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

of March 14, 2014 No. NK-13-YuL-E-260-NK-2077

"Concerning the taxation of the income of nonresidents when rendering services in technical support of software products"

Tax Committee

Ministries of Finance

Republic of Kazakhstan

The association of Taxpayers of Kazakhstan (further - ANC), in connection with the address of taxpayers asks to explain question concerning the taxation of the income of nonresidents when rendering services in technical support of software products.

The companies, being official distributors (further - OF) in the territory of the Republic of Kazakhstan (further - RK), render services in technical maintenance of software products for the Clients. At the same time rights to use on such software products are acquired directly by Clients. From the income in type of royalty of the Company hold KPN independently since OF have no relation as do not acquire right to use software product to payment of such income.

OF render only technical maintenance of software products.

At the same time services in technical support in working order of the equipment of computing systems, and to support of the software consist in the following:

- consultations on remote support of equipment maintenance of computing systems;

- updating and servicing of the systems of the software acquired earlier taxes according to the income in royalty form on which are already paid;

- providing with spare parts.

Attract to these purposes of the Company subcontractors, including nonresidents. They represent services of technical advisers. Rendering services is made as remotely, and by visit of the Client by subcontractor - the nonresident. At the same time, the period of time during which services in the territory of RK are rendered is not led to formation of permanent organization, according to provisions of international treaties.

However the Companies faced such fact that such the income is considered by territorial tax authorities as royalty since classify such services in quality - software products, scientific experience, commercial experience.

According to S. I. Ojegov's dictionary experience is:

"1. The reflection in consciousness of people of the laws of the objective world and public practice received as a result of their active practical knowledge (special).

2. Set of knowledge and almost acquired skills, abilities. Vital island of O. of research work. Lake of construction.

3. What reproduction - N of the phenomenon experimentally, creation of what - N new in certain conditions with research purpose, testing. Chemical experiments. Experiences of selectors.".

The article 12 "Royalty" of international treaties contains the determination of "royalty" similar to the definition given in the subitem 30 of Item 1 of Article 12 of the Tax code RK, except for the international treaties signed by RK with such countries as India, Bulgaria and Turkmenistan according to which provisions of the article 12 "Royalty" of international treaties with India and Bulgaria are applied to payments for technical services and in the relation with Turkmenistan the individual clause 13 "Technical services" is determined. At the same time the provision concerning technical services is accurately determined only in 3 international treaties - with India, Bulgaria and Turkmenistan.

Thus, services in technical maintenance do not answer determination of "Royalty".

Based on stated, we ask to explain:

1. Whether services in technical support of the equipment and support of the software (what includes their updating) belong to income group of nonresidents from sources in RK in the form of royalty?

2. What Article of international treaties should be applied to the specified services?

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