Presentations and publications
Ratification of the Convention on Mutual Administrative Assistance in Tax Matters
Introduction
On 26 December 2014, the Republic of Kazakhstan ratified the Convention “On Mutual Administrative Assistance in Tax Matters” (the “Convention”).
The Convention is a freestanding multilateral agreement designed to promote international co-operation and improve international tax compliance. Furthermore, it provides for all possible forms of administrative cooperation between the parties in the assessment and collection of taxes, in particular with a view to combating tax evasion.
It was developed jointly by the Organisation for Economic Co-operation and Development (OECD) and the Council of Europe in 1988. In 2010 it was amended by protocol to open it up to all countries and to align it with the international standard on the exchange of information on request. The revised Convention has been signed by over 70 countries and ratified by 43 of them.
Forms of Administrative Assistance under the Convention
The Convention provides a basis for several forms of mutual administrative assistance in tax matters:
• Information exchange on request, automatically and spontaneously (in specified circumstances)
• Simultaneous tax audits
• Tax audits abroad
• Tax recovery, including interim measures
The advantage offered by the Convention in comparison to the existing bilateral double tax treaties is that it covers a much wider range of taxes than bilateral treaties (e.g., it covers VAT/GST and social security contributions). In the Republic of Kazakhstan the Convention applies to the following taxes:
• taxes on income or profits,
• taxes on capital gains which are imposed separately from the tax on income or profits,
• taxes on net wealth, imposed on behalf of a Party.
In addition, the Convention provides a single legal basis for multilateral country co-operation in tax matters and sets up a body that can, at the request of a Party, furnish opinions on the interpretation and application of the Convention. Further, it specifies uniform procedures for various forms of mutual assistance such as service of documents, simultaneous tax audits and participation in the tax audits conducted in the territory of the other parties to the Convention.
Previously a party was not able to obtain information from another party under the Convention unless a bilateral tax treaty provided for exchange of information, and where a bilateral tax treaty provided for exchange of information, the information could have been exchanged only on the basis of written requests. Under the Convention, any information can be sought by other means not only written requests.
Automatic Exchange of Information
Article 6 of the Convention creates a legal basis for automatic exchange of information, however it implies that in order to implement automatic exchange a special working agreement or memorandum of understanding should be concluded between the competent authorities of the parties willing to provide each other information automatically. The agreement should set forth the types of information to be exchanged automatically, details about the procedures of sending and receiving information and the appropriate format to use.
The OESD has designed a Model Memorandum of Understanding on Automatic Exchange that can be used as a basis for an operational working agreement between competent authorities.
On 29 October 2014, a total of 61 jurisdictions have signed a multilateral competent authority agreement to automatically exchange information based on Article 6 of the Convention. Kazakhstan was not among the signatories of such multilateral competent authority agreement. Such agreement, inter alia, specifies the details of what information will be exchanged and when as set out in the Standard for Automatic Exchange of Financial Account Information in Tax Matters has been released by OECD, such information to be transmitted may include account and tax identification numbers as well as the names, addresses and dates of birth of taxpayers abroad with an account in a country other than the country of origin, all types of income and account balances. The Standard calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. Over 90 jurisdictions have committed to implement the Standard, with the first exchanges starting in 2017/2018, subject to the completion of necessary legislative procedures.
To our knowledge and belief, to date no such agreement to automatically exchange information or MOU has been concluded by the State Revenue Committee of the Ministry of Finance in its capacity as the competent authority under the Convention.
Confidentiality
While the implementation of the Convention will end bank secrecy as we know it, the Convention contains provisions regarding tax confidentiality and the obligation to keep information exchanged as secret and confidential in the same manner as information obtained under the domestic law. Information exchange partners may suspend the exchange of information if appropriate safeguards are not in place.
Client data may be used solely for the agreed purpose, i.e. to establish a correct tax assessment and collect taxes, and for administrative proceedings. The Convention also allows disclosure to supervisory bodies. Further, the Convention permits the information to be used for other purposes such as for criminal proceedings, where (1) such information may be used for such other purposes under the laws of the supplying party or (2) the competent authority of the supplying party authorises such use.
