16 Сентябрь 2020

The case of over 70 million som of additional taxes and penalties

In March 2020, the business entity filed a complaint to the Business Ombudsman against the decision of the state body made as a result of the audit. The state body equated the allocation of retained earnings of a business entity to increase its authorised share capital as equivalent to the payment of dividends and, in this regard, accrued taxes and penalties in the amount of more than 70 million som. As a result of fair and independent analysis and investigation, the Business Ombudsman upheld the complaint of the business entity. The calculation of taxes was made in the absence of legal norms that allow establishing the grounds and procedure for the occurrence and execution of a tax obligation. Additional charges were made in contradiction with the principle of certainty of taxation provided by the Tax Code of the Kyrgyz Republic. When making the decision, the state body was guided by its interpretation of the legislation of the Kyrgyz Republic, without taking into account the position of the state body responsible for developing legislation in the relevant area, which was the opposite. It is important to note that before conducting this operation, the business entity addressed to the state body a request on conducting such operation in compliance with the legal and tax norms and requirements. The state body in its official correspondence replied on the absence of tax obligations associated with this operation. On April 28, 2020, the Business Ombudsman issued and sent to the state body a Response Act in the form of a recommendation. In addition to the Response Act, in cooperation with the representatives of business associations and legislative authorities BOI communicated and assisted in making the necessary changes to the Tax Code of the Kyrgyz Republic, which would eliminate the existing legal gap and recognise the entity's operation as tax-free. On August 3, 2020, the law updating the Tax Code was adopted, which eliminated the possibility of subjective interpretation of the operation of attributing retained earnings to an increase of an authorised capital. Based on these legislative changes, the state body canceled additional taxes and penalties, and the business entity saved over 70 million of som. The Business Ombudsman Institute previously raised its concerns on early trends and systemic issues identified in the first 6 months of its operation. Among such systemic issues: the existence of gaps and conflicts in the legislation of the Kyrgyz Republic, allowing for a different interpretation of laws; interpretation of the legislation of the Kyrgyz Republic by state bodies that do not have the appropriate authority to do so; inconsistency of state bodies, expressed in the cancellation of previously adopted decisions. These practices create additional barriers for doing business in Kyrgyzstan easily and effectively. BOI reminds entrepreneurs on their right to file a complaint against the actions, decisions of state bodies, local governments, state-owned enterprises, and their officials through the website www.boi.kg. Complaints are investigated free of charge