A license agreement was concluded between a company resident in the Netherlands (the "Company") and its branch in Kazakhstan (the "Branch"). The agreement included a "gross-up" clause, stipulating that the Branch pays the tax on royalties from its own funds, after which the Company reimburses the Branch for the tax paid. Accordingly, royalties paid to the Company were subject to withholding tax at the source by the Branch at a rate of 15%. Subsequently, the tax amount paid was reimbursed to the Branch by the Company from the income received.
Thus, the tax was effectively paid from the non-resident's income, as confirmed by the Branch’s payment order and accounting statements.
Under the provisions of the Tax Convention between Kazakhstan and the Netherlands (the "Tax Convention"), royalties may be taxed in both Kazakhstan and the Netherlands. However, if the beneficial owner of the income is a resident of a country party to the convention, the withholding tax should not exceed 10%.