KAZAKHSTAN: TAX CASE LAW ON INTERNATIONAL STRUCTURES,

M&A DEALS, AND RESTRUCTURING - PRACTICE REVIEW UPDATE

Case Overview:

Since 2009, the Italian company ROSETTI MARINO S.p.A. had provided the Kazakhstani company TOO Kazakhstan Caspian Offshore Industries (TOO KCOI) with design, installation, and technical assistance services for oil and gas facilities. In 2018, ROSETTI MARINO S.p.A. registered a branch in Kazakhstan.

Withholding tax was withheld on the service income for 2018-2020. In November 2022, ROSETTI MARINO S.p.A. filed claims for a refund of the withheld tax. In the company's view, under the Kazakhstan-Italy tax treaty no withholding tax was due in Kazakhstan, since the services were provided by the head office in Italy, while the Kazakhstani branch had only a small administrative staff.

Position Of The Tax Authorities:

The tax authorities denied the refund: the presence of a branch automatically means that the income is attributed to it and subject to withholding tax. The authorities additionally relied on the expiry of the 3-year limitation period.

Court's Decision:

The courts of first instance and appeal upheld the tax authorities' position attributing the company's income to its Kazakhstani branch and denied the refund.

The court of cassation set aside the appeal ruling and remanded the case, noting that:

— it had not been established whether the activities of the Company and the branch coincided;

— TOO KCOI had not been joined to the case;

— no analysis had been carried out for each transaction and period separately.

The cassation court remanded the case for reconsideration – the outcome is not yet known

Ruling of the Cassation Court of the Republic of Kazakhstan No. 6003-25-00-4к/249 dated 22 October 2025.

Case Overview:

Cisco International Ltd. (UK) provided the Kazakhstani telecom operator TOO TNS-Plus with the following services: updating and correcting software, processing service requests, replacing faulty equipment, technical support, and consultations on installing new software versions.

The TOO did not withhold tax, applying the exemption for services under the tax treaty between Kazakhstan and the United Kingdom.

Position Of The Tax Authorities:

The tax authorities reclassified the payments to Cisco as royalties and assessed additional withholding tax at 15%. In the authorities' view, software updates fall within the definition of royalties as the use of rights to software.

Court's Decision:

The court supported the taxpayer and treated the payments to Cisco as services, not royalties, because:

— the authorities did not analyze the actual content of the services – a formal reference to the definition of royalties is insufficient;

— technical support and software updates are maintenance services, not payments for the use of intellectual property;

— the transfer of updated software versions is an ancillary part of the services, not a license.

The court overturned the tax authorities' decision and confirmed that the exemption of the payments from withholding tax was correct

Supreme Court Ruling No. 6001-24-00-6ап/2251 dated 15 April 2025 (episode on the reclassification of IT services as royalties).

Case Overview:

GLOBECROFT LIMITED (United Kingdom) sold a 100% interest in the Kazakhstani company TOO TD Trade International to the Russian JSC Ormet, realizing a capital gain.

The sole asset of the company sold was a 40% interest in the subsoil user TOO KazGeoRud. As the tax agent, JSC Ormet filed a return at a 0% rate, applying the benefit under the Kazakhstan-United Kingdom convention.

Position Of The Tax Authorities:

The exemption was found to be unjustified: the capital gain from the sale of a company whose assets consist of the property of a subsoil user is taxable in Kazakhstan.

Since neither the tax agent nor the seller paid the tax, the obligation was imposed on the subsoil user company itself – TOO KazGeoRud – with an additional assessment of withholding tax and late-payment interest.

Court's Decision:

The courts of first instance and appeal supported the taxpayer, but the Supreme Court disagreed with their reasoning.

The 'three-year benefit' exemption (subclause 8, clause 9, article 645 of the Tax Code, in the version then in force) does not apply: the seller had held the interest for under three years, and 100% of TOO TD Trade International's assets are subsoil-user property.

If neither the tax agent nor the non-resident pays the tax, the withholding CIT obligation passes to the subsoil user. The treaty benefit cannot be self-applied via a 0% return – the non-resident must claim a refund.

Even so, the court upheld the lower courts' cancellation of the assessment, because the authorities breached the audit time limits (38 days instead of 30).

On the merits, the court agreed with the assessment, but overturned it on procedural grounds (breach of the tax audit time limits)

Ruling of the Judicial Collegium for Administrative Cases of the Supreme Court of the Republic of Kazakhstan No. 6001-24-00-6ап/2587 dated 12 June 2025.

Case Overview:

In 2020, TOO Bogatyr Komir paid dividends and fees for engineering services to its sole shareholder – the Dutch company Forum Muider B.V.

The TOO applied benefits under the Kazakhstan-Netherlands tax treaty: an exemption from withholding tax on services and a 5% rate on dividends.

Position Of The Tax Authorities:

During the audit, the tax authorities assessed withholding tax on both services and dividends. The TOO successfully challenged the assessment on services before the higher tax authority.

The assessment on dividends remained in force, and the TOO challenged it in court.

Arguments Of The Tax Authorities:

The tax authorities justified the assessment of withholding tax on dividends on the grounds that Forum Muider B.V. is not their beneficial owner, because:

—the company carries out only holding activities and receives income mainly in the form of dividends;

—it does not conduct business activities and is unable to do so due to the lack of employees;

—the members of the company's board of directors are also employees of its ultimate shareholders – Russian and Kazakhstani companies;

—half of the dividends received are transferred to the Kazakhstani company, a shareholder of the Dutch company.

Decision Of The Court Of First Instance:

The court of first instance supported the taxpayer and concluded that the Dutch company independently managed the funds received from the TOO and was the beneficial owner of the income, and therefore was entitled to apply the withholding tax benefits.

Decisions Of The Higher Courts:

The court of appeal ruled that the Dutch company was the formal owner of the funds received and had limited powers to dispose of the proceeds.

However, the court of cassation set aside this decision and remanded the case for a new hearing before the court of appeal. On reconsideration, the court of appeal concluded that the directors of Forum Muider B.V. are not limited in their powers and manage the company independently. The company has no restrictions on disposing of the dividends.

Consequently, the company is not an intermediary or a nominee holder and must be recognized as the beneficial owner of the dividend income.

The application of the 5% rate on dividends was found to be justified. The ruling may be appealed to the court of cassation and the Supreme Court of the Republic of Kazakhstan

Ruling of the Pavlodar Regional Court No. 5599-25-00-4а/307 dated 12 February 2026.