We would like to share an interesting case on challenging the
results of tax audit. The claimant is a taxpayer, and the defendant
is the State Revenue Department.
Merits of case
There was a complex tax audit on
the accuracy of assessment and the timeliness of tax payment and
other obligatory payments to the budget. As a result of this tax
audit, there was a notification on the additional assessment of
corporate income tax. The fact that the value of inventories
received from non-residents without compensation had not been
included in the aggregate annual income was considered to be a
basis for this additional tax assessment. The value of the assets
received free of charge was determined by the Department on the
basis of invoices and cargo customs declarations, which were
considered to be primary accounting documents by the
In accordance with the legislation on accounting and financial
reporting, an accounting documentation shall include primary
documents, registers of accounting, financial reporting and
accounting policy. Accounting records shall be made on the
basis of primary documents.
Invoice and customs declarations refer to the documents related
to customs procedures and the cross-border movement of goods.
The value of the assets received free of charge was determined
on the basis of invoices and cargo customs declarations, which were
recognised as primary accounting documents. Primary accounting
documents mean documentary evidence in both hard copy and
electronic form showing proof of a transaction or an event, and the
right to settlement thereof, which provides the basis for
maintaining tax records.
How is the value of the assets
received free of charge determined?
According to the provisions of tax
legislation, the value of the assets received free of charge,
including works and services, shall be determined on the basis of
accounting data in accordance with the international standards of
the financial reporting and requirements of the legislation of the
Republic of Kazakhstan on accounting and financial reporting.
Accounting of inventories for
taxation purposes shall be carried out in accordance with the
international financial accounting standards and legislation of the
Republic of Kazakhstan on accounting and financial reporting. In
accordance with the provisions of International Financial Reporting
Standards (IFRS), stocks are the assets in the raw form and
material form, which will be consumed in the process of production
and delivery of services. Such stocks shall be assessed at the
lower of two values: a net cost and a net realisable value. A net
cost of stocks shall include all expenses on the acquisition,
recycling expenses and other expenses in order to provide the
current location and state of the stocks.
According to the court's
opinion, accounting of received inventories for taxation purposes
carried out by a taxpayer was justified, and the value of the
assets received free of charge on the basis of the IFRS was
determined in the correct way.
Thus, the court held that since the
invoices and customs declarations refer to the documents related to
the cross-border movement of goods, they could not serve as
evidence, confirming the value of the assets received free of
charge in this dispute.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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