GILS Tax law: Turkmenistan

TAX AUDIT AND APPEAL OF ITS RESULTS IN TURKMENISTAN

The Tax Code of Turkmenistan (TCT) provides for three types of tax audits, namely – desk tax audits, documentary tax audits, as well as tax inspections and raid tax audits. The first part of the article outlines the objectives and procedures for conducting the aforementioned audits, as well as the powers of tax authorities and taxpayers.

1.1. Desk (Cameral) tax audit

A desk tax audit is carried out on the basis of documents submitted by the taxpayer, such as tax declarations and financial statements, without checking primary accounting documents. The period for this audit is 30 days, and no special decision is required from the management of the tax authority.

As part of a desk tax audit, the tax authority verifies the completeness and compliance of the submitted documents with the requirements, as well as the correctness of all data entries.

Shall any additional information be needed to verify the correctness of tax accounting and timely payment of taxes the tax authority has the right to request additional data from the taxpayer. The provision of such data should occur within 5-10 days, depending on its nature. However, the requested documents cannot relate to the entire operational activity of the taxpayer, which means only documents that are directly related to the detected errors in the reporting documents submitted by the taxpayer can be requested by the tax authority.

Upon completion of the audit, an Act (report) is prepared, signed, and approved by the tax authority's management within 5 days of its submission. The taxpayer is required to correct errors related to the completeness of the reporting and/or the accuracy of the documents within 5 days of receiving the notification. If errors leading to tax underpayment are identified, the taxpayer will receive a notification of the required tax amount, which must be paid within 5 days of receiving the notification. If additional information related to the calculation and payment of taxes is needed after the completion of the desk audit, a documentary audit is scheduled.

1.2.  Documentary tax audit

Documentary tax audits are conducted by tax authorities to monitor compliance with tax laws, correct payment of taxes and other payments, identify and prevent violations, as well as to verify compliance with previous instructions of tax authorities. Documentary tax audits, based on the grounds for their appointment, are divided into scheduled (conducted according to approved work plans) and unscheduled (conducted according to instructions of law enforcement agencies); and based on the form and methods of conducting them, into comprehensive (on issues of payment of all taxes and obligatory payments), thematic (about payment of certain taxes and other obligatory payments) and counter audits (for additional information from third parties).

The audit is conducted on the basis of an order from the tax authority, signed by its head or deputy head. The taxpayer is notified of the documentary tax audit no later than five working days before its commencement, provided there are no signs of tax evasion.

The audit period cannot exceed 2 months, but in exceptional cases, the higher tax authority can extend it up to 1 year.

Rights of tax authorities during an audit:

• involve specialists to resolve tax-related issues;
• inspect production, warehouse, trading and other premises related to business activities;
• determine the amount of tax if the taxpayer fails to provide the necessary documents.

Obligations of tax authorities:

• comply with the rules for storing tax secrecy and information about taxpayers;
• avoid actions that harm the reputation and dignity of taxpayers.

Upon identifying violations of tax legislation, the tax authority may demand certified copies of documents or seize them on the basis of a resolution, in the presence of a taxpayer's representative; a copy of the protocol is transferred to the taxpayer, and the documents are returned after the complaint is considered or after a year, with the possibility of extension.

Upon completion of a documentary tax audit, an Act (report) is prepared, which includes the facts of tax violations and proposals for their elimination, which must be ready no later than the end of the audit, and familiarisation with it must not exceed 3 working days; after the consideration of the Act by the head of the tax authority, a decision is made on bringing to responsibility or on additional checks, which comes into force from the moment of approval.

1.3. Tax inspections and raid tax audits

Tax inspections and raid tax audits are conducted on the basis of an order issued by the head of the tax authority or their deputy, specifying the purpose and timeframe. The tax legislation of Turkmenistan provides for the procedures for conducting raid tax audits, which are detailed further below.

Conducting raid inspections is possible both on a scheduled and unscheduled basis (on behalf of law enforcement agencies). These checks can only be carried out on working days and times, otherwise checks are carried out with appropriate compensation to tax authority personnel.

Rights and Obligations:

Tax Authority:

• demand corrections of violations and monitor the use of cash registers;
• engage employees from other departments.

