Match the following word combinations.

Text8

Retell the text.

Put special questions to the text.

Make up sentences with the following word combinations.

Give the Definitions.

Complete the sentences.

Match the following word combinations.

1) During independent development, Kazakhstan has created…2) The Kazakhstani equity market considers "the blue chips" the shares of the famous companies…3) The specific institutions were set up: the State center for pension payments…4) There is a State Concept of long-term housing funding and mortgage…5) The Fund's assets are the funds provided by…

Banking sector, equity market, insurance company, State Accumulating pension fund, mortgage company, national economy,

The number of banking indicators, the shares of the famous companies, insurance agencies, private pension funds, mortgage lending system, world prices.

Hidden tax challenges for Kazakhstan’s extractive industries

In summarizing major developments, first and foremost it should be noted that most subsurface users allegedly lost their tax regime stability in January 2009 when new tax legislation came into effect. The new legislation introduces a new tax - the Mineral Extraction Tax, which replaces the previous royalty.

Significant amendments were also introduced for two other subsurface taxes, the Export Rent Tax and the Excess Profit Tax. One positive change to subsurface taxation is that the Export Customs Duty on Oil was abolished for most subsurface users. Another positive and widely reported change is the general reduction in the Corporate Income Tax rate from 30% to 20%, with further gradual decreases to 15% by 2011.The purpose of the present text is not to evaluate the impact of these changes, but rather to focus on the outstanding challenges overshadowed by the major news. These hidden challenges may cause unforeseen, but significant tax costs.

Sale of Subsurface Assets

The business community is witnessing different reactions to the changes in the economic environment ranging from blissful indifference to termination and exit from the investments. Investors who decide to turn their back on Kazakhstan may encounter a few surprises entailed by sale of their subsurface assets, notably taxation implications such as VAT, excess profit tax, and capital gains tax, the latter with international treaty issues.

VAT considerations

The sale or reassignment of subsurface use rights, previously exempt from the VAT, has now had this exemption deleted, which means it is subject to VAT as of 1 January 2009. This can cause major implications for the buyer, who may face an unexpected VAT charge on top of the purchase price, as well as headaches caused by efforts to have this input VAT refunded. The VAT charge may also have a negative corollary effect on the seller if he faces a hard-nosed buyer insisting on a fixed purchase price inclusive of tax, thereby transferring the economic burden to the seller.

The most appropriate response to this challenge would be structuring an exit from or disposal of the subsurface rights via a share deal, rather than an asset deal, to avoid this VAT surprise. Excess Profit Tax

While for many this may come as a shock, being prepared for reality can diminish its negative impact. The excess profit tax may still apply in certain situations where sale of the subsurface use license takes the form of an asset deal, where either the sales/ purchase price exceeds the capitalized costs, or where the license is sold as a part of business packaged as "going concern".

Let’s imagine the following scenario: a subsurface user has invested heavily to develop an extraction facility, as a result incurring significant development costs. Current circumstances will force the subsurface user to sell one or more of its existing licenses - in the worst case at a loss on the original investment. One would assume this loss means no taxes are payable, but there is a hidden surprise here.

The Tax assessment has changed from the life project income/expenses ratio to the annual income/expenses ratio. This means that the loss on the sale of the investment to develop the license will not engender an immediate tax saving, but on the contrary, if the transaction is not structured carefully it may trigger an additional tax cost, the excess profit tax.

The most reasonable response to this challenge may also be the structure of this transaction as share deal rather than asset deal, or if an asset deal is envisaged, its structuring and execution must receive careful attention. The additional tax opportunities may arise from proper structuring of the sale/ purchase transaction.

1. Find Russian equivalents for the following words:

Reaction, subsurface, user, tax, regime, extraction, introduce, implication, unexpected, taxation, replace, previous, royalty, corporate, taxation, excess, profit, significant, amendment, reaction, surprise, focus, implication, investor, treaty, fixed, purchase, price, inclusive, appropriate, response, sale, reassignment, right, previously, exemption, blissful, indifference, termination, appropriate, response, challenge, user, cost, license, assessment, execution.