The Double Taxation Relief (Taxes on Income) (Kazakhstan) Order 1994

Made: 14th December 1994

At the Court at Buckingham Palace, the 14th day of December 1994 Present, The Queen’s Most Excellent Majesty in Council

Now, therefore, Her Majesty, in exercise of the powers conferred upon Her by section 788 of the said Act, and of all other powers enabling Her in that behalf, is pleased, by and with the advice of Her Privy Council, to order, and it is hereby ordered, as follows:—

1

This Order may be cited as the Double Taxation Relief (Taxes on Income) (Kazakhstan) Order 1994.

2

It is hereby declared—

• (a) that the arrangements specified in the Convention set out in Part I of the Schedule to this Order and in the Exchange of Notes constituting an Agreement set out in Part II of that Schedule have been made with the Government of the Republic of Kazakhstan with a view to affording relief from double taxation in relation to income tax, corporation tax or capital gains tax and taxes of a similar character imposed by the laws of Kazakhstan;

• (b) that those arrangements include provisions with respect to the exchange of information necessary for carrying out the domestic laws of the United Kingdom and the laws of Kazakhstan concerning taxes covered by the arrangements including, in particular, provisions about the prevention of fiscal evasion with respect to those taxes; and

• (c) that it is expedient that those arrangements should have effect.

SCHEDULE

PART I — CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND AND THE GOVERNMENT OF THE REPUBLIC OF KAZAKHSTAN FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND CAPITAL GAINS

The Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Kazakhstan;

Desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains;

Have agreed as follows:

Article 1 — Personal scope

This Convention shall apply to persons who are residents of one or both of the Contracting States.

Article 2 — Taxes covered

Article 3 — General definitions

Article 4 — Residence

Article 5 — Permanent establishment

Article 6 — Income from immovable property

Article 7 — Business profits

Article 8 — Shipping and air transport

Article 9 — Associated enterprises

Article 10 — Dividends

Article 11 — Interest

Article 12 — Royalties

Article 13 — Capital gains

Article 14 — Independent personal services

Article 15 — Dependent personal services

Article 16 — Directors' fees

Directors' fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.

Article 17 — Artistes and sportsmen

Article 18 — Pensions

Article 19 — Government service

Article 20 — Students

Payments which a student or business apprentice who is or was immediately before visiting a Contracting State a resident of the other Contracting State and who is present in the first-mentioned State solely for the purpose of his education or training receives for the purpose of his maintenance, education or training shall not be taxed in that first-mentioned State, provided that such payments arise from sources outside that State.

Article 21 — Other income

Article 22 — Elimination of double taxation

Article 23 — Limitation of relief

Article 24 — Partnerships

Where, under any provision of this Convention, a partnership, joint venture or other entity is entitled, as a resident of Kazakhstan, to exemption from tax in the United Kingdom on any income or capital gains, that provision shall not be construed as restricting the right of the United Kingdom to tax any member of the partnership, joint venture or other entity who is a resident of the United Kingdom on his share of such income or capital gains; but any such income or gains shall be treated for the purposes of Article 22 of this Convention as income or gains from sources in Kazakhstan.

Article 25 — Non-discrimination

Article 26 — Mutual agreement procedure

Article 27 — Exchange of information

Article 28 — Members and employees of diplomatic or consular establishments or permanent missions

Nothing in this convention shall affect any fiscal privileges accorded to members and employees of diplomatic or consular establishments or permanent missions to international organisations under the general rules of international law or under the provisions of special agreements.

Article 29 — Entry into force

Article 30 — Termination

This Convention shall remain in force until terminated by one of the Contracting States. Either Contracting State may terminate the Convention, through diplomatic channels, by giving notice of termination at least six months before the end of any calendar year beginning after the expiry of five years from the date of entry into force of the Convention. In such event, the Convention shall cease to have effect:

• (a) in the United Kingdom:

• (i) in respect of income tax and capital gains tax, for any year of assessment beginning on or after 6th April in the calendar year next following that in which the notice is given;

• (ii) in respect of corporation tax, for any financial year beginning on or after 1st April in the calendar year next following that in which the notice is given;

• (b) in Kazakhstan:

• (i) in respect of taxes withheld at source, for amounts paid or credited on or after 1st January in the calendar year next following the expiration of the six month period; and

• (ii) in respect of other taxes, for taxable periods beginning on or after 1st January in the calendar year next following the expiration of the six month period.

