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

of September 26, 2014 No. NK-24/8017-I

To heads of the companies

(according to the list)

The Tax Committee of MF RK within the carried-out work on explanation of the tax legislation regarding the taxation of subsoil users reports the following.

According to item 10 of article 310 of the Tax Code in case of transfer of the extracted mineral raw materials which underwent primary conversion (enrichment) for the subsequent conversion to other legal entity (without transition of the property right) and (or) to structural or other technological division within one legal entity or use for own production needs the subsoil user determines the income by such transaction on the actual production cost of the production and primary conversion (enrichment) determined according to International Financial Reporting Standards and requirements of the legislation of the Republic of Kazakhstan about financial accounting and the financial reporting increased by 20 percent.

At the same time according to subitem 6) item 2 of article 310 of the Tax Code production cost of production and primary conversion are the production costs determined according to International Financial Reporting Standards and requirements of the legislation of the Republic of Kazakhstan about financial accounting and the financial reporting, which are directly connected with extraction of minerals from subsoil on surface and their primary conversion (enrichment), except for costs on storage, transportation, realization of minerals, the all-administrative and other costs which are not connected directly with extraction of minerals from subsoil on surface and their primary conversion (enrichment).

Thus, for the purpose of determination of the income according to item 10 of article 310 of the Tax Code production cost is determined by contractual activities proceeding from the amount of all incurred costs for production and primary conversion irrespective of these costs are subject to recognition as expense in the current tax period or not.

At the same time the deduction of expenses is not determined by contractual activities by the special regulations of the tax legislation provided for subsoil users. Reference on deduction of the incurred expenses is made according to the general regulations of the Tax code determining accounting treatment for expenses.

So, according to item 5 of article 57 of the Tax Code accounting of inventory stocks for the purpose of the taxation is performed according to International Financial Reporting Standards and requirements of the legislation of the Republic of Kazakhstan about financial accounting and the financial reporting.

At the same time according to the item 34 IFRS 2 "Inventories" in case of sale of inventories book value of these inventories shall be acknowledged as expenses in that period which the corresponding revenue is recognized.

Thus, reference on deduction on contractual activities of cost of the mineral raw materials recognized as inventories shall be made in generally established procedure, i.e. only at the time of revenue recognition from realization.

This letter reflects line item of the Tax Committee and is intended for accounting in work by accounting service of the company. In addition we report that according to article 70 of the Tax Code the taxpayer has the right to modify independently the tax liabilities by provision of additional tax statements.

Considering stated, we offer in case of identification of violations in tax accounting independently to review the tax liabilities according to the procedure, established by the Tax code.

Chairman of the Tax Committee of the Ministry of Finance of the Republic of Kazakhstan

A. Dzhumadildayev

 

Disclaimer! This text was translated by AI translator and is not a valid juridical document. No warranty. No claim. More info

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