What Is Tax Monitoring?
Tax monitoring is conducted to collect and analyze information on the activities of certain categories of taxpayers. Its purpose is to monitor compliance with the tax legislation of Kazakhstan and transfer pricing legislation.
The Tax Code provides for two types of such monitoring:
- monitoring of large taxpayers;
- horizontal monitoring, excluding transfer pricing matters.
Thus, tax monitoring is not related to every individual transaction of a company but to the taxpayer’s status as a participant in the relevant type of monitoring. The specific grounds for inclusion among the participants should be checked against the applicable rules and documents of the authorized body.
It is important to distinguish tax monitoring from monitoring compliance with tax registration requirements. The latter involves collecting and analyzing information available to tax and other government authorities, as well as banking institutions, and is specifically aimed at verifying compliance with tax registration rules.
When Each Type of Monitoring Applies
Monitoring of large taxpayers is conducted in relation to entities included in the relevant list. The authorized body examines the information and documents they submit and, where necessary, sends requests for additional materials.
As part of such monitoring, the following may be requested:
- documents and written explanations confirming that taxes have been calculated correctly;
- confirmation of the timely payment, withholding, and remittance of taxes and other payments to the budget;
- the monitoring participant’s financial statements;
- the financial statements of its subsidiaries.
Horizontal monitoring is based on information exchange between the authorized body and the participant. Transfer pricing matters are not covered by this type of monitoring.
If a horizontal monitoring participant is also included in the list of participants subject to monitoring of large taxpayers, monitoring of large taxpayers is not conducted in relation to that participant. This rule prevents two forms of monitoring based on the same status from being applied simultaneously to one company.
How Monitoring of Large Taxpayers Is Conducted
After receiving a request from the authorized body, the participant must submit the requested documents and explanations within 15 business days following the date on which the request is served. The company should therefore record the date of service and immediately designate those responsible for preparing the response.
If violations or discrepancies are identified during the analysis, the authorized body issues a recommendation. Within 15 business days following the date on which it is served, the participant must choose one of the available options:
- agree and independently rectify the violations and discrepancies;
- disagree and submit an explanation stating that no such violations or discrepancies exist.
In the event of disagreement, a meeting is held at which the authorized body substantiates the identified discrepancies, while the taxpayer presents the arguments set out in its explanation.
If these arguments are not accepted, the authorized body issues a reasoned decision no later than 30 business days following the date on which the explanation is received. It must be provided to the participant within two business days following the date on which it is issued. The decision must be complied with within five business days following the date on which it is served. Failure to comply with a reasoned decision constitutes grounds for ordering a tax audit.
What the Accountant Should Do
Upon receiving a request or recommendation, first verify the date on which the document was served and calculate the response deadline specifically in business days. Then reconcile the requested information with the tax and financial statements, accounting registers, payment documents, and explanations concerning disputed transactions.
The practical procedure may be as follows:
- Register the incoming document and designate a responsible person.
- Determine the list of requested documents, including the financial statements of subsidiaries if required.
- Reconcile tax calculations with tax returns, accounting data, and payments.
- Prepare written explanations for each issue or discrepancy.
- If the company agrees with the recommendation, rectify the discrepancies within the prescribed period; if it disagrees, set out its arguments and attach supporting evidence.
It is advisable to organize the documents so that the response clearly shows the relationship between the business transaction, accounting records, tax calculation, and payment of the obligation.
Frequently Asked Questions
Is tax monitoring conducted in relation to all companies? — No. The general provisions link it to certain categories of taxpayers and participation in the relevant type of monitoring.
What types of tax monitoring are provided for? — Monitoring of large taxpayers and horizontal monitoring. Horizontal monitoring does not cover transfer pricing matters.
Can the authorized body request the financial statements of a subsidiary? — Yes. When monitoring large taxpayers, the financial statements of both the participant and its subsidiaries may be requested.
What should the company do if it disagrees with the recommendation? — Within the prescribed period, it should submit an explanation stating that there are no violations or discrepancies, together with supporting documents. A meeting is then provided for to consider the positions of the parties.
What are the consequences of failing to comply with a reasoned decision? — It constitutes grounds for ordering a tax audit.