PART II — EXCHANGE OF NOTES

Alma Ata

19th April 1994

Excellency

I have the honour to refer to the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Kazakhstan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains which is being signed today and to make on behalf of the Government of the United Kingdom the following proposals for the purpose of applying:

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

Article 7: Business profits

Article 11: Interest

Article 12: Royalties

Articles 11: Interest and 12: Royalties

Article 13: Capital gains

Article 22: Elimination of Double Taxation

Withholding tax

Article 25: Non-discrimination

Article 29: Entry Into Force

Alma Ata

18th May 1994

Excellency

I am in receipt of your note dated 19th April 1994 which states as follows:

I have the honour to refer to the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Kazakhstan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains which is being signed today and to make on behalf of the Government of the United Kingdom the following proposals for the purpose of applying: 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 December 22nd 1992. 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 a permanent 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. 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 are incurred 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. 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 consitute a financial return on one or more initial payments or investments. 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) of this 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 payment is deemed to have its source. The Contracting States agree that where Kazakhstan agrees to a lower rate of tax than 10 per cent 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 per cent in paragraph (2) of 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. 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. 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 per cent 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 for actual 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 Kazakh tax 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. 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 arises each 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. For the purposes of this Convention, the Contracting States agree that Kazakhstan shall be entitled 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 1st January 1993, and that thereafter 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. 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 aforesaid 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.

The foregoing proposals being acceptable to the Government of The Republic of Kazakhstan, I have the honour to confirm that Your Excellency’s Note and this reply shall be regarded as constituting an agreement between the two Governments in this matter which shall enter into force at the same time as the entry into force of the Convention.

Signed

R. P. Bulling — Deputy Clerk of the Privy Council

Explanatory note

(This note is not part of the Order)

The Convention with Kazakhstan is set out in the Schedule to the Order.

The Convention provides for business profits not arising through a permanent establishment to be taxed only in the country of the taxpayer’s residence. Profits attributable to a permanent establishment may be taxed in the country in which the permanent establishment is situated (Articles 5 and 7).

Income from immovable property may be taxed in the country in which the property is situated (Articles 6 and 13).

Air transport and shipping profits are to be taxed only in the residence state of the operator (Article 8).

The Convention includes rules for determining taxable profits when a company in one country is related to a company in the other (Article 9).

The rate of tax imposed in the country of source on dividends derived by a resident of the other country shall not, in general, exceed 5 per cent of the gross amount if the recipient is a company controlling, directly or indirectly, 10 per cent of the voting power of the company paying the dividends. In other cases, such dividends may also be taxed in the source country, but, in general, at a rate not exceeding 15 per cent of the gross amount of the dividends (Article 10).

The rate of tax imposed in the country of source on interest derived by a resident of the other country is, in general, not to exceed 10 per cent of the gross amount of the interest flowing to the other country. Certain categories of interest will be exempt from tax in the source state (Article 11).

The rate of tax imposed in the country of source on royalties flowing to the other country shall not, in general, exceed 10 per cent of the gross amount of royalties flowing to the other country (Article 12).

Capital gains arising from the disposal of movable property are normally to be taxed only in the country of the taxpayer’s residence. Gains arising from the disposal of assets of a permanent establishment or fixed base which the taxpayer has in the other country may be taxed in that other country (Article 13).

The earnings of temporary business visitors and some other individuals are, subject to certain conditions, to be taxed only in the country of the taxpayer’s residence (Articles 14 and 15). Fees received by a resident of one country in his capacity as a director of a company resident in the other country may be taxed in the latter country (Article 16). Income derived from the activities of artistes and sportsmen may be taxed in the country in which those activities are exercised (Article 17). Occupational pensions and annuities are to be taxed only in the recipient’s country of residence, subject to certain provisions (Articles 18 and 19). Government Service remuneration is normally taxable only by that Government (Article 19). Certain payments made to visiting students and business apprentices are to be exempt from tax in the country visited (Article 20). Other income not specified in the Convention (with the exception of income paid out of trusts or the estates of deceased persons in the course of administration) shall be taxable only in the taxpayer’s country of residence, as long as it is not associated with a permanent establishment in the country of source (Article 21).

Where income continues to be taxable in both countries credit will be given in the taxpayer’s country of residence for tax imposed in the other country. In the case of dividends, the United Kingdom will give credit for underlying tax paid in Kazakhstan where the shareholder is a United Kingdom company which controls at least 10 per cent of the voting power in the company paying the dividends (Article 22).

There are provisions safeguarding nationals and enterprises of one country against discriminatory taxation in the other country (Article 25), and for consultation (Article 26) and exchanges of information (Article 27) between the taxation authorities of the two countries.

The Convention will enter into force on the date of the later of the notifications by each country of the completion of the procedures required by its law to bring the Convention into force. The Convention is to take effect in the United Kingdom on or after 1st April 1993 in respect of corporation tax and on or after 6th April 1993 for income tax and capital gains tax. The date of entry into force will in due course be published in the London, Edinburgh and Belfast Gazettes.

Footnotes

[^f00001]: 1988 c. 1; section 788 is extended by section 277 of the Taxation of Chargeable Gains Act 1992 (c. 12).