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

Article 723. Features of tax accounting for subsoil use operations

1. A subsoil user shall be obliged to maintain separate tax records to calculate the tax liability for activities carried out under each concluded subsoil use contract, as well as when developing a low-margin, high-viscosity, flooded, low-yield or depleted deposit (group of deposits, part of a deposit, provided that activities are carried out on such group of fields, part of a field under one contract) in case of calculation of taxes and payments to the budget in the manner and at rates that differ from those established by this Code.

2. The provisions of this article on maintaining separate tax accounting do not apply to contracts for exploration and (or) extraction of common minerals, non-metallic solid minerals indicated in line 13 of the table in Article 746 of this Code, groundwater, therapeutic muds, and also for construction and (or) operation of underground structures not related to exploration and (or) extraction, except for the requirements to maintain separate tax accounting for calculating and fulfilling the tax obligation for the mineral extraction tax under these contracts.

Operations under subsoil use contracts, specified in part one of this paragraph, which are part of the activity within contracts for exploration and (or) extraction of hydrocarbons or solid minerals, shall be indicated in the tax accounting for a relevant contract for exploration and (or) extraction of hydrocarbons or solid minerals with account of the separate tax accounting maintained by the subsoil user. In this case, the subsoil user is obliged to show the procedure for allocating expenses for such operations to relevant contracts and (or) non-contract activity in the tax accounting policy.

3. Separate tax accounting for taxable and (or) tax-related items shall be maintained by a subsoil user on the basis of the data of accounting records in accordance with the approved tax accounting policy and subject to the provisions established by this article.

The procedure for maintaining separate tax accounting is developed by a subsoil user on his/her/its own and approved in the tax accounting policy (accounting policy section).

In case of no procedure for separate tax accounting in the tax accounting policy and (or) its inconsistency with the principles of taxation, tax authorities shall determine tax obligations of a taxpayer in the course of tax control in accordance with subparagraph 1) of paragraph 11 of this article.

The provisions of this paragraph also apply to an authorized representative of participants in a simple partnership (consortium), who is responsible for maintaining consolidated tax accounting in accordance with paragraph 2 of Article 200 of this Code.

4. Separate tax accounting for a contract activity is maintained for the following taxes and payments to the budget:

1) corporate income tax;

2) signature bonus;

3) payment to recover historical costs;

4) mineral extraction tax;

5) excess profits tax;

6) an alternative subsoil use tax;

7) other taxes and payments to the budget, the calculation procedure for which differs from that established by this Code, on the basis of the tax regime of subsoil use contracts specified in paragraph 1 of Article 722 of this Code.

5. When maintaining separate tax accounting for the calculation of a tax obligation, a subsoil user is obliged to ensure:

1) indication of taxable and (or) tax-related items in tax accounting for the calculation of taxes and payments to the budget specified in paragraph 4 of this article - for each subsoil use contract separately from non-contract activity;

2) calculation of taxes and payments to the budget, not specified in paragraph 4 of this article, as well as corporate income tax - for the activity of the subsoil user as a whole;

3) filing of tax returns on taxes and payments to the budget specified in paragraph 4 of this article, except for tax returns on corporate income tax - for each subsoil use contract;

4) submission of a single declaration of corporate income tax on the subsoil user’s activity as a whole and relevant annexes to it - for each subsoil use contract;

5) filing of tax returns on taxes and payments to the budget, not specified in paragraph 4 of this article - for the subsoil user’s activity as a whole.

6. When calculating the corporate income tax on the subsoil user’s activity as a whole, there is no accounting for losses incurred under a specific subsoil use contract, which the subsoil user has the right to compensate for only at the expense of income received from the activity under such a specific subsoil use contract in subsequent taxable periods, with account of the provisions of Article 300 of this Code.

7. For the purposes of maintaining separate tax accounting, income from contract activity also includes income from the strategic partner’s write-off of obligations of a national subsoil use company or a legal entity, whose shares (participatory interests) directly or indirectly belong to such a national subsoil use company, for investment financing (including remuneration) in accordance with the legislation of the Republic of Kazakhstan on subsoil and subsoil use.