Taxpayer:

• provide documents and rectify violations within specified deadlines;
• receive an audit report detailing the findings and identified violations.

Inspections are completed with the issuance of an Act (report) and related documents, which are sent to the tax authority within 5 calendar days. The taxpayer is obliged to rectify the identified violations within the established time frame.

Restrictions:

• Inspections are prohibited for tax officials if they or their close relatives have direct or indirect financial dependence on the taxpayer. Auditors are required to notify management of such cases prior to the inspection;
• Tax authorities are obliged to observe tax secrecy and act in accordance with the legislation and approved work plans.

2. Procedure for appealing the results

The taxpayer has the right to appeal the decision of the tax authority following a desk (cameral), documentary, tax inspection, or raid tax audit. This right is regulated by Article 22 of the Tax Code of Turkmenistan, which stipulates that taxpayers may appeal the demands of tax authorities (or) customs service regarding tax payment, as well as other decisions, actions, or inaction of authorised bodies and their officials involved in tax legal relationships. Additionally, Articles 85-87 of the Tax Code provider for as well as the order on "Methodological instructions on the procedure for considering complaints submitted to the Tax Authority," approved by the Chief of the State Tax Service of Turkmenistan on December 18, 2006, and registered by the Ministry of Justice of Turkmenistan on March 28, 2007, under registration number 433 indicates the specific procedure for appealing decisions of the tax authority. In particular, taxpayers can file a complaint with the higher tax authority or appeal to court.

2.1. Complaints submitted to the tax service

A complaint can be filed against a decision of the tax service, the action of a tax official, or in a case of an administrative offence.

2.1.1. Complaint about the decision, actions of the tax authority

A complaint against a decision of the tax authority is filed with the higher tax authority, while a complaint against the actions of tax authority employees is submitted to the head of that authority. There is no specific time limit for filing such complaints. The period for reviewing and making a decision on a complaint about a decision or actions of the tax authority is limited to 1 month from the date of its submission.

Complaints are not considered in the following cases:

• on tax obligations independently determined by the taxpayer in their tax declaration;
• in the absence of specific indications for appeal and substantiation of the claimed demands;
• filed by individuals not authorised to act on behalf of the taxpayer;
• on decisions for which criminal cases have been initiated or the tax service is subject to judicial proceedings;
• on decisions for which there is already a court decision.

Additionally, repeated complaints that do not give new arguments or newly discovered circumstances are not considered.

It should be noted that the tax service has the right to demand a pledge of property or guarantee regarding the disputed amount if there is information suggesting that the taxpayer intends to evade taxation, or if the disputed amount exceeds TMT 3 000 for individuals (physical persons) and TMT 7 500 for legal entities.

If the issues raised in the complaint fall outside the authority of the tax authority, the complaint is forwarded within 5 days to the appropriate tax authority or official, and the complainant is notified accordingly.

When considering a complaint, the tax authority makes one of the following decisions:

- Leaves the appealed decision unchanged and does not uphold the appeal;

- Cancels the appealed decision in a certain part and does not uphold the taxpayer's appeal in a certain part;

- Cancels the appealed decision and upholds the taxpayer's appeal;

- Increases the amount of tax liability (penalties, fines).

2.1.2. Complaint on administrative offences

The procedure for appealing decisions on administrative offences in Turkmenistan is regulated by the Code of Administrative Offences.

The complaint is filed with the higher tax authority. Complaints regarding administrative offences must be filed within 10 days from the date of the decision. The tax service is required to review the complaint within 10 days and make one of the following decisions:

• uphold the decision without changes, denying the complaint;
• overturn the decision and refer the case for reconsideration;
• overturn the decision and dismiss the case, or modify the enforcement measure within the limits provided by the regulatory act on administrative offence liability, ensuring that the penalty is not increased. 

If an unauthorised decision is identified, it is overturned and the case is referred to the competent authority for review. A copy of the decision on the complaint is sent to the person against whom the decision was issued within 3 days. The overturn of the decision entails the return of collected monetary amounts, reimbursed seized and confiscated items, and the cancellation of other restrictions related to the previously issued decision. 

