The concept of General Anti-Avoidance Rule: Is there a GAAR in Kazakhstan?
The concept of the General Anti-Avoidance Rule (GAAR) raises many questions in terms of legal technique and certainty.
In essence, this rule means that a taxpayer cannot enjoy benefits and advantages provided by the law if he violates some other, not prescribed in the laws rules. This approach worsens regulatory predictability and does not promote legal certainty.
However, despite the drawbacks, a complete rejection of GAAR will lead to even worse consequences - the emergence of taxpayers who pay nothing to the budget at all, shifting the tax burden to everyone else. Therefore, GAAR can be considered a non-ideal, but necessary and acceptable compromise to combat tax abuse.
The main disadvantage of GAAR is the vagueness and uncertainty of its application criteria. Ideally, it would be desirable to have a clear test to distinguish permissible tax optimization from illegal tax avoidance. But the specificity of GAAR is precisely that it is designed to cover situations that escape formal regulation. Clear criteria are hardly possible here.
Problems of applying GAAR in cross-border situations
The ambiguity of the GAAR concept is particularly pronounced in cross-border situations. The problem of double taxation often arises due to the fact that anti-avoidance rules are interpreted differently from different sides of the border. A classic example is the institution of permanent establishment. Often there is a situation when one state considers that a permanent establishment has been formed and a tax liability has arisen, while the other state does not recognize the same permanent establishment and does not provide a credit for taxes paid.
To make matters worse, perceptions of permissible tax planning change quite rapidly over time. Many structures and approaches, such as holding companies without their own staff, which were considered acceptable 10 years ago, are now clearly recognized as abuse. Moreover, these changes occur not through the adoption of new laws, but through gradual changes in law enforcement practice. The taxpayer finds himself in a situation of legal uncertainty, when he cannot be sure that the approach, which is considered acceptable today, in a few years will not turn into an abuse of the right.
Does GAAR exist in Kazakhstan?
The question of whether there is a general anti-avoidance rule in Kazakhstan remains debatable. On the one hand, the Tax Code of Kazakhstan lacks provisions directly enshrining GAAR. On the other hand, certain elements of the anti-abuse concept are increasingly common in the explanations of the tax authorities and in court practice. The principle of "substance over form", although not enshrined in the legislation, is in fact actively applied in tax control.
In addition, most existing tax treaties of Kazakhstan, thanks to the OECD Multilateral Convention (MLI), now contain a provision on Principal Purpose Test (PPT). In essence, the PPT is a variation of the GAAR, as it allows the tax authorities to deny treaty benefits if one of the main purposes of the transaction was to obtain a tax benefit. Taking into account MLI, it is no longer possible to speak about the absence of GAAR in Kazakhstan.
Signs of GAAR formation in the judicial practice of Kazakhstan
Although there is no direct enshrinement of GAAR in Kazakhstani legislation, judicial practice is gradually developing its own approaches to counteracting tax avoidance, which in many respects are similar to the logic of GAAR.
An example is the high-profile case of the Spanish company Zara. The tax authority attempted to challenge the benefits that Zara enjoyed on the basis of individual clarifications received. The court partially supported the tax authority citing the fact that the company had been previously implicated in tax evasion investigations in Europe. The court effectively used a kind of test for the general good faith of the taxpayer, without relying on specific legislation.
A similar logic was applied in a dispute involving SAP. In assessing the legality of the structure, whereby part of the revenue from Kazakhstani clients was directly transferred to the head office, bypassing the local permanent establishment, the court proceeded from the general ideas of fairness and the purpose of creating a permanent establishment. Strictly formally, the company did not violate anything, but the court considered that the structure of the work was not consistent with the purpose for which the permanent establishment was created.
Such examples show that Kazakhstani courts are willing to use principles similar to the GAAR, even in the absence of their clear enshrinement in positive law. The main criterion that can be traced is the conformity of the real actions of the taxpayer and the structure chosen by him to those economic and business purposes that are declared. If the reality diverges from the declared goals, the courts tend to see abuse of right and recognize optimization as illegal.
Conclusions and recommendations
To summarize, we can conclude that some elements of GAAR are already in effect in Kazakhstan, although not enshrined as a unified concept at the legislative level. These elements are manifested in the law enforcement practice of the tax authorities, clarifications of the authorized bodies and in judicial acts. As experience is accumulated and the number of tax disputes increases, we can expect further crystallization of unwritten rules of the fight against tax evasion.
When building tax planning structures it makes sense for Kazakhstani and foreign taxpayers in Kazakhstan to take into account not only the formal content of tax legislation, but also trends in law enforcement, as well as general principles of countering abuse adopted at the international level. In particular, it is necessary to be ready to justify the economic purpose and business logic of the applied structure, and justify it from the position of an objective and rational participant of turnover.
Ultimately, the key test for testing the structure is the answer to the question whether it would be viable in the absence of a tax benefit. If the answer is positive, then even in the presence of claims of the tax authorities, such a structure has a chance for a successful defense in the event of a dispute. If, however, the beneficial nature of the structure is based solely or predominantly on tax savings, then in the current conditions of gradual formation of GAAR in Kazakhstan, it is better to refrain from its use.