8. For the purposes of this Section, the definitions of the following terms are given below:

1) direct income and expenses - the subsoil user’s income and expenses for a reporting taxable period, including income from and expenses for fixed assets that have a direct causal relationship with a specific subsoil use contract or a non-contract activity;

2) indirect income and expenses - the subsoil user’s income and expenses for a reporting taxable period, including income from and expenses for fixed assets that have a direct causal relationship with several subsoil use contracts and are subject to distribution only among such subsoil use contracts in an appropriate share;

3) total income and expenses - the subsoil user’s income and expenses for a reporting taxable period, including income from and expenses for total fixed assets that are related to the performance of contract and non-contract activities and have no direct causal relationship with a specific subsoil use contract and (or) non-contract activity and require distribution among them in an appropriate share;

4) total fixed assets - fixed assets that are related to the performance of contract and non-contract activities and, due to the specific nature of their use, have no direct causal relationship with a specific subsoil use contract and (or) non-contract activity;

5) indirect fixed assets - fixed assets, which, due to the specific nature of their use, have a direct causal relationship only with subsoil use contracts;

6) production cost of extraction, primary processing of mineral raw materials, hydrocarbon treatment - production expenses determined in accordance with international financial reporting standards and the requirements of the legislation of the Republic of Kazakhstan on accounting and financial reporting, directly related to extraction, primary processing of mineral raw materials, hydrocarbon treatment, except for:

costs of storage, transportation, sale of minerals;

other costs not directly related to extraction, primary processing of mineral raw materials, hydrocarbon treatment;

general administrative expenses not subject to inclusion in the production cost of inventories in accordance with international financial reporting standards and the requirements of the legislation of the Republic of Kazakhstan on accounting and financial reporting;

borrowing costs.

9. In order to maintain separate tax accounting for taxable and (or) tax-related items, all the subsoil user’s income and expenses are distributed into direct, indirect and total ones.

A subsoil user classifies income and expenses as direct, indirect and total on his/her/its own, proceeding from the specific nature of an activity.

Direct income and expenses shall be fully attributed only to that contract or non-contract activity, with which they have a direct causal relationship.

Total income and expenses are subject to distribution between contract and non-contract activities and, in an appropriate share, relate to the income and expenses of that contract and the non-contract activity, with which they have a causal relationship.

Indirect income and expenses are subject to distribution only between subsoil use contracts and, in an appropriate share, relate to the income and expenses of the contract, with which they have a causal relationship.

Total and indirect income and expenses are distributed using methods, specified in paragraph 11 of this article, and with account of the provisions of paragraph 10 of this article.

10. With regard to total and indirect fixed assets, subject to distribution between a subsoil use contract (contracts) and non-contract activity are expenses, incurred by the subsoil user on these fixed assets, including depreciation and subsequent expenses.

With regard to total and indirect expenses for remuneration, subject to distribution is total amount of deduction of such remunerations, determined in accordance with Article 246 of this Code.

If the exchange rate difference cannot be attributed to a contract and (or) non-contract activity of a subsoil user due to direct causal relationship, with regard to the exchange rate difference, subject to distribution is final (balanced) result received for a taxable period in the form of excess of the amount of the positive exchange rate difference over the amount of the negative exchange rate difference or excess of the amount of the negative exchange rate difference over the amount of the positive exchange rate difference.

Taxes to be allocated to deductibles on total and indirect taxable and (or) tax-related items are subject to distribution in accordance with the methods established by paragraph 11 of this article, whereas taxable and (or) tax-related items shall not be distributed.

11. A subsoil user distributes total and indirect income from and expenses for each contract activity on his/her/its own, with account of the specific nature of the activity or subsoil use operations on the basis of one or several methods of separate tax accounting adopted by the subsoil user in the tax accounting policy, in particular:

1) according to the share of direct income, attributable to each specific subsoil use contract and non-contract activity, in the total amount of direct income received by the subsoil user for a taxable period;

2) according to the share of volumes of mineral production under each specific subsoil use contract in the total volume of mineral production under all subsoil use contracts of the taxpayer;

3) according to the share of direct expenses attributable to each specific subsoil use contract and non-contract activity in the total amount of direct expenses incurred by the subsoil user for a taxable period;

4) according to the share of expenses incurred under one of the following items: direct production expenses, a payroll fund or the value of fixed assets attributable to each specific subsoil use contract and non-contract activity, in the total amount of expenses under this item incurred by the subsoil user for a taxable period;

5) according to the share of the average number of employees, participating in contract activity, to the total average number of employees of the subsoil user;

6) other methods.

With regard to various types of total and indirect income and expenses, various methods of their distribution established by this paragraph may be applied.

After a taxable period is over, methods used to distribute total and indirect income and expenses for the specified taxable period may not be changed.

