On 12 March 2024 the Order of the Minister of Finance of the Republic of Kazakhstan on amendments and additions to the VAT Refund Rules¹ was adopted.

Below is an overview of important changes that could affect certain aspects of doing business, including changes in how to interact with tax authorities regarding the VAT refund procedure.

Recently, there have been a number of disputes related to confirming VAT for refund. In these disputes the courts established the illegality of the approach of the tax authorities on the formation of a "Pyramid" report throughout the supplier chain, for example up to 5-6 levels.

In our view changes to the VAT Refund Rules intend to provide a possibility for the tax authority to verify all levels of a taxpayer’s suppliers. However, this approach does not comply with the provisions of the Tax Code.²

The amendments took effect from 26 March 2024.

1. Changes to paragraph 45-1 of the VAT Refund Rules: Cases for preparing a Pyramid report have been specified

The amendments introduce changes to paragraph 45¬ 1 of the VAT Refund Rules:

The changes include the following:

1. A Pyramid report is generated for all levels of the service recipient's suppliers (previously - for all suppliers of the service recipient)
2. A Pyramid report may only include direct suppliers of the service recipient that are included in horizontal monitoring;
3. A Pyramid report is not generated, for example, in the following cases:
   1. The supplier's amount of VAT on issued invoices for a given tax period does not exceed 300 MCI.
   2. The service recipient itself, against which the Pyramid report is being generated, has been identified.

Previously, paras 46 and 47 of the VAT Refund Rules provided for cases when the further generation of a Pyramid report ceases (for example, when the supplier submitting a VAT refund claim has been determined during the generation of a Pyramid report). These provisions were excluded from paras 46 and 47 of the VAT Refund Rules.

2. Clarified procedure for generating a Pyramid report, under paragraph 46 of the VAT Refund Rules

Based on the amendments, paragraph 46 of the VAT Refund Rules now explicitly states that the Pyramid report is formed only with respect to direct suppliers of the service recipient.

The definition of "direct supplier" has been moved to the same paragraph (previously the definition was set out in paragraph 54 of the VAT Refund Rules), and the definition of "related parties" has been added.

We remind you that if the supply of goods, works, services was through a related party, then a Pyramid report is generated up to the first unrelated supplier that supplied goods, work or services to the taxpayer through the related party.

3. Updated procedure for generating a Pyramid report under paragraph 46 of the VAT Refund Rules

The amendments introduce changes to paragraph 47 of the VAT Refund Rules.

The change here means a Pyramid report will be generated if the tax authorities suspect a risk of tax evasion schemes being used by suppliers (paragraph 47 previously set out that a Pyramid report was generated with respect to the risk of a service recipient benefiting from its illegal actions in order to obtain tax benefits (tax savings) and reduce tax payments).

Indicators of such risk (identified at various levels of suppliers) are now as follows:

1. The supplier has a restriction on issuing e-invoices.
2. The court has recognized the supplier's registration (re-registration) as invalid.
3. There is a fact of registration in the Unified register of pre-trial investigation in respect of the supplier.
4. The supplier has transactions that have been declared invalid by a court.

4. Updated list of circumstances where the risks identified by a Pyramid report are not taken into account

The amendments introduce changes to paragraph 52-1 of the VAT Refund Rules and add a new paragraph 52-2.

This updates the list of circumstances in which discrepancies are not taken into account as a risk of nonfulfillment of tax obligations (paragraph 52-1 of the Rules) or as a risk of tax evasion schemes (paragraph 52-2 of the Rules).

5. Extended list of grounds for conducting counter-audits of suppliers

Amendments have been made to paragraph 79 of the VAT Refund Rules which now allow for counter-tax audits on mutual settlements with a direct supplier in the following circumstances:

1. The supplier is an intermediary (agent, commission agent or attorney).
2. The supplier is a freight forwarder.
3. The supplier is listed by the recipient as a supplier of goods of its own production.

1. Order of the Minister of Finance of the Republic of Kazakhstan dated 19 March 2018, No. 391 “On Approval of the Rules of refund of excess value added tax and application of risk management system in order to confirm the validity of the amount of excess value added tax, as well as criteria for the degree of risk” (“VAT Refund Rules”) ↩
2. Code of the Republic of Kazakhstan dated 25 December 2017 No. 120-VI “On taxes and other mandatory payments to the budget" ("Tax Code") ↩