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- The applicable legislation is the Law on Transfer Pricing No. 67-IV of the RoK on Transfer Pricing dated 5 July 2008 (TP Law)
- TP regulations apply to all cross-border transactions and certain in-country transactions, regardless of whether or not parties to a transaction are related
- The tax authorities are in charge of TP tax audits
- There is a set hierarchy of the TP methods
- There is a set hierarchy of the sources of information
- Fines may be as high as 80% of the tax assessments
- A deviation from a comparable arm’s length price in a transaction between related parties may give rise to constructive dividends subject to the withholding tax.
- Kazakhstan is not a member of the OECD.
- The OECD transfer pricing guidelines are not legally binding in Kazakhstan. Although the local transfer pricing rules are generally consistent with the OECD transfer pricing guidelines there are some exceptions. The OECD transfer pricing guidelines are used as an additional source of guidance and the tax authorities may consider them during transfer pricing audits and litigation.
- The five traditional methods are accepted:
- Comparable Uncontrolled Price (CUP)
- Resale price
- Profit split
- Transactional net margin.
- The CUP method has priority over the other methods. Any other method can be applied only if the preceding method is not applicable.
- Taxpayers can adjust taxable revenue for transfer pricing purposes in tax returns.
- Depending on the role of a taxpayer in a multinational group and the annual revenue of the group and (or) taxpayer, the following reports may be required:
- Local File
- Master File
- Country-by-Country Report (CbCR)
- The format and contents of these reports are generally consistent with the OECD transfer pricing documentation model approach in accordance with BEPS Action 13.
- Taxpayers who are required to file any of the above reports must also file a special Notification
- Taxpayers who are on the list of 300 largest taxpayers must also file a special monitoring report where they report certain types of cross-border transactions.
Country by Country reporting (CbCR)
[An ultimate] parent company of a multinational group (MG), which is a Kazakh tax resident, or its authorized subsidiary must submit CbCR if consolidated revenue of the MG exceeds € 750 million. In certain cases, Kazakh tax authorities have the right to request a CbCR from a member of the MG which is a Kazakh resident. The deadline is 12 months after the financial year-end of the parent entity or the date of the tax authorities’ request.
[An ultimate] parent company of a multinational group (MG), which is a Kazakh tax resident, or its authorized subsidiary, a resident entity, member of the MG or a Kazakh PE of a non-resident who is a member of the MG must submit Master File if the following two conditions are met simultaneously:
- member of the MG was a party to a cross-border transaction or an in-country transaction related to a cross-border transaction as defined in TP Law
- consolidated revenue of the MG exceeds:
- €750 million if the parent company of MG is a resident of Kazakhstan
- the threshold set by legislation of the country where the parent company is residing.
The deadline for submitting a Master File is 12 months since receiving a request from the tax authorities.
Local File requirement usually applies to a Kazakh subsidiary of an MG or a Kazakh PE of a foreign member of an MG if its revenue exceeds the threshold of approx. €30 million. Local File is the most detailed report among the three. It should include a background to the company, a group structure, an outline of the material intercompany transactions under analysis, an analysis of the key functions, assets and risks of the company, an industry analysis and an economic analysis including supporting evidence such as comparables, selection of information sources and justification of the selected transfer pricing method.
The deadline for submitting a Local File is 12 months after the reporting year end.
- Exports of oil, gas and minerals are primary transactions scrutinized by the tax authorities.
- The company that is unprofitable during several consecutive tax periods.
- Inconsistency of financial results (profitability indicators) with the average indicators in the industry in Kazakhstan and the CIS countries.
- A significant amount of transactions for the provision/receipt of intragroup services, paid royalties and/or interest on financial borrowings, etc.
- Fines for the non-compliance with the reporting requirements may range between €1,450 and €2,900.
- Up to 80% of taxes underreported as a result of the deviation from arm’s length prices.
- Criminal prosecution if the amount of underreported taxes exceeds approx. €430 thousands.
- For determination of a market price of goods (work, service) and other data required for applying methods of determination of the market price, the informational sources should be used in the following order of priority:
- officially approved sources of information
- quotes from commodity exchanges
- data from official authorities, authorized bodies of other states and organisations on prices, differential, expenditures and on conditions having an impact on deviation of the transaction price from market price
- special transfer pricing software, information represented by parties to a transaction and other sources.
- APAs are possible but rare.
- Potential APA term is three years.
- Certain international bodies and institutions whose status is defined in an international agreement are exempt from TP regulations.
- While in the past the tax authorities focused the application of the TP Law to exports of commodities it is possible that the tax authorities could expand their focus to other sectors of the economy.