For more than two years, an investor from the Netherlands and tax service of the East Kazakhstan region were in dispute about the tax rate. While tax service officials had insisted that the rate is 15%, the investor was able to prove it is just 5%.
Bukhtarma Cement Plant in the East Kazakhstan region produces limestone, gypsum and cement; its capacity is about 1.3 million tons of product a year. It’s a property of Kazakhstan Cement Holding B.V. from the Netherlands, which is a part of German holding Heidelberg Cement. According to Kursiv data, the plant has a share of 19% in the Kazakhstani market.
In 2019 taxmen decided that during 2012 and half of 2013, Bukhtarma Cement Plant failed to pay corporate income tax on dividends of $7,248,420. According to the Tax Code, which was adopted in 2008, all the dividends are the income of non-resident and that’s why they should be covered by a corporate income tax of 15%. As a result, the tax service said the company has to pay $834,737 of taxes and $823,046 of late fees.
However, the defendants had cited the Convention for the Avoidance of Double Taxation that Kazakhstan and the Netherlands signed in 1996. According to the document, the rate of corporate income tax on dividends is 5%.
Interestingly, the Kazakhstani taxmen were aware of this rule – their position was based on the fact that dividends were transferred on the account of the parent company in Germany, not the Netherlands, which is a part of the convention. However, Bukhtarma Cement Plant lawyers were able to prove that the only purpose of the transaction with Germany was money conversion from Kazakhstani tenge to euro. After that procedure, all the money was transferred to the Netherlands on the account of Kazakhstan Cement Holding B.V., the owner of Bukhtarma Cement Plant.
Even though tax officials lost the case, they appealed to the judicial board of the Supreme Court. However, the court has decided that there is no violation and the investor has to pay no additional tax payments on dividends.