Lack of transparency of the risk management system (RMS).

             Since January 1, 2019, Kazakhstan has introduced the categorization of taxpayers through a set of measures (RMS) conducted by state revenue authorities in order to identify and prevent risk.

Some of these measures and risk assessment criteria are confidential (proprietary) information.

In accordance with paragraph 2 of the Rules approved by the Order of the Minister of Finance of the Republic of Kazakhstan dated February 20, 2018 No. 252, "Risk" is the probability of non-fulfillment and (or) incomplete fulfillment of a tax obligation by taxpayers (tax agents) who could and (or) may cause damage to the state.

Such taxpayers are assigned three degrees of risk: low, medium or high. The assigned degree of risk assessment is published on the official website of the SRC (https://kgd.gov.kz/ru/services/degree_of_risk ).

According to the published information, the largest taxpayer of the Republic of Kazakhstan, which stimulates 11% of Kazakhstan's GDP, has invested more than 186 billion dollars in the economy of Kazakhstan over the entire period of its activity.

An average degree of risk has been assigned, which, according to these rules, means an average degree of probability of non-fulfillment of a tax obligation by a taxpayer who may cause damage to the state.

The search for reasons why the largest taxpayer was classified as at this risk did not yield results.

Meanwhile, transparency of regulation and predictability of rules of conduct affect the attractiveness of the investment climate.;

The absence of explanations about assigning low ratings to the largest investors can have a mirror effect on the rating of the investment climate of the state in the eyes of potential investors.

Determination of jurisdiction

             The dispute between the courts of first instance located in different regions, cities of republican significance and the capital is resolved by the Supreme Court of the Republic of Kazakhstan upon the submission of the relevant regional or equivalent court (Part 2 of Article 109 of the CPC).            

Defendants in investment disputes

The defendant is "an administrative body or official who is being sued in court" (paragraph 15, part 1, Article 4 of the CPC). In turn, the administrative body according to subclause 7) of the first part of Article 4 of the APPC is a state body, a local government body, a state legal entity, as well as another organization that, in accordance with the laws of the Republic of Kazakhstan, are authorized to adopt an administrative act, commit an administrative act (inaction).

             The defendant is "an administrative body or official who is being sued in court" (paragraph 15, part 1, Article 4 of the CPC). In turn, the administrative body according to subclause 7) of the first part of Article 4 of the APPC is a state body, a local government body, a state legal entity, as well as another organization that, in accordance with the laws of the Republic of Kazakhstan, are authorized to adopt an administrative act, commit an administrative act (inaction).

Refunds of claims

Refunds for administrative claims are carried out on the grounds provided for in the second part of Article 138 of the CPC.

The basis (subparagraph, part two of Article 138 of the CPC)

          2) the claim does not comply with the requirements of the second part of Article 131 of this Code

             5) there is a dispute between the same parties in the proceedings of the same or another court.

             6) the plaintiff has withdrawn the filed claim

             9) the parties have concluded an agreement on reconciliation, mediation or dispute settlement

             11) the case is not subject to consideration in the order of administrative proceedings

          15) the court refused to restore the missed deadline

             17) the case is beyond the jurisdiction of this court

A large number of refunds based on subparagraphs 11) and 17) of the second part of Article 138 of the CPC are related to errors made by plaintiffs when filing civil lawsuits with the SMAS.

In accordance with the second part of Article 5 of the CPC, the task of administrative proceedings is the fair, impartial and timely resolution of administrative cases in order to effectively protect and restore violated or disputed rights, freedoms and legitimate interests of individuals, rights and legitimate interests of legal entities in public relations.

It is important to note that public law relations arise between subjects of law in connection with the exercise by one of the participants of his powers in relation to the other.

If we are talking about challenging the terms of a contract, which is a civil contract, then the state body acts in it as a party to the contract and is not associated with the exercise of authority.

Consequently, such cases are considered in civil proceedings.

For example, SMAS returned the claim, stating that "the defendant's refusal is not an onerous act, does not contain an authoritative expression of will, and is not aimed at the emergence, modification, and termination of the plaintiff's rights and obligations arising from public law relations.

In these circumstances, the claim should be returned, regardless of the wording of the claims, as not subject to consideration in administrative proceedings" (No. 7194-23-00-4/1127).

Or in another case, SMAS noted that "the plaintiff's claims in this case do not relate to public law relations, the plaintiff's claims are based on the terms of the Contract concluded between the parties.

The plaintiff disputes the defendant's refusal to extend the Contract.

Therefore, if there is an investment contract with the State, this dispute cannot be the subject of an administrative claim.

Based on the above, the court considers that the claim is not subject to consideration in administrative proceedings" (No. 7194-23 00-4/675). This is the issue that accounts for the largest number of refunds.

It is described in more detail in section 4.1 of this analysis.

We also note the following regarding the relatively low level of administrative claims. According to Part 1 of Article 120 of the CPC, reconciliation of the parties is allowed if the defendant has administrative discretion, which is the authority of an administrative body or official to make one of the possible decisions based on an assessment of their legality, for the purposes and limits established by the legislation of the Republic of Kazakhstan.

In this regard, the CPC does not oblige the judge to take measures to reconcile the parties, as established by Part 1 of Article 174 of the CPC.

This causes a difference in the number of reconciliations in administrative and civil cases.

In the future, it should be borne in mind that if the concept of an administrative contract is introduced into the APPC, appropriate changes will affect the reconciliation mechanism.

Abbreviations used

1) APPC – Administrative Procedural Code of the Republic of Kazakhstan;

2) CPC – The Civil Procedure Code of the Republic of Kazakhstan;

3) Civil Code of the Republic of Kazakhstan;

4) PC – Business Code of the Republic of Kazakhstan;

5) NP VS – Normative resolution of the Supreme Court of the Republic of Kazakhstan;

6) NC – The Tax Code of the Republic of Kazakhstan;

7) SCAD of the Astana City Court - the judicial board for administrative cases of the Astana City Court;

8) SCAD VS – judicial board for administrative cases of the Supreme Court of the Republic of Kazakhstan;

9) SMAS – Specialized Interdistrict Administrative Court;

10) SMEC – Specialized Interdistrict Economic Court;

11) The CGO is a central government agency.

Used regulatory sources

The rules of substantive law, which were guided by the courts when considering investment disputes, include the legislative acts currently in force.

The main regulatory legal acts regulating the issues of disputes of the generalized category are:

1) The Constitution of the Republic of Kazakhstan;

2) The Civil Code of the Republic of Kazakhstan dated December 27, 1994 No. 268-XIII;

3) Business Code of the Republic of Kazakhstan dated October 29, 2015 No. 375-V;

4) The Administrative Procedural Code of the Republic of Kazakhstan;

5) The Civil Procedure Code of the Republic of Kazakhstan;

6) Land Code of the Republic of Kazakhstan dated June 20, 2003 No. 442;

7) Budget Code of the Republic of Kazakhstan dated December 4, 2008 No. 95-IV;

8) The Code of the Republic of Kazakhstan dated December 25, 2017 No. 120-VI "On Taxes and other mandatory payments to the Budget" (Tax Code), etc.

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