinction between temporary import and intra-entity movement. Thus, branches are entitled to import goods without any obligation of subsequent export.
However, the Explanatory Notes further state:
“In line 14 ‘Term of import of goods’:
in cell ‘from’ – the date of import is indicated;
in cell ‘to’ – the expected export date under the contract. This line is to be completed if cell 3 I is checked.”
This requirement effectively obligates taxpayers to export the imported goods, regardless of the basis for their import. As a result, the Explanatory Notes and Form 016.00 preclude the tax exemption available for intra-entity transfers. This leads to an internal contradiction within the Explanatory Notes (lines 3 and 14) and conflicts with subparagraph 3 of paragraph 6 of Article 72 of the EAEU Treaty and subparagraph 2 of paragraph 6 of Article 440 of the Tax Code.
A similar issue arises in the case of exports of goods from Kazakhstan to EAEU member states under intra-entity transfers.
Consequently, due to inconsistencies in the Explanatory Notes and the absence of a unified approach among territorial revenue authorities, taxpayers receive unlawful notices and face significant additional tax assessments.
It is worth noting that in our experience with similar disputes, the State Revenue Committee generally adopts a progressive approach and invalidates unlawful decisions made by local authorities. Nevertheless, the issue requires legislative clarification.
In view of the above, Tax Disputes Team offers the following proposals to improve tax administration related to the import and export of goods within the EAEU in the context of intra-entity transfers:
- The Explanatory Notes should be amended to exempt taxpayers from the obligation to specify the expected date of import or export for intra-entity movements of goods. Such a provision may be phrased as follows:
- “In cases of import or export of goods between EAEU member states within the same legal entity, the expected date of import or export in lines 14 and 16 shall not be completed.”
- A unified approach and/or binding methodological guidelines should be developed for territorial revenue authorities concerning the application of international treaties when conflicts with national tax legislation arise. Revenue authorities must recognize that international treaties ratified by the Republic of Kazakhstan take precedence over national laws. Where tax legislation contradicts provisions of international treaties, such national provisions must not be applied and should be immediately repealed. Each international treaty entered into by the Republic of Kazakhstan must be executed in good faith.
We emphasize that the primary purpose of taxation and the role of the tax authorities is to establish a fair and unified tax system that fosters entrepreneurship and enhances national economic indicators.
Reforming tax legislation and ensuring the proper application of international law by tax authorities will not only fulfill Kazakhstan’s international obligations but also significantly contribute to attracting foreign investment.