On the recognition of illegal actions on the calculation of individual income tax

No.6001-23-00-6ap/244 dated 07/27/2023

             Plaintiff: H.R.

Defendants: RSU "Department of State Revenue", RSU "Department of State Revenue"

The subject of the dispute: on the recognition of illegal actions to calculate individual income tax (hereinafter – IIT), which is not taxed at the source of payment, in the amount of 1.2 million tenge in the personal account, as well as the amount of penalties accrued on the specified amount, on the compulsion to make adjustments to the amount of IIT, which is not taxed at the source of payment, in the personal account.

Review of the cassation appeal of the defendant of the Department.

PLOT: On December 31, 2009, the plaintiff and the Akimat of Almaty signed a contract for the purchase of real estate for state needs. On March 31, 2010, the plaintiff alienated the received apartment under the purchase and sale agreement.

In the period from November 10, 2015 to December 7, 2015, the Department conducted a documentary tax audit against the plaintiff for the correctness of the calculation and timely payment of taxes and other mandatory payments to the budget.

Based on the results of the audit, the Department drew up a tax audit report dated December 7, 2015 and notified the plaintiff of the audit results dated December 7, 2015.

By the decision of the district court dated August 3, 2017, the Management's claim for recovery of IPN from the plaintiff to the state income in the amount of 1,227,883 tenge, penalties in the amount of 1,082,682 tenge, was satisfied. By the decision of the Judicial Board for Civil Cases of October 26, 2017, which entered into force, the said court decision of August 3, 2017 was canceled with the adoption of a new decision to dismiss the claim.

By the decision of the district court of September 27, 2017, the satisfaction of H.R.'s claim to the Department and the Office to appeal the notification was denied. On December 15, 2021, the plaintiff applied to the Office for an adjustment to the amount of the personal income tax. On January 11, 2022, the Office refused to satisfy the plaintiff's application.

On February 11, 2022, the plaintiff filed a complaint with the Department against the Management's actions. On March 1, 2022, the Department dismissed the plaintiff's complaint. In substantiation of the claim, the plaintiff indicated that she did not agree with the accrual of personal income tax and penalties, as she had not actually received income from the sale of the apartment, which was provided to her by the state in return for the apartment seized for state needs.

             Judicial acts:

1st instance: the claim is partially satisfied. The actions of the defendant to accrue personal income tax on the plaintiff's personal account, which is not taxed at the source of payment, in the amount of 1.2 million tenge, as well as the accrual of penalties for the specified amount, were recognized as illegal.

          The defendant is required to make an adjustment by excluding the IPN debt, which is not taxable at the source of payment, as well as penalties accrued on the specified amount.

             Appeal: the court's decision is upheld.

Cassation: judicial acts are cancelled, the administrative claim is returned.

Conclusions: According to Article 187 of the Tax Code, a taxpayer (tax agent) has the right to appeal actions or omissions of tax authorities to the court.

Subparagraph 9) of the first part of Article 4 of the CPC provides that an administrative procedure is the activity of an administrative body, an official to review an administrative case, make and execute a decision on it, carried out on the basis of an appeal or on his own initiative, as well as activities carried out in a simplified administrative procedure.

The second part of Article 77 of the CPC regulates that upon completion of the consideration of an administrative case, a written decision is made, which is sent to the participant in the administrative procedure. The second part of Article 102 of the APPC defines that the courts, in the order of administrative proceedings, have jurisdiction over disputes arising from public law relations provided for by the APPC.

The APPC establishes that an administrative act is a decision taken by an administrative body, an official in public relations, exercising the rights and obligations of a certain person or an individually defined circle of persons established by law (subparagraph 4) of the first part of Article 4 of the APPC).

Based on the authority of an administrative body, its acts, actions (inaction) can both implement and restrict, diminish or otherwise affect the realization of the rights and legitimate interests of the subjects to whom the administrative act was issued and/or the action (inaction) was committed.

Public law relations arise between subjects of law regarding the exercise by one of the participants of his powers in relation to the other. Accordingly, disputes arising between an administrative body and a person in respect of whom the public functions of this administrative body established by law are implemented are considered in administrative proceedings.

At the same time, the public functions of the administrative body represented by the defendant, the tax authority, are implemented by issuing a notification with the characteristics of an administrative act. According to the case file, there is a court decision on this notification dated September 27, 2017, which means that H.R. exercises the right to appeal it in court and that the legality of the notification has already been assessed by the court.

Paragraph 31 of the Regulatory Resolution of the Supreme Court of the Republic of Kazakhstan No. 9 dated December 22, 2022 "On certain issues of the application of tax legislation by courts" clarifies that, based on the provisions of Article 159 of the Tax Code, that the decision based on the results of a tax audit is a notification issued by the tax authority on the results of a tax audit, in case of disagreement of the taxpayer (tax agent) with the accrued amounts of taxes and other mandatory payments to the budget, only the notification is subject to judicial appeal.

From the above circumstances and legal norms, it follows that:

a) the legislation classifies the actions complained of as actions that preceded the acceptance of the notification;

b) these actions cannot be assessed by the courts in isolation from the administrative act (notification);

c) the actions complained of are not subject to review due to the existence of an administrative act (notification).

Consequently, the conclusions of the courts on the consideration of claims on the merits are erroneous. In the context of the above, the claim was to be returned as not subject to administrative review.

 

 

 

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