Advancing Security and Transparency for the Governance of Critical Raw Materials in Central Asia

4. Base Erosion and Profit Shifting tax risks in the CRM sector

Abstract

The critical raw materials (CRM) sector offers significant revenue potential for Central Asian governments; however, the realisation of these benefits is threatened by Base Erosion and Profit Shifting (BEPS) practices.

The OECD Secretariat has reviewed the tax systems of Kazakhstan, the Kyrgyz Republic and Uzbekistan as they apply to the CRM sector to identify legislative gaps leading to BEPS risks. This high-level review indicates that principal risks in the CRM sector relate to the under-pricing of mineral sales, the use of related-party financing to shift profits, and the transfer of mining licences without appropriate compensation.

This chapter provides recommendations on how these three countries’ tax frameworks can be aligned with international standards to mitigate these BEPS risks and ensure that appropriate government revenues are realised from the development of their CRM sectors.

Base Erosion and Profit Shifting risks in the CRM sector

The critical raw materials (CRM) sector presents significant revenue opportunities for governments, but these potential gains are at risk of being undermined by Base Erosion and Profit Shifting (BEPS) practices. BEPS refers to tax planning strategies that Multinational Enterprises (MNEs) use to exploit loopholes in tax rules to artificially shift profits to low- or no-tax locations in order to avoid or minimise paying tax (OECD, 2025[1]).

Globally, such practices are estimated to cost countries between USD 100 billion and USD 240 billion in lost revenue each year (OECD, 2025[1]). While no comprehensive estimate exists for Central Asia, evidence from other resource-rich regions highlights the scale of the risk. In Sub-Saharan Africa, BEPS practices in the mining sector are estimated to cost governments between USD 470 million and USD 730million annually (IMF, 2021[2]). BEPS practices disproportionately affect resource-rich emerging economies due to their heavy reliance on corporate income tax, particularly from MNEs, as well as relatively under-developed legal frameworks and administrative capacities (OECD, 2025[1]).

As part of this project, the OECD has reviewed key features of the tax legislation of Kazakhstan, the Kyrgyz Republic and Uzbekistan as they apply to the CRM sector to identify legislative gaps leading to BEPS risks. While further work would be needed to more precisely map and quantify the full scale of BEPS risks in the CRM sector of each country, three key risks clearly stand out. These relate to legislative gaps that allow for abusive BEPS practices involving:

1. the under-pricing of mineral sales;

2. the use of abusive financing structures for CRM projects; and

3. the structuring of mining licence sales in a manner that avoids taxation, most often via offshore indirect transfers.

The chapter then identifies ways in which national tax frameworks could be strengthened to address these challenges, and how alignment with international tax policy standards and best practices may help to mitigate the identified BEPS risks. It draws on more than a decade of work in the context of the OECD/G20 BEPS Project, which equips governments with rules and instruments to address tax avoidance, ensuring that profits are taxed where economic activities generating them take place and where value is created.

Finally, it briefly discusses additional risks and challenges arising from the increasing use of tax incentives in the CRM sector, as well as common shortcomings in their policy design and administration. A comprehensive assessment of these emerging trends is, however, beyond the scope of this chapter and represents an area for further analysis.

Under-pricing of CRMs

Under-pricing is a common risk observed globally in many resource-rich countries endowed with critical minerals, including Australia, Canada and Mongolia1. Rather than selling minerals directly to independent buyers at market prices, companies may sell them to related parties located in low- or no-tax jurisdictions at below market prices, which then on-sell the minerals at market value. This practice shifts a portion of the profit out of the producing country, thereby reducing the tax base in the jurisdiction where the mineral is extracted or processed. The under-pricing of minerals can affect a wide range of critical minerals. In particular, some taxpayers may seek to exploit information asymmetries, especially for certain critical minerals that do not yet have transparent market pricing structures (such as quoted or index prices). This lack of pricing benchmarks can make it difficult to determine an appropriate arm’s length price for the mineral.

Specific challenges have been identified in the region where taxpayers interpose intermediaries that are not formally members of a MNE group, yet act in concert with the taxpayer to achieve tax avoidance outcomes. Such entities may operate as intermediaries or agents, or be used in split-payment arrangements whereby the mineral is initially sold at a below-market price and the difference is paid to entities located in low- or no-tax jurisdictions. These structures are designed to circumvent the application of transfer pricing rules and are particularly difficult to detect due to their opacity and current limitations in the effective exchange of information in Central Asia.

By under-pricing mineral sales, companies reduce taxable income in the producing country, resulting in lower corporate income tax liabilities and, where special mining royalties are levied on sales value, lower royalty payments. This practice may also reduce liabilities under profit-based mining rent taxes. In addition, under-pricing can reduce dividend withholding tax, as lower profits earned locally result in smaller dividend distributions subject to withholding tax.

