Ravil Kassilgov, Managing Partner
Raushan Yesmukhametova, Associate
Nazar Gumarov, Paralegal
KP Disputes
Mediation in Tax Disputes: Admissibility, Limits and Judicial Practice
- Application of Mediation in Tax Disputes
In administrative proceedings, a tax dispute may be resolved, inter alia, by the conclusion of a mediation agreement. Whereas previously the use of mediation in tax disputes was regarded as an exception, at present the courts recognise this mechanism as admissible where the tax authority possesses administrative discretion and provided that the mediation agreement does not contravene the law and does not infringe the rights of third parties. The legal basis for this approach is constituted by the provisions of Article 120 of the Administrative Procedural Code[1], as well as Articles 176–180 of the Civil Procedure Code[2].
The key conditions for the admissibility of mediation in a tax dispute are as follows:
- the existence of administrative discretion on the part of the tax authority;
- compliance of the agreement with the law;
- the absence of any infringement of the rights and legitimate interests of third parties.
In other words, mediation is admissible in cases where the tax authority is entitled, within the limits of the powers conferred upon it, to amend, revoke or otherwise vary a previously adopted decision, or to determine the course of further action.
In practice, this may arise, in particular, in the following categories of disputes:
- concerning the revocation of orders for the initiation of a tax audit;
- concerning the annulment of notices on the results of a tax audit;
- concerning the annulment of acts of desk (cameral) control;
- concerning the partial cancellation of assessments, reduction of the amount of taxes, penalties or other liabilities, where the dispute permits agreement on a specific scope of adjustment;
- concerning the imposition on the tax authority of an obligation to consider a taxpayer’s application and to adopt a decision.
In such disputes, the subject matter of a mediation agreement may include:
- the full or partial annulment of the contested act;
- the variation of the amount of taxes, penalties or other assessments;
- the agreement on the procedure for the discharge of tax liabilities;
- the determination of procedural steps to be taken by the tax authority.
For the taxpayer, mediation may result in a more expeditious annulment of the contested act, a reduction of the financial burden to an agreed extent, as well as savings in time and the reimbursement of the state duty paid. For the tax authority, it allows a reduction in procedural workload and the resolution of the dispute within the scope of its conferred powers.
Pursuant to Part 1 of Article 121 of the Administrative Procedural Code, mediation is available to the parties at any stage of the judicial process, including before the court of first instance, on appeal and in cassation proceedings.
A mediation agreement shall be approved by the court provided that it does not contravene the law and does not infringe the rights and legitimate interests of third parties. Upon such approval, the administrative claim is subject to return, and the agreement acquires binding legal force upon the parties. In the event of non-compliance with the court ruling approving the agreement, the court is entitled to apply measures of procedural compulsion, including a monetary penalty.
2. Judicial Practice: Examples of Mediation Agreements
Set out below are examples from judicial practice demonstrating which categories of tax disputes may be resolved by way of mediation and what the content of the relevant agreement may be.
Case 1. Annulment of a Notice Following the Mutual Agreement Procedure (MAP)
Judicial Act: Ruling of the Almaty City Court No. 7599-23-00-4a/1752 dated 30 April 2024.
Subject Matter of the Dispute:
A branch of a joint-stock company filed a claim seeking the annulment of a notice on the results of a tax audit insofar as it concerned additional assessments of corporate income tax and penalties. The basis for the additional assessments was the late submission of tax residency certificates of the foreign parent company, as a result of which the tax authority disallowed general administrative and management expenses as deductions and refused to apply a reduced tax rate upon the distribution of net income. At the appellate stage, the mutual agreement procedure with a foreign state was completed, and the State Revenue Committee adopted a decision to accept the certificates and to annul the notice in the relevant part.
For further details of this case, see: https://kplaw.kz/tpost/g0dekg72a1-protsedura-vzaimnogo-soglasovaniya-s-ino.
Terms of the agreement:
The parties elected mediation as the most appropriate means of concluding the proceedings in this atypical situation. Under the terms of the mediation agreement, the claimant partially acknowledged the amounts of additional assessments not related to the application of the double taxation convention and withdrew the claim insofar as it was covered by the decision adopted within the framework of the mutual agreement procedure.
Practical Conclusion:
Mediation enabled the parties to resolve the dispute in an atypical situation where a resumed mutual agreement procedure with a foreign state was completed during the course of judicial challenge to the results of the tax audit. This approach made it possible to confer a procedurally binding character upon the arrangements reached, as the existence of a judicial act ensured the possibility of enforcement of the mediation agreement.
