The way to resolve the situation with the company depends on the future of the cotton industry in Kazakhstan

The story of an ordeal of the cotton processing company LLP "Iasi-group" begins in 2014, when it did not agree with the results of a thematic inspection of the Tax Department of SKR. The company sued them. The subject of the proceedings was the disagreement of the company with the amount of tax assessments, that was detected in the course of the tax audit for the correct payment of taxes and other obligatory payments to the budget and amounted to 194.4 million tenge. The company "Iasi-groups" is engaged in cotton processing in the South-Kazakhstan, 90 percent of which is sent to the enterprises of Russia.

The court session was attended by experts of the Chamber of Entrepreneurs of South Kazakhstan region and representatives of the Kazakh Cotton Association, who have argued in favor of "Iasi-groups." Namely, in the course of the tax audit was incorrectly applied the RK legislation, governing the transfer tariffs. The employees of the tax department made a mistake in choosing the official source of information on market prices for cotton. Thus, when determining the market price of the commodity tax for some reason they took into account the quotation of the Agency Cotton Limited, at which the Kazakh cotton has never been. The quotes of Cotton Limited can’t be applied in this case because they publish information about the prices of cotton delivered to the markets of South East Asia (Malaysia, Thailand, Singapore and others). But the South-Kazakhstan company sent cotton to Russia, so as the basis for it, it was necessary to take the price indicated in the bulletin "The price-Digest", based on the geography of supply of cotton to the Russian Federation. This was done by the company during the payment of taxes.

As a result, the Judicial Board of the South Kazakhstan Regional Court cancelled the decision of the court of the first instance and decided to satisfy the claims of LLP "Iasi-groups", it recognized the actions of the Tax Department of SKR as illegal. Thus, there is no reason for filing the notification by the tax authority regarding the payment of 194 million tenge. But it turned out differently.

Repeated demands of the Cotton Company regarding the withdrawal of the notification by the Department of State Revenue of SKR were ignored. The public authority referred to the fact that it can’t withdraw the notification because they filled an appeal to the Regional cassation court's.

In this regard, the Chamber of Entrepreneurs of South Kazakhstan region intervened in the case for a second time and demanded that the State Revenue Department to withdraw its notification.

On May 18, 2015 LLP "Iasi Group" receives confirmation that the notification, which was issued on the basis of a tax audit by the State Revenue Department, was revoked. And six months later, on December 25, 2015, the appellate judicial board of the South Kazakhstan cancels the decision of the court of the first instance. To justify the case the tax authority cited the fact that the buyer - the company "Reynport" is registered in an offshore zone.

Meanwhile, the Law of RK "On Transfer Pricing" provides that "the transaction for the purposes of this Act recognizes each documented delivery of goods under the contract, and the comparison of the selling price with the market price is carried out only with the corresponding market products, regardless of the buyer's country of registration".

On January 21, 2016 on the basis of the decision of the appeal board, the tax authority sent in the address of LLP "Iasi-groups" a notification on debt repayment. At this time, the cotton company filed a petition with the Judicial Division of the Supreme Court for a review of the decision.

The National Chamber of Entrepreneurs of Kazakhstan "Atameken", understanding the importance of the solution of this situation, which, in fact, will determine the fate of the entire cotton industry in Kazakhstan, established a working group, composed of experts of the State Revenue Committee of the Ministry of Finance, the Ministry of Agriculture of RK, Ministry of National Economy of RK and Kazakh cotton Association. This working group held an incredible number of meetings and conferences. At one of these meetings, which was held under the chairmanship of the Prime Minister of Kazakhstan Karim Massimov, the Ministry of Agriculture got an instruction to develop a draft of  "Rules of transfer pricing for export of cotton fiber”. The project of the methodology was approved by the Ministry of Agriculture, NCE RK and Kazakh Cotton Association and was published on the website of the Ministry of Agriculture. The draft methodology clearly spells out what sources of information on market prices should be used for supply of cotton in one region or another. The draft was sent to the State Revenue Committee of MF RK for approval.

The National Chamber also sent an appeal to the Prosecutor General of Kazakhstan to support the petition to the Judicial Board on Civil Cases of the Supreme Court, filed by LLP "Iasi-groups", for review of the appellate judicial board of SKR in the cassation order. And on 10^th of March this matter will be reviewed at the meeting of the Council of on the protection of the rights of entrepreneurs of the National Chamber "Atameken", which will be chaired by Gani Kasymov.