Control over exports on commodity exchanges will be returned to the state. This decision was made today at a plenary meeting in the Mazhilis. As noted, it was established that prices for grain sold through commodity exchanges in Kazakhstan were underestimated by 10-25% of market prices in the country of import, reports the APK News agency.
“Since 2019, there has been no control over transfer pricing for transactions on commodity exchanges. As a result, there is a threat of capital withdrawal from the country through the conclusion of export transactions at prices below market prices (collusion with the buyer). In 2019, for liquefied gas and grain sold through commodity exchanges in Kazakhstan, prices were underestimated by 10-25% of market prices in the country of import (Uzbekistan, Tajikistan, Afghanistan). This analysis was carried out only for 2019,” the Mazhilis press service reported.
It is noted that after the adoption of the bill, if the state identifies a discrepancy, taking into account all the associated costs of the buyer for the delivery of goods, an adjustment will be made to the sales income in relation to the selling company. This will entail additional tax charges.
The market price range will also be improved.
In current legislation, the price range for calculation is determined by the minimum and maximum values. The new edition proposes to narrow this range.
For example, a Kazakh company sells goods to a foreign trader in the amount of 1 thousand tons for $10 million. Then the trader resells it for $12.5 million, where the trader’s margin on resale is 25%. The company compiles a sample of comparable companies in which the minimum markup was 1% and the maximum was 30%. According to current legislation, the size of a trader’s margin is in the range of market margins from 1% to 30%, thereby underestimating tax revenue from profits.
According to the proposed amendments, the range of market margins will be from 10% to 20%, i.e. extreme values of less than 10% and more than 20% are excluded.
In addition, the bill will expand the definition of related parties to a transaction.
“Some large taxpayers create artificial intermediary structures that take on minimal risk in the subsequent sale of exported products and are not recognized as related parties. Thanks to legislative instruments, the state will be able to identify such companies and apply appropriate tax instruments,” the press service says.
Three-level reporting requirements will also change.
“In total, there are 3 types of transfer pricing reporting: local, main and cross-country. The amendments concern the provision of local reporting, which contains the rationale for the use of market prices. Now not only members of the international group (under current legislation), but also all taxpayers who carry out transactions with related non-resident persons will be required to submit it,” the Mazhilis reported.
The innovation will allow state revenue authorities to improve remote control during transfer pricing between related parties.