Following a thematic tax audit initiated by a Russian non-resident's application for income tax refund, the tax authority assessed a transport company with corporate income tax of 12.9 million tenge and penalties of 2.9 million tenge. The basis for the assessments was the reclassification of income under IT services contracts as royalties subject to taxation at a 10% rate according to the international convention on avoidance of double taxation.
We achieved complete cancellation of tax assessments in the Supreme Court. The cassation court supported our position that the tax authority exceeded its powers when conducting the thematic audit. The department went beyond the framework of the non-resident's tax refund application and examined issues unrelated to the subject of the appeal without obtaining appropriate authorization from the authorized body.
The key success factor was proving violations of procedural norms of tax legislation. We substantiated that thematic audits based on non-residents' applications should be conducted exclusively within the framework of amounts claimed for refund and cannot be extended to other contracts and periods without a special decision from the Committee of State Revenues. The tax authority's exceeding of powers led to the recognition of the entire audit as invalid.
