On taxes and other obligatory payments to the budget (Tax Code)

Article 663. Method of proportional distribution of expenses

1. When using the method of proportional distribution, the amount of allocable expenses of a non-resident legal entity that are recognized as deductibles by a permanent establishment in the Republic of Kazakhstan is defined as the product of the amount of allocable expenses of a non-resident legal entity and the calculation index.

2. The calculation index is calculated using one of the following methods chosen by a non-resident legal entity:

1) the ratio of total annual income, determined in accordance with paragraph 2 of Article 651 of this Code, received by a non-resident legal entity from operating in the Republic of Kazakhstan through its permanent establishment for a reporting taxable period, to the total amount of total annual income of a non-resident legal entity for the said taxable period;

2) determination of the average value (AV) by three indicators such as:

the ratio of total annual income, determined in accordance with paragraph 2 of Article 651 of this Code, received by a non-resident legal entity from operating in the Republic of Kazakhstan through its permanent establishment for a reporting taxable period, to the total amount of total annual income of a non-resident legal entity for the specified taxable period (I);

the ratio of the initial (current) value of fixed assets recorded in financial statements of a permanent establishment in the Republic of Kazakhstan as of the end of a reporting taxable period to the total initial (current) value of fixed assets of a non-resident legal entity for the same taxable period (FA);

the ratio of the amount of expenses for remuneration of staff, working at a permanent establishment in the Republic of Kazakhstan, as of the end of a reporting taxable period, to the total amount of expenses for labor remuneration of staff of a non-resident legal entity for the same taxable period (RP).

The average value is determined using the formula:

AV = (I + FA + RP)/3

3. When using the method of proportional distribution, a permanent establishment in the Republic of Kazakhstan recognizes the amount of allocable expenses of a non-resident legal entity as deductibles only in case of compliance with the provisions of an international treaty and given the presence of the following supporting documents:

1) copies of financial statements of a permanent establishment of a non-resident in the Republic of Kazakhstan;

2) copies of financial statements of a non-resident legal entity drawn up in accordance with the requirements of the legislation of the state of its establishment and (or) residency of the legal entity, certified with a seal bearing the name of a non-resident legal entity (if any), as well as a signature of its head.

In this case, the financial statements, specified in subparagraphs 1) and 2) of this paragraph, shall indicate in a separate line:

the amount of managerial and general administrative expenses;

total annual income;

the amount of labor remuneration of staff;

initial (current) and book value of fixed assets;

3) the breakdown of the amount of managerial and general administrative expenses, specified in the financial statements provided for in subparagraph 2) of this paragraph, indicating:

allocable expenses of a non-resident legal entity by types of expenses;

managerial and general administrative expenses of a permanent establishment in the Republic of Kazakhstan;

4) copies of a tax audit report on the audit of financial statements of a non-resident legal entity (in case of auditing such financial statements).