The relationship between international tax law and the domestic legal order: the case of Kazakhstan

AuthorTomas Balco, Xeniya Yeroshenko
Pages78-113
European Tax Studies 1/2015
© Copyright Seast – All rights reserved
78
The relationship between international tax law and the
domestic legal order: the case of Kazakhstan
*
T. Balco
1
e X. Yeroshenko
2
1. Introduction
The history of the independent Republic of Kazakhstan begins at the end of
1991 with the dissolution of the Soviet Union. At the time of independence
Kazakhstan was left with no legislative, judicial and administrative
institutions and lacked the legal structure of national government
3
. As a
result, some institutions and laws were inherited from the Soviet Union,
while others were created to adapt the country to the market economy
4
.
Kazakhstan formally accepted the laws and norms of international law
recognised by the Soviet Union
5
and still continues to follow some of them
6
.
Since independence, Kazakhstan has concluded many new international
agreements, including 46 double tax treaties,
7
a number of agreements on
administrative assistance in tax matters,
8
and several other policy-oriented
agreements influencing the tax system in Kazakhstan
9
.
*
How to quote this article: JUDr. T.
B
ALCO
,
LL.M.
FCCA,
X.
Y
EROSHENKO
, The relationship
between international tax law and the domestic legal order: the case of Kazakhstan, in
European Tax Studies, No. 1/2015, (ste.unibo.it), pp. 78-113.
1
JUDr. T.Balco, LL.M. FCC A General State Counsel, Mi nistry of Finance of Slovak Republic,
previously Director of Central Asi an Tax Research Ce ntre and Associate Professor at KIMEP
University.
2
X. Yeroshenko, PhD candidate, University of Ferrara.
3
See Fiscal transition in Kazakhstan, Asian Development Bank, 1999, page 27.
4
Ibid, page 27. Up to 1995 Kazakhstan was using the tax laws it inherited from the Soviet
Union. In 1 995 the new tax code of Kazakhstan was adopted, which reduced the number of
taxes from 46 to 11 , and covered all level of taxes applicable in the country: central, oblast
and local (previously regulated through different decrees and even annual budget laws).
5
P.2, Decree of t he Supreme Council of t he RK dated 16 De cember 1991 “On the order of
implementation of the constitutional law of the RK “On governmental independence of the
RK”.
6
See Treaty on conventional armed forces in Europe dated 19 November 1990; Treat y on
the Non-Proliferation of Nuclear Weapons dated 12 June 1968 and others.
7
The list of tax treaties concluded by Kazakhstan, as of 25 August 2015.
8
See list of tax-related agreements concluded by Kazakhstan.
9
For instance the Agreement on Partnership and Cooperation with the EU, 1999.
European Tax Studies 1/2015
© Copyright Seast – All rights reserved
79
The relationship between international agreements and domestic law in
Kazakhstan has not yet been studied,
10
either from a general or a tax
perspective. As a result, the objective of this article is to study the practice
of Kazakhstan with respect to the application of international tax
agreements. The article will start by examining the general notion of the
relationship between international agreements and the domestic legal order,
and the way the domestic legal order can influence the implementation of
tax treaties. This general introduction will be followed by a brief overview on
the development of international tax law in Kazakhstan, after which the
authors will describe and analyse the domestic legal order, examining the
status and rank of international treaties under the national laws of
Kazakhstan and the process by which treaties are concluded and enforced.
The next section will consider how tax treaties are applied and interpreted
in Kazakhstan, analysing whether the practice of treaty override exists in
the country, how precisely Kazakhstan applies the norms of tax treaties in
general, how easy it is for the parties to apply the norms of the treaties,
and the steps Kazakhstan takes to align itself to the norms of international
law. The last two sections of the article will provide an overview of how the
model tax treaties have influenced the tax treaties of Kazakhstan, and also
put forward the view of the authors regarding the potential influence on the
Kazakh tax system of the Base Erosion and Profit Shifting (BEPS) project.
2. Relationship between international law and the domestic legal
order
This part introduces the basic concepts required for an understanding of the
relationship between international tax law and the domestic legal order.
With respect to tax issues, the interaction between tax treaties and the
domestic legal order concerns at least three factors
11
. First of all, the
national legal order defines the moment in time when the tax treaty
becomes binding for the state and also its form, second, it establishes the
rank of the tax treaty under the national law and finally, it determines
10
See Zh.
K
EMBAYEV
, International treaties realisation in the Republic of Kazakhstan, Law and
the State, No.3 (60) 2013.
11
S. S
ACHDEVA
, Tax Treaty Overrides: A Comparative Study of the Monist and the Dualist
Approaches, INTERTAX, Volume 41, Issue 4, 2013.
European Tax Studies 1/2015
© Copyright Seast – All rights reserved
80
whether the tax treaty provisions may be displaced by domestic law
12
. The
way the state enters into international agreements and the rank of the
agreements in the legal hierarchy in the state concerned directly influence
whether the treaty can be overruled by domestic law, the core issue in the
relationship between international and domestic law.
In general, regardless of the legal order of the country concerned, the
underlying principle of international law is pacta sunt servanda
agreements should be honoured
13
. However, this principle is not always
diligently applied by states and in some cases states violate their
international obligations, overruling international agreements with domestic
law provisions. In international law this phenomenon is known as “treaty
override”.
The problem of treaty override is relevant in tax law and was first addressed
by the OECD in 1989
14
. The OECD defined treaty override as: the situation
where the domestic legislation of the state overrules provisions of either a
single treaty or all treaties hitherto having had effect in that state.
Legislation may take the form of a provision that treaty provisions are to be
disregarded in certain circumstances (e.g. in case of treaty shopping or
other forms of abuse). Legislation can also have the effect of overriding
treaties, even where no reference is made in the legislation to treaty
provision as such, because the domestic interpretation of the effect of that
legislation in relation to treaty provisions has the same effect in practice.
According to the study by De Pietro,
15
the OECD provided quite a broad
definition of treaty override, and she argued that it may be defined as
unilateral amendment of an international treaty through domestic
legislation adopted or applied by one of the contracting states after the
moment the treaty has becoming binding upon its parties
16
. This made it
clear that treaty override can occur by means of both legislative and judicial
practice. Legislative intervention takes place at the moment when the state
enacts the law that contradicts the norms of the existing treaties and is
12
Ibid.
13
This principle is also reflected in Article 26 of Vienna Convention on the Law of Treaties
14
OECD Committee on Fiscal Affairs, Report on Tax Treaty Override, 1989.
15
See C.
D
E
P
IETRO
, Tax Treaty Override, Wolters Kluwer Law & Business, 2014.
16
Ibid, page 216.

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