Taxing authority and tax law
Tax and customs authorities are the authorized bodies to conduct control over transfer pricing. Tax authorities include Tax Committee of the Ministry of Finance of the Republic of Kazakhstan (TCMF) and territorial tax bodies. Customs authorities include Customs Control Committee of the Ministry of Finance (CCC), its territorial subdivisions, custom houses, customs points, checkpoints at the customs border of the Republic of Kazakhstan, and specialized customs offices.
The Law of the Republic of Kazakhstan No. 67-IV on Transfer Pricing, of 5 July 2008, regulates transfer pricing.
Relevant regulations and rulings
The following subordinate legal acts regulate transfer pricing:
- Instruction on control over transfer pricing in international business transactions (pending approval of the Ministry of Finance)
- Rules for conducting of transactions monitoring (No. 62 of 12 February 2009)
- Rules for concluding agreements on application of transfer pricing (No. 63 of 12 February 2009)
- Rules on the procedure for cooperation of the authorized bodies in conducting control over transfer pricing issues (No. 129 of 26 March 2009)
- List of goods (work, services) international business transactions with which are subject to transactions monitoring (No. 293 of 12 March 2009)
- List of officially recongnized sources of information on market prices (No. 292 of 12 March 2009)
OECD guidelines treatment
The OECD guidelines are not binding for Kazakhstan. Although the currently effective transfer pricing law has some common features with the OECD Transfer Pricing Guidelines, the principal difference with the guidelines is that the Kazakhstan transfer pricing legislation targets all international business transactions regardless of whether the parties are related or not.
Priorities/pricing methods
The law allows for five pricing methods in the following priority: Comparable Uncontrollable Price, Cost Plus, Resale Price, Profit Split and Net Margin.
Transfer pricing penalties
Special fines are envisaged for failure to comply with the documentation requirements established by the transfer pricing legislation (i.e., monitoring reporting and documentation supporting the transaction price). The maximum amount of fines is set at approximately US$3,300.
The fine for understatement of tax payment resulting from transfer pricing adjustment is up to 50% of the additionally accrued tax amount. In addition, interest for delayed payment of additionally assessed tax resulting from transfer pricing adjustments is two-and-a-half times the National Bank refinancing rate.
Penalty relief
There is currently no penalty relief regime in place.
Documentation requirements
Different requirements are established for two categories of transactions:
- Transactions with goods (works, services) that are subject to monitoring
- All other transactions with goods subject to transfer pricing control
Participants involved in transactions subject to monitoring are obliged to prepare and submit transaction monitoring reports on an annual basis (“Monitoring reports”) that should include information on the applied prices, the relationships of the parties, industries and market conditions, business strategy, transfer pricing methodology, functional and risks analysis, tangible and intangible assets, method, source of information used for determination of a market price and other information.
Transaction participants executing transactions with other goods that are subject to transfer pricing control should maintain documentation supporting the applied prices that is less detailed than the monitoring reports.
Documentation deadlines
Monitoring reports must be submitted to the tax authorities no later than 15 April of the year following the reporting year. The filing deadline can be extended up to the extension period granted for filing a corporate income tax declaration.
The documentation supporting the applied transaction prices must be submitted within 90 days from the date of the competent authorities’ request.
Statute of limitations on transfer pricing assessments
There is no specific statute of limitations on transfer pricing assessments. The general statute of limitations period for the assessment of penalties for underpayments of tax, understatements of income or overstatements of expenses, is five years from the date of the relevant violation. Within the same statute of limitations, the taxpayer has the right to introduce amendments and additions to its tax reporting.
Return disclosures/related-party disclosures
No related-party disclosure is required currently on tax declarations, although both National Accounting Standards and International Financial Reporting Standards require such disclosures in financial statements.
Audit risk/transfer pricing scrutiny
Transfer pricing audits can take place once per year. The risk of transfer pricing issues being scrutinized during an audit is high. The export of goods from Kazakhstan receives greater scrutiny. The review of the method, its use and the interpretation of information on market prices applied by the tax authorities often result in transfer pricing adjustments that are contested by taxpayers in many cases.
APA opportunity
Transaction participants are allowed to conclude an agreement on application of transfer prices. The procedure for concluding such agreements is envisaged in the rules for concluding agreements on application of transfer pricing (No. 63 of 12 February 2009) that determine the following:
- List of documents required for concluding the agreement
- Procedure for consideration of the request by tax authorities
- Duration of the agreement (e.g., three years from the date of signing)
- Conditions for termination
- Other
The tax authorities reserve the right to unilaterally terminate an agreement if a participant violates its conditions.
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