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

of October 5, 2006 No. NK-UNAP-3-13/9176

The Tax Committee of the Ministry of Finance of the Republic of Kazakhstan, having considered the claim (further - the Partnership) on the notification of the Tax Committee across Almaty under the act of thematic tax audit, reports the following.

The Tax Committee across Almaty in the Partnership carries out thematic tax audit concerning correctness of calculation and timeliness of the tax discharge on value added from 03.05.04 for 31.05.06 by results of which 3 thousand tenges, including tax in the amount of 1 862, in 5 thousand tenges, penalty fee 263, in 8 thousand tenges are additionally accrued by the VAT in the amount of the 2nd 126,. The taxpayer from the specified amount challenges tax amount in the amount of 722, by 1 thousand tenges.

According to the inspection statement the taxpayer in defiance of item 4 of Art. 242 of the Code of the Republic of Kazakhstan "About taxes and other obligatory payments in the budget" (further - the Tax code) in 3rd quarter 2005 carries in offsetting VAT amount in the amount of 541, by 6 thousand tenges on the invoice of 23.09.2005 exposed from 01.07.05 for 30.09.05.

According to item 4 of Art. 242 of the Tax code the invoice is written out no later than date of making of turnover on realization. With respect thereto according to items 4) item 1 of Art. 237 of the Tax code are made adjustment of VAT amount, carried in offsetting in the amount of 361, by 0 thousand tenges for July, August, 2005 (541,6/3*2) and additional accrual of the specified amount of the budget.

For December, 2005 on the invoice of 07.12.05 from 01.10.05 for 31.12.05 additional accrual similarly is made.

The partnership considers that these conclusions checking are unreasonable as do not correspond to the existing tax legislation.

During consideration of the claim the following is established.

Between limited liability partnership (Lessee) and the supplier of limited liability partnership (Lessor) of 01.07.05 the Contract for lease (further - the Agreement) rooms for a period of six months from the date of agreement signature is signed. According to item 2.2. this Agreement Partnership shall make the room hire charge quarterly, no later than 5 calendar days from the moment of drawing of the invoice to payment.

According to item 4 of Art. 242 of the Tax code the invoice is written out no later than date of making of turnover on realization.

According to Item 3 of article 216 of the Tax Code date of making of leviable turnover on implementation of works, services comes in case the first performs one of below the listed conditions:

1) for works, services it is written out the invoice with the value added tax;

2) works are performed, services are rendered.

According to the Agreement the Lessor exposes the invoice of 23.09.05 from

01.07.05 for 30.09.05 for tenancy which is considered in financial accounting of the company and is reflected in the declaration on the VAT for the specified tax period.

Besides, the bilateral act with the Lessor about rendering services for 3rd quarter 2005 in full is signed.

According to the taxpayer, on the specified invoice both conditions of article 216 of the Tax Code on determination of date of making of turnover on realization - are satisfied 23.09.05.

Also the taxpayer considers that he according to item 1 of Art. 235 of the Tax code in case of determination of VAT amount which is subject to budget payment has the right to offsetting of VAT amounts in case of accomplishment of the following conditions:

1) the receiver of goods (works, services) is payer of the VAT;

2) by the supplier it is exposed the invoice.

At the same time, the VAT Tovarishchestvo is the payer since 31.05.04, the invoice of 23.09.05 and the service provision act are received from the supplier in the time established by the legislation.

Besides in the claim it is specified that according to item 4 of Art. 235 of the Tax code VAT amount on the above-stated invoice in the amount of 541, one thousand tenges the Partnership is carried in offsetting, and also it is reflected in the register of invoices for 3rd quarter 2005 by date of the statement of 23.09.05 and in the declaration on the VAT for tax period.

The similar situation developed also when checking the period of December, 2005.

Checking on the invoice of 07.12.05 from 01.10.05 for 31.12.05 adjustment of VAT amount, carried in offsetting for December, 2005 in the amount of 361, by 0 thousand tenges is made.

At the same time in reasons for the additionally accrued amount checking refer to violation by the taxpayer of item 4 of article 242 of the Tax Code according to which the invoice is written out no later than date of making of turnover on realization.

With respect thereto checking make adjustment according to items 4) item 1 of article 237 of the Tax Code according to which the value added tax which is earlier carried in offsetting is subject to exception of offsetting in case of non-compliance with the provisions established by Art. 242 of the Tax code.

During consideration of the claim it is determined that according to item 2.2 of the Agreement the rent is brought quarterly.

According to item 1 of article 235 of the Tax Code if other is not provided by this Chapter in case of determination of tax amount, subject to budget payment, the receiver of goods (works, services) has the right to offsetting of tax amounts to value added, subject to payment for the received goods, including fixed assets, works and services if they are used or will be used for the purpose of leviable turnover and also if the following conditions are satisfied:

1) the receiver of goods (works, services) is taxpayer on value added according to Item 1 of article 207 of this Code;

2) by the supplier it is exposed the invoice or other document submitted according to Item 2 of this Article on the realized goods (works, services) in the territory of the Republic of Kazakhstan.

According to the inspection statement the declaration on the VAT for 3rd quarter 2005 is provided by the Partnership in quarter, and for the 4th quarter 2005 of the declaration are provided monthly because the average monthly tax amount on value added which is subject to payment in the budget for the last quarter exceeded 1000 MRP.

VAT amount in the amount of 541, 6 thousand tenges for tenancy from 01.07.05 on

30.09.05. By partnership it is carried in offsetting on the account - the invoice of 23.09.2005 in the declaration for 3rd quarter 2005. Thus, the Lessor for 3rd quarter 2005 writes out for lease the invoice including VAT earlier, than actually represents them in this connection, date of making of turnover for the specified period comes at the time of the statement of the invoice.

For the 4th quarter the VAT amount in the amount of 541, is carried by 6 thousand tenges for tenancy from 01.10.05 for 31.12.05 in offsetting based on the invoice of 07.12.05 in December, 2005.

Due to stated, the action of the VATes checking on additional accrual in the amount 361, one thousand tenges as a result of adjustment of VAT amount referred on account of limited liability partnership for 3rd quarter 2005 are illegal, regarding the made additional accruals for October, November, 2005 in the amount of 361, 1 thousand tenges are lawful.

Based on stated to cancel the appealed notification of the Tax Committee across Almaty under the act of thematic tax audit regarding additional accrual of the VAT in the amount 361, of 0 thousand tenges, in other part to leave the notification without change.

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