LETTER OF THE TAX COMMITTEE OF THE MINISTRY OF FINANCE OF THE REPUBLIC OF KAZAKHSTAN

of January 31, 2006 No. NK-UMN-2-16/837

The Tax Committee of the Ministry of Finance of the Republic of Kazakhstan, having considered the letter of limited liability partnership in form 102.01 on the tax return from the income from sources in the Republic of Kazakhstan, and in addition to the letter of June 24, 2005 No. NK-UMN-2-12/5786 reports the following.

According to the contract (further - the Contract) the company represents limited liability partnership the non-exclusive license on right to use of the combined trademark.

Follows from the provided letter of limited liability partnership that discrepancies between the added income amount of the nonresident by calculation 101.06 and actual amount of the income according to accounting documents arose because the value added tax and the income tax at source of payment are withheld from the means which are due to the company.

However, tax withholding on value added, arising in the territory of the Republic of Kazakhstan, from the means which are due to the nonresident is illegal as according to Item 1 of article 221 of the Code of the Republic of Kazakhstan "About taxes and other obligatory payments in the budget" (further - the Tax code) the services provided by the nonresident who is not the taxpayer on value added in the Republic of Kazakhstan are turnover of the taxpayer of the Republic of Kazakhstan receiving services if the place of their realization is the Republic of Kazakhstan.

According to the subitem 4) of Item 2 of article 215 of the Tax Code the place of rendering of services on assignment of rights on use of intellectual property items the place of business or any other activity of the buyer of services, that is in this case the Republic of Kazakhstan is recognized.

Thus, the services provided by the company on right to use of the combined trademark on the non-exclusive license are leviable turnover of the receiver of services, i.e. limited liability partnership and are subject to taxation on value added according to article 221 of the Tax Code.

At the same time, the limited liability partnership according to article 235 of the Tax Code, has the right to offsetting of tax amounts to value added, subject to payment for the got job and services if they are used or will be used for the purpose of leviable turnover, and also if the tax liability on the tax discharge on value added for the nonresident is fulfilled.

Based on the above we report that obligations on the tax discharge on value added for the nonresident arise at limited liability partnership. The tax amount on value added for the nonresident is not subject to deduction from the cost of works, company services.

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