Kazakhstan tax law does not permit group taxation.
Under the Kazakhstan transfer pricing law, tax authorities have the right to monitor and adjust prices used in cross-border and certain domestic transactions when prices are perceived to deviate from market prices, even if such transactions are with unrelated parties. If the authorities adjust prices, the re-assessed liability will include taxes, duties, penalty interest, and fines to the state budget.
Transfer pricing rules impact the following transactions:
- International commercial transactions.
- Domestic transactions that directly relate to international commercial operations where:
- the sale relates to a subsurface use contract
- either party to the transaction has tax preferences, or
- one of the parties has losses for two years preceding the year of the transaction.
Country-by-country (CbC) reporting
From 2018, the Transfer Pricing law introduces a 3-tiered approach to transfer pricing documentation for multinational enterprise (MNE) groups conducting business in Kazakhstan to file a CbC report retrospectively from January 2016, and a Master file and a Local file from January 2019, with the Kazakhstan tax authorities.
Kazakhstan entities of MNE groups are required to submit a notification about being a member of an MNE group not later than 1 September before the reporting financial year.
Non-compliance with the above requirements will lead to penalties.
Deduction of interest paid to related parties, to unrelated parties under related parties warranties, or to parties registered in countries with privileged taxation depends on the borrower's capital structure; deductible interest will be limited with reference to an 'acceptable' proportion of debt-to-equity (7:1 for financial institutions, 4:1 for all other entities). The list of jurisdictions with privileged taxation, the so called 'black list' established by the government, includes 56 jurisdictions.
Controlled foreign companies (CFCs)
According to the Tax Code a CFC is deemed to be an entity that meets both of the following conditions:
- 25% or more of a non-resident’s shares belong directly, indirectly, or constructively to a Kazakhstan entity, or the entity is connected with the resident by means of control, and
- the effective income tax rate of the non-resident is less than 10% or the non-resident is registered in a ‘black-listed’ jurisdiction (see above).
Recent amendments to the Tax Code introduced retrospective changes to the definition of CFC, which now excludes companies registered in countries with effective DTT with Kazakhstan if nominal corporate income tax rate in such country is more than 15%.
In addition, the new amendments introduced a de-minimus threshold (150,495 times MCIs or approx. USD 1,020.92 thousand) for aggregate income of a CFC which should not be registered in a black-listed jurisdiction. This allows to exempt such company from Kazakhstan CFC rules.
The consolidated profit of the CFC (and PE of the CFC) should be included in the taxable income of the Kazakhstan entity and subject to CIT on the portion of undistributed profits from the non-resident company.
Amendments to the Tax Code also introduced exclusion of the company that bear financial loss indicated in its approved separate non-consolidated financial statement from the definition of CFC with retrospective effect starting from 1 January 2018.
In addition, the Tax Code provides for elimination of double taxation of the CFC’s financial profit (subject to certain criteria).