It is important to note that Kazakhstan banking legislation provides for bank secrecy of information regarding bank accounts and balances. It seems that one approach will be to amend the domestic banking law to ensure that the Convention obligations are respected. The second approach would be to rely on the provisions of the Kazakhstani law which make it clear that in the event of any inconsistency between an international treaty and Kazakhstan law, the treaty overrides the domestic law.
Reservations to the Convention
The Republic of Kazakhstan in accordance with the Convention reserves the right not to provide assistance for the implementation of any tax claim, or collect an administrative fine for all kinds of taxes.
The Republic of Kazakhstan also reserves the right not to provide assistance in respect of any tax claim, which exists on the date of entry into force of the Convention in respect of the Republic of Kazakhstan or at the date of withdrawal of the Republic of Kazakhstan of the reservation made in accordance with the Convention.
Conclusion
Given that Kazakhstan has not signed a multilateral competent authority agreement to automatically exchange information based on Article 6 of the Convention nor any bilateral treaties providing for automatic exchange of information, it is not clear when Kazakhstan will be able to start automatic exchange of information with other countries.
The Agreement on Eurasian Economic Union to which Kazakhstan is a member together with Russia, Belarus and Armenia also provides for informational cooperation but exchange of information is regulated by a separate protocol concluded between the tax authorities of the member countries which, in particular, provide for exchange of information relating to payment of indirect taxes only.
It is assumed that the ongoing campaign for the legalisation of property and capitals was designed to enable citizens of Kazakhstan to legalise their foreign capitals and avoid penalties for non-payment of taxes in the past, and to avoid litigation on the legality of the origin of these funds.
This Legal Alert is issued to inform our clients and other interested parties of time-sensitive legal developments which may affect or otherwise be a special interest to them. The comments above do not constitute legal advice or opinion and should not be acted upon in any specific situation without appropriate legal advice. No part of this alert may be copied or quoted without the prior written consent of Michael Wilson & Partners, Limited. We hope that you will find this overview helpful. For more detailed information on any above issues, please contact Asset Kussaiyn or Larissa Orlova at: +7 727 2584890 or Asset.Kussaiyn@mwp.kz and lao@mwp.kz.
On 26 December 2014, the Republic of Kazakhstan ratified the Convention “On Mutual Administrative Assistance in Tax Matters” (the “Convention”).
The Convention is a freestanding multilateral agreement designed to promote international co-operation and improve international tax compliance. Furthermore, it provides for all possible forms of administrative cooperation between the parties in the assessment and collection of taxes, in particular with a view to combating tax evasion.
It was developed jointly by the Organisation for Economic Co-operation and Development (OECD) and the Council of Europe in 1988. In 2010 it was amended by protocol to open it up to all countries and to align it with the international standard on the exchange of information on request. The revised Convention has been signed by over 70 countries and ratified by 43 of them.
Forms of Administrative Assistance under the Convention
The Convention provides a basis for several forms of mutual administrative assistance in tax matters:
• Information exchange on request, automatically and spontaneously (in specified circumstances)
• Simultaneous tax audits
• Tax audits abroad
• Tax recovery, including interim measures
The advantage offered by the Convention in comparison to the existing bilateral double tax treaties is that it covers a much wider range of taxes than bilateral treaties (e.g., it covers VAT/GST and social security contributions). In the Republic of Kazakhstan the Convention applies to the following taxes:
• taxes on income or profits,
• taxes on capital gains which are imposed separately from the tax on income or profits,
• taxes on net wealth, imposed on behalf of a Party.
In addition, the Convention provides a single legal basis for multilateral country co-operation in tax matters and sets up a body that can, at the request of a Party, furnish opinions on the interpretation and application of the Convention. Further, it specifies uniform procedures for various forms of mutual assistance such as service of documents, simultaneous tax audits and participation in the tax audits conducted in the territory of the other parties to the Convention.
Previously a party was not able to obtain information from another party under the Convention unless a bilateral tax treaty provided for exchange of information, and where a bilateral tax treaty provided for exchange of information, the information could have been exchanged only on the basis of written requests. Under the Convention, any information can be sought by other means not only written requests.
