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HMRC internal manual

Double Taxation Relief Manual

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DT:Kazakhstan: double taxation agreement, SI 1994 No 3211: Exchange of Notes

Article 2: Taxes covered

At the time of signature of the Convention, the following specific taxes are included within the meaning of Article 2(3)(b):

(i) the profits and income taxes specified in Chapter I and V of the law “On the Taxation of Enterprises, Associations and Organisations”, as amended on 25th December 1991, 30th June 1992 and 22nd December 1992; and

(ii) the income tax provided under the law “On the Income Tax on Citizens of the Republic of Kazakhstan, Foreign Citizens and Stateless Persons”, as amended on 22nd December 1992.

Article 3(1)(e): Definition of a person

The Contracting States understand that, for the purposes of this Convention a European Economic Interest Grouping (EEIG) is not regarded as a resident of a Contracting State. However, a resident of a Contracting State may claim relief under the terms of this Convention in respect of its share of the income of a EEIG. Where a EEIG has a permanent establishment in a Contracting State that permanent establishment shall be regarded as apermanent establishment in that Contracting State of each participant in the EEIG and income effectively connected to that permanent establishment shall be regarded as effectively connected to a permanent establishment which the participant possesses in that Contracting State to the extent that the participant shares in that income.

Article 7: Business profits

The Contracting States understand that only properly allocated actual expenses incurred by the permanent establishment of the resident, its Head Office or any of its other offices shall be allowed as deductions. No deduction shall be allowed merely because such amounts are paid or accrued by the permanent establishment to the Head Office of the resident or any of its other offices. For example, no deduction shall be permitted in respect of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission for specific services performed, or for management, or by way of interest on monies lent to the permanent establishment, unless such amounts areincurred by the Head Office or any of its other offices, in which case there may be deducted those expenses which are incurred for the purposes of the permanent establishment.

Article 11: Interest

The Contracting States understand that “interest” includes any amount paid for the use of monies over time such as payments made under annuity contracts to the extent that such payments constitute a financial return on one or more initial payments or investments.

Article 12: Royalties

The Contracting States understand that where the beneficial owner of royalties as defined in subparagraph (b) of paragraph 4 of this Article makes an election, under paragraph 3 ofthis Article, any interest payable which is attributable to the right or property for which the royalty was received shall be deemed to have a source in the Contracting State in which the payment arises. Any such interest payment will be subject to the provisions of Article 11 of this Convention. An election made under paragraph 3 of this Article shall be made to the competent authority of the Contracting State in which the leasing paymentis deemed to have its source.

Articles 11: Interest and 12: Royalties

The Contracting States agree that where Kazakhstan agrees to a lower rate of tax than 10%in paragraph 2 of Article 11 or in paragraph 2 of Article 12 in any Convention between Kazakhstan and a third State which is a member of the Organisation for Economic Co-operation and Development, and that Convention enters into force either before or after the date of entry into force of this Convention, the competent authority of Kazakhstan shall notify the competent authority of the United Kingdom of the terms of the relevant paragraph in the Convention with that third State immediately after the entry into force of that Convention and such lower rate of tax shall be substituted for 10% in paragraph 2of Article 11 or paragraph 2 of Article 12, as the case may be, of this Convention with effect from the date of entry into force of that Convention, or of this Convention,whichever is the later.

Article 13: Capital gains

The Contracting States understand that gains from the alienation of moveable property subject to an election under paragraph 3 of Article 12 will be subject to paragraph 5 of Article 13.

Article 22: Elimination of double taxation

Kazakhstan confirms that in computing the taxes on profits and income under current law,an entity that is a resident of Kazakhstan, and a joint venture with more than 30% participation by residents of the United Kingdom or an entity which is wholly owned by residents of the United Kingdom, or a permanent establishment of an enterprise of the United Kingdom (subject to the provisions of Article 7), is permitted deductions foractual wages paid and for interest expenses, whether or not paid to a bank and without regard to the term of the debt. The deduction may not exceed the limitation under Kazakhtax law, as long as the limitation is not less than an arm’s length rate, including in the case of interest a reasonable risk premium.

Withholding tax

Each Contracting State shall endeavour to establish procedures to enable taxpayers to receive income dealt with under Articles 10, 11 and 12 without the imposition of withholding taxes where the Convention provides for taxation only in the State of residence. Where the Convention provides for taxation in the State where the income arise seach State shall endeavour to establish procedures to enable taxpayers to receive income under deduction of tax at the rate provided for in the Convention. Where a claim is made by a taxpayer, tax withheld at source in a Contracting State at the rate provided for under domestic law shall be repaid in a timely manner where that tax is withheld at a rate in excess of that provided for under the terms of the Convention.

Article 25: Non-discrimination

For the purposes of this Convention, the Contracting States agree that Kazakhstan shall been titled to continue to charge the five per cent. rate differential which, at the time of entry into force of this Convention, exists as a matter of Kazakh law between the taxes imposed on residents of the United Kingdom and enterprises of Kazakhstan, for a period of five years following 1 January 1993, and that there after the taxes imposed on residents of the United Kingdom under the laws of Kazakhstan shall be charged at the same rate as the taxes imposed on Kazakh enterprises.

Article 29: Entry into force

The Contracting States understand that where any legal rules, applicable on or after 16th December 1991, would have afforded any greater relief from tax than is due under this Convention, any such rules as afore said shall continue to have effect:

a. in the United Kingdom, for any year of assessment, financial year or chargeable period, and

b. in Kazakhstan, for any taxable period,

beginning, in either case, before the entry into force of the Convention.