For more accurate distribution of total and (or) indirect income and expenses, the value of the share obtained as a result of applying one of the above methods is determined by the subsoil user in percentage terms up to one-hundredth (0.01%).

12. Unless otherwise established by this paragraph, for the purposes of separate tax accounting, when calculating corporate income tax by a subsoil user on contract activity for each individual subsoil contract, income from the sale of produced hydrocarbons and (or) mineral raw materials that have undergone only primary processing (enrichment), is determined on the basis of their selling price, with account of compliance with the legislation of the Republic of Kazakhstan on transfer pricing, but not lower than the production cost of produced hydrocarbons (including hydrocarbon treatment), mineral raw materials and (or) commercial products obtained as a result of hydrocarbon treatment or primary processing (enrichment) of mineral raw materials, determined in accordance with international financial reporting standards and the requirements of the legislation of the Republic of Kazakhstan on accounting and financial reporting.

If in accordance with the legislation of the Republic of Kazakhstan on gas and gas supply, including those that underwent processing, are acquired by the national operator within the preemptive right of the state, then the income from sale of such crude gas including those that have been processing, shall be determined by the subsoil user in accordance with Article 227 of this Code.

When a subsoil user sells extracted oil for export, and the world price of oil as of the date of sale of such oil is lower than the production cost of such oil extraction, the income from sale of such oil shall be determined in accordance with Article 227 of this Code.

In case of transfer of produced hydrocarbons and (or) mineral raw materials that have undergone primary processing (enrichment) for subsequent processing to another legal entity (without transfer of ownership) and (or) to a structural or another production unit within the same legal entity or into use for their own production needs, a subsoil user determines income from such a transaction on the basis of actual production cost of extraction, including hydrocarbon treatment or primary processing (enrichment) of mineral raw materials, determined in accordance with international financial reporting standards and the requirements of the legislation of the Republic of Kazakhstan on accounting and financial reporting, increased by 20 percent.

In case of oil-associated crude gas, the production cost of such crude gas is determined using the following formula:










where:

CP - the production cost of oil-associated crude gas, extracted under a subsoil use contract in a current taxable period, in tenge per one thousand cubic meters;

CF - the production cost of hydrocarbon extraction, determined in accordance with international financial reporting standards and the requirements of the legislation of the Republic of Kazakhstan on accounting and financial reporting, under a subsoil use contract in a current taxable period, in tenge;

GP1 - the volume of oil-associated crude gas under a subsoil use contract in a current taxable period, with regard to which the international financial reporting standards and the requirements of the legislation of the Republic of Kazakhstan on accounting and financial reporting provide for the determination of production cost in thousands of cubic meters;

OP - the volume of oil production under a subsoil use contract in a current taxable period in tons;

0,857 – the factor of conversion of thousands of cubic meters of oil-associated crude gas into tons;

r - cost factor, determined by the formula:










where:

GP2 - the volume of oil-associated crude gas produced under a subsoil use contract in a current taxable period, in thousands of cubic meters;

OP - the volume of oil production under a subsoil use contract in a current taxable period, in tons;

AEPG - the weighted average export price of marketable gas at the border of the Republic of Kazakhstan for a relevant taxable period, calculated according to the data of the authorized bodies for maintaining customs statistics of foreign trade and mutual trade statistics, less expenses for transporting marketable gas from a subsoil user to the border of the Republic of Kazakhstan, determined on the basis of tariffs in tenge per one thousand cubic meters;

AEPO - the weighted average export price of oil at the border of the Republic of Kazakhstan for a relevant taxable period, calculated according to the data of the authorized bodies for maintaining customs statistics of foreign trade and mutual trade statistics, less expenses for transporting oil from a subsoil user to the border of the Republic of Kazakhstan, determined on the basis of tariffs in tenge per one ton.

In this case, total annual income from the subsoil user’s non-contract activity shall include an amount equal to the difference between income, actually received from the sale of products obtained as a result of such subsequent processing, and the amount of income, included in total annual income from the subsoil user’s contract activity, calculated in accordance with this paragraph.

For the purposes of this Section, another production unit of a legal entity shall be understood to mean a concentrating mill, a processing, manufacturing or metallurgic workshop (plant).

Footnote. Article 723 as amended by the Law of the Republic of Kazakhstan dated 02.04.2019 No. 241-VI (enforcement see Article 2); dated 10.12.2020 No. 382-VI (shall come into effect from 01.01.2021).