Kazakhstan | Amendments to the Law on Transfer Pricing

Effective in 2026, the Law “On Transfer Pricing” shall apply subject to the amendments introduced by Law of the Republic of Kazakhstan No. 215-VIII dated July 18, 2025, “On Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan on Taxation.”

The concept of the “arm’s-length principle” has been clarified

The arm’s-length principle is a principle used to determine market conditions, including market prices (margins, profitability), based on a comparison of the terms of transactions between the parties to the transaction with the terms of transactions that would have been concluded under comparable economic conditions between independent parties conducting transactions on market terms, as defined in accordance with the procedure established by law.

The text of the law has been adapted to reflect the change in the concept of the “arm’s length principle.”

The terms “intangible asset” and “risk-free interest rate” have been introduced:

An intangible asset is an identifiable non-monetary asset that has no physical form and/or is the result of intellectual activity, as well as other intellectual property intended for use in production (performance of work, provision of services) or for administrative purposes.

Risk-free interest rate – a rate determined for the tenge based on the base rate of the National Bank of the Republic of Kazakhstan, established in accordance with the legislation of the Republic of Kazakhstan; for the euro, it is determined by the European Interbank Offered Rate (EURIBOR); for the United States dollar, it is set by the Secured Overnight Financing Rate (SOFR); for other currencies, the rate is determined based on the base rate of the National Bank of the foreign state.

The new terms are used in the provisions of the law concerning the analysis of transactions involving intangible assets.

The list of related parties has been expanded

Spouses have been explicitly included in the list of related parties, which resolves the previous uncertainty and broadens the criteria for monitoring transactions between family members.

Principles have been established for conducting a functional analysis of transactions and comparing them to the market

The law requires that the following economically significant characteristics be taken into account when analyzing transactions:

• the terms of the transactions,
• the roles of the parties, the assets they use, and the risks they assume, and how these relate to the creation of value for the goods/services,
• the characteristics of the goods/services that influence the terms of the transaction;
• the economic circumstances of the parties and the market in which they operate (geography, market size, locational advantages, regulations, cost of resources and capital, general economic development, level of competition);
• the market strategies of the parties to the transaction that affect prices (market entry strategy, product life cycles, innovation, product development, risk mitigation, etc.)

Once the economic characteristics of the transaction have been determined, its terms and prices are compared with market terms or market prices.

Transactions involving intangible assets.

The law establishes the use of the DEMPE (Development, Enhancement, Maintenance, Protection, Exploitation) framework for analyzing transactions involving intangible assets. The law now clearly distinguishes between ownership of an intangible asset and the right to receive income from it. If a company is the nominal owner of a patent or brand but does not perform key functions related to its development, protection, or risk management (and simply “provides funding”), it cannot claim a significant share of the profits. For such “passive” investors in intangible assets, returns will be limited to either the risk-free rate or a risk-adjusted rate, but without a share in excess profits.

Principles for analyzing economically significant risks have been established

The law requires determining how the parties to a transaction perform functions related to risk control and mitigation, how the realization of risks affects the parties to the transaction, and which party to the transaction has the financial capacity to absorb the impact of these risks.

For transfer pricing analysis purposes, risk is allocated to the party to the transaction that actually controls that risk and has the financial capacity to bear it, regardless of how the allocation of risks is specified in the agreement between the parties to the transaction.

The Principle of Substance Over Form

The law requires taxpayers and tax authorities to base their determination of whether a transaction is at arm’s length not on the literal terms of the contract, but on the actual conduct of the parties. This means that if the documents state one thing but in reality the parties acted differently (for example, by allocating risks or assets in a manner not specified in the contract), then for tax purposes, the actual situation will take precedence. The key characteristics of a transaction now include functions, risks, assets used, and market economic conditions—in effect, the “arm’s length” principle is being introduced in its most modern, functional sense.

xamples of conflicts between the substance and form of transactions:

• making payments for the use of intangible assets that do not actually contribute to improving financial or commercial performance;
• raising debt financing when the company has sufficient cash on hand;
• using debt financing as an alternative to increasing authorized capital in the early stages of operations;
• employing complex product sales schemes, including the use of traders, when exporting raw materials without clear economic justification.

The Tax Authorities’ Right to Disregard a Transaction for Tax Purposes

A radical change is that the competent authority is granted the right to disregard a transaction for tax purposes. If independent parties, guided by rational economic interests, would never have entered into such a transaction (for example, if it is obviously unprofitable or lacks a business purpose), the tax authority may either disregard its results or reclassify it as an alternative transaction. This is a powerful tool for combating artificial schemes where a transaction exists only on paper for the purpose of profit shifting. Thus, it is now vital for businesses in Kazakhstan not only to prepare documents “correctly,” but also to be prepared to prove that the terms of the transaction, as well as the allocation of functions and risks, would stand up to scrutiny in a real market.

Shorter Deadline for Responding to Requests from Tax Authorities

The deadline for submitting documents and information justifying transaction prices to the authorized body has been reduced from 90 to 30 calendar days.

Transaction Monitoring

Starting in 2025, the list of international business transactions subject to transaction monitoring reporting has been expanded. The list now additionally includes:

• Loans (granted/received);
• Sunflower, safflower, or cottonseed oil and their fractions;
• Bituminous coal, hydrogen, sulfur, ethylene and propylene polymers;
• Rice, barley, flour, seeds;
• Rare earth metals;
• Mineral or chemical fertilizers;
• Scandium compounds, phosphates;
• Petroleum coke, petroleum bitumen, and other residues.

Thus, the new list significantly expands the scope of transfer pricing controls, covering more raw materials, processed goods, and financial transactions (loans).