This record is a partial extract of the original cable. The full text of the original cable is not available.

271548Z Mar 06

UNCLAS SECTION 01 OF 04 ALMATY 001083 
 
SIPDIS 
 
NSC for M.A. Hayward 
EUCOM J5-T for Col Airis, DTRA LNO 
SECSTATE for EUR/PRA, CV/SM, ISN/PTR, VCI/SNI 
DTRA for Byrd 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: PARM EAID KZ
SUBJECT:  KAZAKHSTAN: TAX AND CUSTOMS EXEMPTIONS FOR CTR PROGRAM 
PARTICIPANTS 
 
Reference:  Agreement between the United States of America and 
 
the Republic of Kazakhstan Concerning the Destruction of Silo 
Launchers of Intercontinental Ballistic Missiles, Emergency 
Response, and the Prevention of Proliferation of Nuclear Weapons, 
dated December 13, 1993, and extended December 5, 2000 (U.S.- 
Kazakhstan CTR Umbrella Agreement), and all of its subsequent 
related implementing agreements. 
 
¶1. (SBU) Summary:  Embassy Almaty received a letter from Ministry 
of Finance outlining the ministry's interpretation of tax and 
customs liabilities for CTR program participants.  The letter 
states that exemptions shall only be provided to those 
organizations specifically named; that only contractors, not 
subcontractors, enjoy exemption; and that there is a mechanism in 
place for providing customs and tax exemptions for recipients of 
"technical aid."  The letter also contains a proposal to amend 
the agreements to include the names of all technical aid 
recipients so that the GOK can apply its civil tax and customs 
codes and provide those recipients with exemptions.  See 
translation of letter at paragraph 5, and request for guidance at 
paragraph 6. 
 
---------- 
Background 
---------- 
 
¶2. (U) According to the CTR Umbrella Agreement, the U.S. 
Government is implementing the Cooperative Threat Reduction (CTR) 
program - also known as the "Nunn-Lugar Program" - in Kazakhstan 
in order to prevent the spread of weapons of mass destruction 
through dismantlement activities and consolidation and security 
programs. 
 
¶2. (SBU) Since the inception of the CTR program, the Government 
of Kazakhstan has experienced difficulties in consistently 
providing exemptions from tax and customs fees for participants 
of the program.  In years past, the GOK has tried solutions such 
as asking for official lists of contractors and subcontractors in 
order to provide exemptions to companies being paid by the US 
Government. 
 
¶3. (SBU) Recently, the GOK has been very clear during discussions 
with US Government delegations that it believes that exemption 
from obligatory payments to the GOK budget is only applicable to 
those participants clearly named in the umbrella and implementing 
agreements.  As such, during meetings in December 2005 regarding 
the Biological Weapons Proliferation Prevention (BWPP) program, 
the interagency working group of the GOK asked the Ministry of 
Finance to provide written confirmation of its stance, as well as 
a mechanism for implementing tax exemptions. 
 
¶4. (SBU) On 14 February 2006, the Defense Threat Reduction office 
of Embassy Almaty received a letter from the Ministry of Finance 
that states Government of Kazakhstan's interpretation of tax and 
customs liabilities of participants under the Cooperative Threat 
Reduction (CTR) program's Umbrella Agreement.  This letter was 
not sent via diplomatic note, and the Defense Threat Reduction 
Office provided a copy to the Ministry of Foreign Affairs upon 
receipt. 
 
¶5. (SBU) BEGIN TEXT OF UNOFFICIAL TRANSLATION 
 
To: The Embassy of the United States of America 
No.NK-UMN-1-11/991 February 6, 2006 
 
Re:  BWPP 
 
In response to the arising questions of exemption from taxes and 
from other mandatory charges payable into the state budget of the 
activities funded by the USG under the Biological Weapons 
Proliferation Prevention Program (hereinafter, BWPP), the 
Ministry of Finance of the Republic of Kazakhstan wishes to 
provide the following information. 
 
BWPP activity is governed by the Agreement between the Department 
of Defense of the United States of America and the Ministry of 
Energy and Mineral Resources of the Republic of Kazakhstan 
Concerning the Elimination of Infrastructure for Weapons of Mass 
Destruction of September 22, 1995, in its version current as of 
June 25, 2004, (hereinafter, the Agreement), which has not been 
ratified by the Republic of Kazakhstan. 
 
However, the Agreement was concluded to implement the Agreement 
between the United States of America and the Republic of 
Kazakhstan Concerning the Destruction of Silo Launchers of 
Intercontinental Ballistic Missiles, Emergency Response, and the 
Prevention of Proliferation of Nuclear Weapons, dated December 
13, 1993, (hereinafter, the Umbrella Agreement) ratified by Law 
of the Republic of' Kazakhstan No. 328-11 of June 3, 2002,. 
Article 3 Paragraph 1 of the Umbrella Agreement stipulates that 
the Parties may conclude agreements through their executive 
agents to implement the Umbrella Agreement. 
 
Pursuant to Article 2 Paragraph 5 of the Tax Code of the Republic 
of Kazakhstan On Taxes and Other Mandatory Payments into the 
State Budget (the Tax Code), in the event that an International 
Agreement ratified by the Republic of Kazakhstan establishes 
guidelines that differ from those set forth in the Tax Code, the 
guidelines of the International Agreement shall prevail. 
 
Thus, only the benefits which are provided by the Umbrella 
Agreement shall apply to activities carried out under the 
Agreement. 
 