Case 2. Revocation of an Order on the Appointment of a Tax Audit
Judicial Act: Ruling of the Specialized Interdistrict Administrative Court (SIAC) of Astana No. 7194-24-00-4/1811 dated 19 June 2024
Subject Matter of the Dispute:
The claimant challenged an order on the appointment of an unscheduled thematic tax audit.
Terms of the Agreement:
During the preliminary hearing, the parties entered into a mediation agreement under which the order was subject to revocation, and the claimant did not object to the withdrawal of the claim.
Practical Conclusion:
The court established that the agreement did not contradict the law and did not violate the rights, freedoms, or lawful interests of the parties or third parties. The agreement was approved, the claim was withdrawn, and the paid state duty was refunded to the claimant. This example demonstrates that, where the tax authority has the competence to revoke the contested act, mediation may be used as a permissible means of dispute resolution.
Case 3. Reduction of Tax Liabilities in Mutual Settlements with a Supplier
Judicial Act: Ruling of the SIAC of the Karaganda Region No. 3594-23-00-4/1714 dated 5 February 2024
Subject Matter of the Dispute:
The claimant sought a declaration that the inaction consisting in the failure to write off amounts of Corporate Income Tax (CIT) and Value-Added Tax (VAT) under a notice on the results of a tax audit without taking into account amounts previously written off under a notice issued following desk (cameral) control, and the adjustment of penalties was unlawful.
Terms of the Agreement:
Within the framework of mediation, the tax authority agreed to reduce part of the additional VAT and CIT assessments, acknowledging that the relevant portion of the liabilities had already been fulfilled by the taxpayer earlier within the scope of desk control. In turn, the taxpayer withdrew the claim.
Practical Conclusion:
This example demonstrates that mediation is also possible in cases where the dispute concerns not only the formal revocation of an act but also the agreement on the scope of adjustment of tax liabilities. Accordingly, the subject of a mediation agreement may include the determination of the amount of liabilities, provided that the tax authority is authorized to adjust them within the limits of its competence.
Case 4. Revocation of a Notice and Payment by the Claimant According to a Schedule
Judicial Act: Ruling of the SIAC of Astana No. 7194-24-00-4/4268 dated 17 February 2025
Subject Matter of the Dispute:
The claimant challenged a notice on the results of a tax audit.
Terms of the Agreement:
Under the mediation agreement, the tax authority partially acknowledged the claim and undertook to revoke the notice in the amount of 4,269,176.41 tenge. In turn, the claimant acknowledged a breach of the payment schedule under the “temporary import” regime and undertook to make the prescribed payments in the amount of 449,047.12 tenge.
Practical Conclusion:
This example shows that mediation in tax disputes may be used not only for the full revocation of a contested act but also for achieving a balanced resolution, whereby the tax authority agrees to a partial cancellation of assessments, and the taxpayer assumes the obligation to fulfill that portion of liabilities which it effectively acknowledges. This confirms that the subject of a mediation agreement may include mutual adjustment of the rights and obligations of the parties within the framework of the law and the powers of the tax authority.
Case 5. Recognition of the Erroneous Nature of a Notice and Revocation of a Tax Authority Decision
Judicial Act: Ruling of the SIAC of Almaty No. 7594-21-00-4/1725 dated 20 January 2022
Subject Matter of the Dispute:
The claimant challenged the inaction of the tax authority expressed in the failure to consider a complaint against a notice, as well as the decision of the tax authority recognising the notice as unfulfilled.
Terms of the Agreement:
The parties concluded that the dispute could be resolved through mediation. The claimant withdrew the claims on the condition that the the respondent acknowledges that the notice was issued erroneously for technical reasons and that the corresponding decision is unlawful and subject to revocation.
Practical Conclusion:
This example demonstrates that the subject of mediation may include not only the revocation of a contested act but also the acknowledgement by the tax authority of the erroneous nature of its prior actions or decisions.
Case 6. Agreement on the Timeframe for Considering an Application for Income Tax Refund
Judicial Act: Ruling of the Specialized Interdistrict Administrative Court (SIAC) of the Atyrau Region No. 2394-25-00-4/1170 dated 26 January 2026
Subject Matter of the Dispute:
A joint-stock company filed a claim against the Department of State Revenues (DSR), seeking to compel it to consider on the merits an application for the refund of paid income tax from the budget on the basis of an international treaty for the avoidance of double taxation.
Terms of the Agreement:
During the preliminary court hearing, at the request of the parties, judicial mediation was conducted, resulting in the conclusion of a mediation agreement. The tax authority undertook to consider the claimant’s application and render a decision within 30 working days from the date the court ruling enters into legal force, while the claimant withdrew the claim.
Practical Conclusion:
This example demonstrates that mediation is admissible in disputes where the subject of disagreement is not the amount of assessments or the lawfulness of an act, but rather the inaction of the tax authority and the necessity for it to perform certain actions. In such cases, a mediation agreement may be used to agree on a specific timeframe and procedure for the performance of obligations by the administrative authority.
