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"
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.
Article 192 of the Tax code RK determines the list of the income of nonresidents who are recognized the income from sources in RK. This list does not include service in technical support of the equipment and support of the software (that includes including their updating). However, in order to avoid any tax risks, subcontractors - nonresidents provide originals of the apostilled documents confirming residence, and when rendering services in the territory of RK the statement from the trade register.
Considering these circumstances, the Companies, according to Article 212 of the Tax code RK, release from the taxation in case of payment of the income was applied. At the same time the income group, paid to subcontractors - to nonresidents was considered under Article 7 of international treaties as profit on business activity.
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.
While, according to the subitem 30) of Item 1 of Article 12 of the Tax code RK and international treaties of royalty is payment for use or right to use of the software does not include such type of service as technical maintenance of software products. Such services cannot be also considered as commercial or scientific experience first of all because such determinations are legislatively not determined.
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?
3. We ask to consider case when the nonresident provides the software, and further performs technical support of software product. At the same time and) the nonresident specifies the total amount paid under the Agreement, including remuneration for the software and technical support; b) the nonresident specifies separately the amount paid under the Agreement for the software, separately - the amount for technical support.
Chief executive of Association of taxpayers of Kazakhstan Elshatova of Page E.
Association of Taxpayers of Kazakhstan
The Tax Committee of the Ministry of Finance of the Republic of Kazakhstan, having considered your letter of February 27, 2014 No. 131-02/14, reports the following.
According to the subitem 2) of Item 1 of article 192 of the Code of the Republic of Kazakhstan of December 10, 2008 No. 99-IV "About taxes and other obligatory payments in the budget" (Tax code) the income from performance of works, rendering services in the territory of the Republic of Kazakhstan is recognized the income of the nonresident from sources in the Republic of Kazakhstan.
At the same time, royalty are also recognized the income from sources in the Republic of Kazakhstan.
According to the subitem 30) of Item 1 of article 12 of the Tax Code of royalty is payment for mineral right in the course of mining and conversion of technogenic educations; and also for use or right to use of copyright, the software, patents, drawings or models, trademarks or other similar types of the rights; use or right to use of industrial equipment, including sea and the aircrafts leased under agreements of bare-boat charter or the demise charter, and also the trading or research equipment; use of "know-how"; use or right to use of movies, videos, sound recording or other means of record.
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