Automatic Exchange of Information
Article 6 of the Convention creates a legal basis for automatic exchange of information, however it implies that in order to implement automatic exchange a special working agreement or memorandum of understanding should be concluded between the competent authorities of the parties willing to provide each other information automatically. The agreement should set forth the types of information to be exchanged automatically, details about the procedures of sending and receiving information and the appropriate format to use.
The OESD has designed a Model Memorandum of Understanding on Automatic Exchange that can be used as a basis for an operational working agreement between competent authorities.
On 29 October 2014, a total of 61 jurisdictions have signed a multilateral competent authority agreement to automatically exchange information based on Article 6 of the Convention. Kazakhstan was not among the signatories of such multilateral competent authority agreement. Such agreement, inter alia, specifies the details of what information will be exchanged and when as set out in the Standard for Automatic Exchange of Financial Account Information in Tax Matters has been released by OECD, such information to be transmitted may include account and tax identification numbers as well as the names, addresses and dates of birth of taxpayers abroad with an account in a country other than the country of origin, all types of income and account balances. The Standard calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. Over 90 jurisdictions have committed to implement the Standard, with the first exchanges starting in 2017/2018, subject to the completion of necessary legislative procedures.
To our knowledge and belief, to date no such agreement to automatically exchange information or MOU has been concluded by the State Revenue Committee of the Ministry of Finance in its capacity as the competent authority under the Convention.
Confidentiality
While the implementation of the Convention will end bank secrecy as we know it, the Convention contains provisions regarding tax confidentiality and the obligation to keep information exchanged as secret and confidential in the same manner as information obtained under the domestic law. Information exchange partners may suspend the exchange of information if appropriate safeguards are not in place.
Client data may be used solely for the agreed purpose, i.e. to establish a correct tax assessment and collect taxes, and for administrative proceedings. The Convention also allows disclosure to supervisory bodies. Further, the Convention permits the information to be used for other purposes such as for criminal proceedings, where (1) such information may be used for such other purposes under the laws of the supplying party or (2) the competent authority of the supplying party authorises such use.
It is important to note that Kazakhstan banking legislation provides for bank secrecy of information regarding bank accounts and balances. It seems that one approach will be to amend the domestic banking law to ensure that the Convention obligations are respected. The second approach would be to rely on the provisions of the Kazakhstani law which make it clear that in the event of any inconsistency between an international treaty and Kazakhstan law, the treaty overrides the domestic law.
Reservations to the Convention
The Republic of Kazakhstan in accordance with the Convention reserves the right not to provide assistance for the implementation of any tax claim, or collect an administrative fine for all kinds of taxes.
The Republic of Kazakhstan also reserves the right not to provide assistance in respect of any tax claim, which exists on the date of entry into force of the Convention in respect of the Republic of Kazakhstan or at the date of withdrawal of the Republic of Kazakhstan of the reservation made in accordance with the Convention.
Conclusion
Given that Kazakhstan has not signed a multilateral competent authority agreement to automatically exchange information based on Article 6 of the Convention nor any bilateral treaties providing for automatic exchange of information, it is not clear when Kazakhstan will be able to start automatic exchange of information with other countries.
The Agreement on Eurasian Economic Union to which Kazakhstan is a member together with Russia, Belarus and Armenia also provides for informational cooperation but exchange of information is regulated by a separate protocol concluded between the tax authorities of the member countries which, in particular, provide for exchange of information relating to payment of indirect taxes only.
It is assumed that the ongoing campaign for the legalisation of property and capitals was designed to enable citizens of Kazakhstan to legalise their foreign capitals and avoid penalties for non-payment of taxes in the past, and to avoid litigation on the legality of the origin of these funds.
This Legal Alert is issued to inform our clients and other interested parties of time-sensitive legal developments which may affect or otherwise be a special interest to them. The comments above do not constitute legal advice or opinion and should not be acted upon in any specific situation without appropriate legal advice. No part of this alert may be copied or quoted without the prior written consent of Michael Wilson & Partners, Limited. We hope that you will find this overview helpful. For more detailed information on any above issues, please contact Asset Kussaiyn or Larissa Orlova at: +7 727 2584890 or Asset.Kussaiyn@mwp.kz and lao@mwp.kz.