2.2. Appeal to the Court: Timeline and Procedure

The Tax Code also provides in its norms the right of the taxpayer to go to the court to appeal the actions and decisions of the tax authority and its officials, but the judicial process itself is governed by procedural rules applicable to the resolution and / or consideration of tax disputes by the courts of the relevant jurisdiction, however, first it is necessary to determine this jurisdiction. Evidently, disputes arising in the sphere of public relations should be resolved in the order of administrative proceedings in accordance with the norms of the Administrative Procedure Code of Turkmenistan (hereinafter - "APC").

2.2.3. Establishment and Calculation of Procedural Deadlines

In accordance with the norms of the APC (Article 22), the calculation of the time limit for filing a claim begins from the moment of announcement of the appealed administrative act or the decision on the complaint. In the case of filing a complaint against an administrative act under the administrative procedure, the calculation of the time limit for filing a claim begins only from the moment of announcement of the decision on the complaint adopted by a higher executive authority. If the administrative act or decision on the complaint does not contain information on the procedure of legal protection, then filing a lawsuit is permissible within 1 year from the date of announcement of the administrative act, the commission of an action (inaction) on the part of the administrative body. As stated in Article 23 of the APC, a claim for contesting must be filed within 1 month from the date of announcement of an administrative act.

2.2.4. The procedure for legal proceedings in administrative cases in the courts of Turkmenistan is based on the Constitution of Turkmenistan and is determined by the Administrative Procedure Code (APC), the Civil Procedure Code of Turkmenistan, and other laws of Turkmenistan. According to the provisions of Article 2, if the APC does not establish provisions for legal proceedings, the norms of the Civil Procedure Code of Turkmenistan and other laws are accordingly applied, provided they do not contradict the fundamental principles and objectives of the APC. For instance, based on the content of this provision, the duration of administrative proceedings is comparable to the timeframes stipulated in the Civil Procedure Code for civil cases, which is 2 months. Additionally, the period for a decision to take effect is 1 month from the date the decision is delivered to the party.

2.2.5. State Fee

One of the main issues in the implementation of the administrative process is the size and payment of state fee, set at 5% of the base amount. The base amount for calculating the state fee is set at TMT 300, and when calculating the state duty, it is TMT 15 for this category of cases. The state fee is paid when filing a claim, after which the court of first instance accepts the statement of claim for its proceedings.

2.2.6. Cases Considered in Administrative Proceedings

The plaintiff may file one of the following claims to court, depending on the situation caused by the actions or inactions of the administrative authority:

- Claim to challenge;

- Claim for enforcement of an obligation;

- Claim for regulator control;

- Claim for establishing or recognizing the actions (inaction) of the administrative authority as illegal.

After the case is heard, the court issues a decision that comes into effect within a month, unless it is appealed in the cassation procedure.

2.2.7. Proceedings in courts of cassation and higher cassation instances

If the participants in the proceedings object with the conclusions of the court as stated in the decision, they have the right to file a cassation complaint against judicial rulings. The cassation complaint is reviewed by the higher court. A cassation complaint against a judgement on the substance of the case is filed with the competent court within 1 month, and against a determination within 10 days from the date of receipt of the judicial rulings, except in cases where the appeal against the determination is excluded by law.

2.2.8. Highest cassation authority. Admissibility of appeal to a higher cassation authority

Participants in the process have the right to file a complaint in the manner of the highest cassation instance to the administrative board of the Supreme Court of Turkmenistan against the decision of the cassation court, if the Supreme Court of Turkmenistan allowed the highest cassation on the grounds specified below.

Higher cassation is allowed only in cases where: (a) the court case is of fundamental importance for an indefinite number of persons, (b) this decision deviates from the judicial practice of the Supreme Court of Turkmenistan, (c) there is a procedural error on which this decision may be based. If the highest cassation appeal is justified, then the administrative board of the Supreme Court of Turkmenistan for Administrative Cases may:

1) dismiss decisions of the existing courts and make a new judicial decision on the case;

2) if the case is not ready for judicial decision, dismiss the disputed decision and send the case for re-examination and resolution to the previous court in a different composition.

The provisions of cassation proceedings, including timeframes, are accordingly applied to higher cassation proceedings. Court decisions that have become legally effective are not subject to appeal.

 

Authors: Ikbal Said Alauddin, Managing Partner, 

Vepa Kadyrov, Senior Partner, Associate

Annamenli Rozymyradova, Analyst.