Entire section
INTRODUCTION
Proposal

Background

  1. I.The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) is a collaborative effort among more than 139 countries and jurisdictions. Its goal is to implement the BEPS Package, which consists of 15 Actions designed to address tax avoidance, enhance international tax rules, and promote transparency in taxation.
  2. II.Kazakhstan joined the Inclusive Framework on BEPS in January 2017, committing to comply with four minimum standards outlined in OECD Action 5 (Harmful tax practices), Action 6 (Treaty abuse), Action 13 (Transfer pricing documentation), and Action 14 (Dispute resolution).
  3. III.Action 5 specifically focuses on harmful tax practices and requires member countries to undergo peer reviews to identify features of preferential tax regimes that could facilitate base erosion and profit shifting, potentially undermining the tax base of other jurisdictions.
  4. IV.The AIFC tax regime underwent a review by the OECD's Forum on Harmful Tax Practices (FHTP) between 2018 and 2020. The FHTP Peer Review identified risks of tax base erosion and profit shifting associated with the AIFC and the Republic of Kazakhstan's tax regimes.
  5. V.As a result of such review, the FHTP Secretariat requested the implementation of "substantial presence" requirements by the AIFC to align with the standards set out in Action 5 of the BEPS initiative, which addresses harmful tax practices.
  6. VI.In November 2021, the Joint Order between the AFSA and the Ministry of Finance of Kazakhstan endorsed the Rules on the substantial presence of the AIFC participants applying tax exemptions for the payment of corporate income tax, and value-added tax (Substance Rules).
  7. VII.The Substance Rules establish the requirements for determining the substantial presence, but they do not provide detailed guidance on how to meet requirements. As a result, further clarification is needed in this regard the AFSA commenced the development of the Guidance on the Rules on the substantial presence of the AIFC participants applying tax exemptions for the payment of corporate income tax, value added tax (Guidance on the Substance Rules), aiming to establish a clear procedure for applying the Rules and provide comprehensive explanations to AIFC participants.