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 Department.
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.
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