Payments to the Republic

KPO performs its operations as the Operator in conformity to the terms of the Final Production Sharing Agreement (hereinafter “FPSA”) executed between the Karachaganak Project shareholders and the Government of the Republic of Qazaqstan.

The Venture is financed by shareholders and all main assets built or acquired by KPO are not written off, exhausted or depreciated, considering the stipulated right of the shareholders to use the assets as per the FPSA. The FPSA envisages capitalization with regard to the debt and the capital. Accordingly, the KPO financial reporting does not contain information about the volumes of sales and results of financial and economic activities. The revenues resulting from the KPO activities are shared between the Government of the Republic of Qazaqstan and the shareholders who separately reflect information on their financial activities, including revenues, netbacks, capitalization and other in their financial reports.

In accordance with the article XIX of the FPSA the current activities under the above-mentioned agreement are not subject to corporate income tax in Qazaqstan. The corporate income tax is a commitment of shareholders or Parent Companies of KPO and is reflected in their financial reports.

During the last few years KPO has been repeatedly recognised as the second largest tax-payer, whose contributions amount to a substantial part of the entire tax income of the state budget, in the National Reports on implementation of the Extractive Industries Transparency Initiative in the Republic of Qazaqstan.

The KPO tax regime is regulated by the Final Production Sharing Agreement and the applicable tax legislation of the Republic of Qazaqstan.

KPO, wherever possible, seeks to build up an open dialogue and co-operative relationship with the tax authorities based on the mutual respect and transparency in order to form a favourable environment for business development and social area in West Qazaqstan Oblast. When tax benefits or tax exemptions are applicable KPO also seeks to ensure their transparency and compliance with legislative and regulatory framework.

On the practical plane, the KPO tax strategy consists of correct calculation of taxes, minimization of double taxation risks and prevention of any disputes with tax authorities. In relation with this, the Company's key principle is the timely payment of all taxes payable and prompt submission of all information required by the law or necessary for correct determination of taxes payable to the relevant authorities.

Currently, there are Risk Management Systems (RMS) in place throughout Qazaqstan used in the planning and organisation of tax inspections, the risk level assessment criteria have been developed and approved. This system represents a set of measures implemented in order to evaluate the probability that a tax payer may fail to pay or fully pay his taxes payable resulting in damage to the Republic. The RMS also includes measures applied by the tax authorities to identify and prevent such risks. Based on the risk assessment results the tax control forms are applied in a differentiated mode.

Thus, in the first half of 2022 the tax authorities ranked KPO as a low level of risk and in the second half of 2022 as a medium level of risk.

For KPO, the average level of risk could impact the amount of VAT return under the new VAT return rules with the RMS applied because the criteria to determine the level of tax payer’s risk (low / medium / high) in the majority of cases are identical to the risk level criteria applied to confirm the credibility of the exceeded VAT return amounts.

KPO strictly follows the RoQ legislation norms and fulfils its tax legal relationships in accordance with the Extractive Industries Transparency Initiative (EITI) global standard that promotes reflection of the income transparency and accountability in the oil & gas and mining industries.

Extractive industries transparency initiative

KPO supports the Extractive Industries Transparency Initiative (EITI) in order to ensure the transparency of revenues and the whole value creation chain in the process of natural resources management in the Republic of Qazaqstan (RoQ).

In 2022, KPO paid taxes to the RoQ budget in the amount of USD 3 bln (as per the exchange rate in the internal SAP accounting system) in accordance with the EITI requirements. This information is reflected in the 17^th RoQ National Report on the Extractive Industries Transparency Initiative for 2022.

KPO submits separate EITI reports on its tax liabilities to the RoQ authorities from 2014. KPO payments for the period from 2014 to 2022 are represented in Table 46.

Information about the taxes, paid by KPO to the state budget of the RoQ, is publicly available at http://egsu.energo.gov.kz in the section “Final report on tax and non-tax payments/contributions from the RoQ oil & gas and mining payers”.

Tab. 46. KPO taxes and compulsory payments in 2014 – 2022 (USD)