Case 7. Mutual Waiver of Claims at the Appellate Stage
Judicial Act: Resolution of the Judicial Panel for Administrative Cases (JPAC) of the Abai Region No. 1000-25-00-4a/19 dated 27 March 2025
Subject Matter of the Dispute:
A limited liability partnership filed a claim against the Department of State Revenues (DSR), seeking to oblige it to accrue and pay penalties for the untimely refund of an excess amount of Value-Added Tax (VAT). By the decision of the SIAC of the Abai Region, the claim was satisfied in full, after which the respondent filed an appeal.
Terms of the Agreement:
During the appellate proceedings, the parties and an interested party (the DSR) submitted a mediation agreement. The agreement provided for a mutual waiver of claims in the case, including claims for recovery of legal representation costs, and its approval entailed the return of the administrative claim and the annulment of the decision of the court of first instance.
Practical Conclusion:
This example is notable in that mediation was used at the stage of appellate review. It confirms that conciliatory procedures may be applied not only in the court of first instance but also at later stages of the proceedings. Furthermore, the subject of the agreement may include not only the principal tax claims but also derivative procedural issues, including waiver of claims for recovery of legal representation costs.
Case 8. Revocation of a Notice on the Results of an Audit
Judicial Act: Ruling of the SIAC of the Pavlodar Region No. 5594-25-00-4/76 dated 22 April 2025
Subject Matter of the Dispute:
An individual entrepreneur filed a claim against the Department of State Revenues (DSR), challenging a notice on the results of an audit, decisions on the classification of goods, a notice on debt repayment, and a decision on restriction of disposal of property in respect of tax debt.
Terms of the Agreement:
During the written proceedings, the court, exercising an active role, facilitated the conduct of a conciliatory procedure. Under the terms of the mediation agreement, the respondent undertook to revoke the notice on the results of the audit within five working days, which entailed the revocation of derivative acts, while the claimant withdrew the claims and waived recovery of legal representation costs subject to execution of the agreement.
Practical Conclusion:
This example demonstrates that mediation may be effective in complex tax disputes where not one but several interrelated acts are challenged. Upon revocation of the principal act, the parties may also resolve the fate of derivative decisions, allowing the dispute to be fully settled without further judicial proceedings.
Case 9. Revocation of Notices Issued Following Desk (Cameral) Control
Judicial Act: Ruling of the SIAC of Astana No. 7194-25-00-4/451 dated 7 March 2025
Subject Matter of the Dispute:
A limited liability partnership filed a claim against the Department of State Revenues (DSR) seeking recognition as unlawful and revocation of notices on elimination of violations with a medium degree of risk identified following desk (cameral) control.
Terms of the Agreement:
During the proceedings, the parties filed a motion for approval of a mediation agreement. Under the terms of the agreement, the tax authority undertook to revoke the disputed notices within three working days from the date of approval of the agreement, while the claimant withdrew the claims.
Practical Conclusion:
This example shows that mediation is also applicable in disputes related to the results of desk (cameral) control. In such situations, a mediation agreement allows for the prompt elimination of the contested act and completion of the proceedings without transitioning to prolonged judicial consideration on the merits.
General Conclusion:
The above examples confirm that, in practice, mediation in tax disputes is applied flexibly: for revocation of contested acts, agreement on the scope of liabilities, determination of timeframes for actions by the tax authority, and waiver of derivative claims. In all the cases considered, the key conditions remained the existence of administrative discretion on the part of the tax authority and the admissibility of the agreement from the standpoint of the law.
3. Conclusions
Mediation in tax disputes may be regarded as an independent procedural instrument for dispute resolution, provided that the subject of disagreement falls within the scope of the tax authority’s administrative discretion, and the terms of the agreement comply with the law and do not affect the rights of third parties.
The practical significance of mediation lies in the fact that it enables the parties not only to resolve the dispute without undergoing the full cycle of judicial proceedings, but also to formalize a specific legal outcome: revocation or amendment of the contested act, reduction of the amount of liabilities, determination of timeframes for actions to be taken by the tax authority, or waiver of derivative claims.
Thus, mediation may be beneficial both to the taxpayer, who is interested in a more expeditious and predictable resolution of the dispute, and to the tax authority acting within the limits of its conferred powers.
This material does not constitute legal advice. For matters related to mediation in tax disputes, please contact: [email protected].
[1] Administrative Procedure Code of the Republic of Kazakhstan No. 350-VI ZRK of 29 June 2020
[2] Civil Procedure Code of the Republic of Kazakhstan No. 377-V ZRK of 31 October 2015