Pursuant to Article 9 Paragraph 1 of the Umbrella Agreement, the 
United States of America, its military and civilian government 
personnel, contractors and contractors' personnel shall not be 
liable in connection with activities conducted pursuant to this 
Agreement to pay any tax, fee, or similar charge imposed by 
national and local authorities pursuant to laws or regulations of 
the Republic of Kazakhstan. 
 
Pursuant to Paragraph 2 Article 9 of the Umbrella Agreement, the 
United States, its military personnel and civilian government 
personnel, contractors and contractors' personnel may import into 
the Republic of Kazakhstan any materials required to implement 
this Agreement. Such importation of materials shall not be 
subject to any license, other restrictions, tariffs, customs 
charges, duties, taxes or any other charges imposed by national 
and local authorities pursuant to the laws and regulations of the 
Republic of Kazakhstan. The exportation of this same material 
shall not be subject to any license, or other restrictions, 
tariffs, customs, duties, taxes or any other charges imposed by 
national and local authorities pursuant to the laws or 
regulations of the Republic of Kazakhstan. For the importation 
and exportation of such material, the Republic of Kazakhstan 
shall ensure that simplified and prioritized customs procedures 
are applied. 
 
In accordance with Article 616 of the Civil Code of the Republic 
of' Kazakhstan (hereinafter, CC RK), a party to a contractual 
agreement shall be deemed to be a contractor, if it commits to 
perform work pursuant to the tasking by the other party (i.e., 
the customer), and to deliver the product of this work by an 
established date. 
 
In accordance with Article 619 Paragraph 1 of the CC RK, a 
contractor shall have the right to engage other entities 
(subcontractors) in implementing a contract, unless otherwise 
provided by law or by the contract. In this case, the contractor 
is a general contractor vis--vis the customer, and is a customer 
vis--vis the subcontractor. 
 
Hence, it follows directly from the text of Article 9 of the 
Umbrella Agreement that the benefits provided in this article are 
applicable only to the contractors of the United States of 
America, i.e., only to the entities that have concluded a 
a 
contract directly with U. S. Department of Defense. 
 
Based on the above, companies that are subcontractors to the 
contractor and receiving property (work, services) from the 
contractor free of charge are subject to both taxes and customs 
charges in accordance with the laws that were in effect at the 
time the situation arose. 
 
At the same time, the Tax Code of the Republic of Kazakhstan 
provides several benefits (applicable to corporate income tax, 
value added tax, and social tax) for property received as a share 
of chartered capital, or as a grant. 
 
However, in accordance with Article 10 Paragraph 1 Subparagraph 4 
of the Tax Code of the Republic of Kazakhstan, a grant is defined 
as property that is provided to the Republic of Kazakhstan, 
Government of the Republic of Kazakhstan, legal entities, and 
individuals free of charge by nations, national governments, 
international and government organizations, foreign non- 
government public organizations and foundations who engage in 
charitable and international activities which do not contravene 
the Constitution of the Republic of Kazakhstan, and are included 
in the list established by the GOK, recommended by government 
agencies; or property provided to the Republic of Kazakhstan and 
the Government of the Republic of Kazakhstan by foreign nationals 
and stateless individuals to accomplish specific goals or 
objectives. 
 
In addition, in accordance with Article 330 of the Customs Code 
of the Republic of Kazakhstan, goods except those subject to 
excise tax (except passenger vehicles specially designated for 
medical purposes) imported into the customs jurisdiction of the 
Republic of Kazakhstan or exported from the customs jurisdiction 
of the Republic of Kazakhstan by nations, national governments, 
and international organizations as free assistance, for 
charitable purposes, including technical assistance; and goods 
purchased using grants provided by nations, national governments, 
and international organizations identified as such in accordance 
with the Kazakhstan tax laws shall be exempt from customs 
charges. 
 
When goods are imported into the territory of the Republic of 
Kazakhstan as  technical assistance, the following documents are 
required to be submitted in accordance with the Government Decree 
No. 675 dated August 9, 2003 "On the Authorized Procedure for 
Submission of Documents for Exemption from Customs Duties and 
Customs Processing Fees": 
 
- waybill and/or bill of lading and/or confirmation of diplomatic 
and/or similar legation, stating the name of the program and 
project requisites (contract for technical assistance) for the 
implementation of which the imported goods are designated; 
 
- a copy of the project documentation (contract for technical 
assistance), for which the goods are being delivered. 
 
Upon submitting the abovementioned documents to the Customs 
agency, the goods imported by the U.S. Department of Defense 
under BWPP into the territory of the Republic of Kazakhstan are 
subject to exemption from customs duties. 
 
In addition, considering that other projects will be implemented 
under this Umbrella Agreement, the Ministry of Finance proposes 
to initiate amendments to the Umbrella Agreement to designate 
specific entities with the right to have benefits and 
preferences. 
 
//signed// 
¶A. Smailov 
Vice-Minister of Finance 
Republic of Kazakhstan 
 
cc: Ministry of Health 
Ministry of Energy and Mineral Resources 
 
END TEXT OF UNOFFICIAL TRANSLATION 
 
¶6. (U) Post requests coordinated State-DOD guidance on the legal 
implications of the letter and how to respond. 
 
¶7. (U) POC for this action is DTRO-A Chief Laura Smiley; Office 
Tel. (from the U.S.) 011-7-3272-50-49-76; Fax 011-7-3272-50-24- 
77; E-mail: AlmatyDTRO@state.gov 
 
ORDWAY