The hypothetical example in Table 1 illustrates the potential revenue loss for a country (assuming a corporate tax rate of 25%, a royalty rate of 5%, and a dividend withholding tax rate of 5%2) over one year and 50 shipments of a critical mineral. It also demonstrates the impact of the undeclared value of other valuable minerals, such as gold, commonly present in exports of mineral concentrates rather than in exports of final products (Table 4.1).

Table 4.1. Revenue impacts from the under-pricing critical minerals

Critical mineral shipment	Arm’s length price (USDm)	Mineral priced at 10% below the arm’s length price (USDm)	Mineral priced at 10% below the arm’s length price, and where no gold is declared (USDm)
Gross value of cargo (20,000 megatonnes) [A]	39.50	35.55	32.70
Production costs [B]	22.50	22.50	22.50
5% royalty payable [5% x A = C]	1.98	1.78	1.64
Corporate income tax base [A – B -C = D]	15.03	11.27	8.57
25% Company tax payable [25% x D = E]	3.76	2.82	2.14
Total tax revenue per shipment from CIT and royalty [C + E]	5.73	4.60	3.78
Revenue loss per shipment		1.14	1.96
Revenue loss – 50 shipments per year		56.78	97.75
5% Withholding tax (WHT) on dividend (5% x [D-E])	0.56	0.42	0.32
WHT loss - one shipment per year		0.14	0.24
WHT loss - 50 shipments per year		7.04	12.11
Total Revenue Loss – 50 shipments per year		63.82	109.86

Source: OECD analysis.

Mispricing of other transactions along the mineral value chain

In addition to under-pricing mineral exports, companies may misprice other transactions along the mineral value chain, such as freight, offshore services, and procurement. Such practices often occur in conjunction with under-pricing of exports and have a similar fiscal impact, as they reduce the corporate income tax base, the dividend withholding tax base, and potentially special mining rent taxes where these are profit-based.

The international best practice to address under-pricing of critical minerals is to have robust transfer-pricing legislation and a well-trained tax administration that can apply this legislation to identify and audit under-pricing risks. The OECD Transfer Pricing Guidelines (OECD, 2022[3]) provide internationally agreed principles on which transfer pricing legislation relies. The OECD TPGs require all transactions between related parties to be priced at the “arm’s length” price, which is the price that would be agreed between unrelated parties in comparable circumstances. This is to ensure that related parties cannot manipulate the prices of transactions to secure favourable tax outcomes.

In relation to CRMs, this means the company selling the minerals to a related party should be paid an arm’s length price which should then be used for the purposes of calculating mining royalties and corporate tax liabilities in the jurisdiction where that entity operates. Issues arise regarding how this concept applies to long-term related-party sales and purchase agreements, especially with respect to whether the pricing should be fixed or index-linked. Ultimately, the considerations are the same, meaning the pricing of these long-term contracts should reflect what independent parties in comparable economic circumstances would agree.3 This requires comparison not only of the price or the pricing mechanism as agreed in the specific contract, but also how that mechanism and the broader contractual terms are consistent with practices between independent parties in comparable circumstances.

Determining the arm’s length price for critical minerals is complex, given that each mineral has its unique supply chains and demand dynamics. The OECD TPGs provide guidance for the pricing of commodity transactions, especially at paragraphs 2.18 to 2.22. It primarily recommends the use of the “Comparable Uncontrolled Price” (CUP) method to determine the arm’s length price for commodity transactions. Under the CUP method, the arm’s length price for the mineral is essentially the relevant quoted price4, noting that adjustments may need to be made to reflect certain terms of the transaction, for example the specific characteristics of the mineral being traded and the timing and terms of delivery, amongst others. Where it is possible to identify comparable uncontrolled transactions, the CUP method is the most direct and reliable way to apply the arm’s length principle. Every effort should be made to adjust the data so that it may be reliably used. Any alternative method contemplated instead of the CUP method in case of mineral commodities should aim to replicate market forces such as supply and demand and to appropriately account for the value of the transacted commodity

Challenges arise where the mineral in question is not traded on established and transparent markets, and thus there is no reliable quoted price or comparable arm’s length transactions to use. This may also be the case where the mineral is being sold in intermediate form, as there is often no quoted price for those stages of the process. These circumstances should not prevent the application of the CUP method to the extent that appropriate adjustments can be made to obtain the arm’s length price.5 If adjustments are not feasible, the OECD TPGs provides for the use of other methods. Guidance on this is also available in the toolkit on Addressing difficulties in accessing comparable data for transfer pricing analyses published by the Platform for Collaboration on Tax (PCT), which has a supplementary report on Addressing the Information Gaps on Prices of Minerals Sold in an Intermediate Form (The Platform for Collaboration on Tax, 2017[4]).

To provide practical guidance with specific industry insights, the OECD, in collaboration with the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF), has published a series of toolkits to aid tax administrations in pricing of minerals for transfer pricing – including an overarching framework, and specific toolkits for lithium, bauxite and one in development for copper (OECD; IISD, 2023[5]); (OECD, IISD, 2024[6]); (OECD, IISD, 2023[7]); (OECD, IISD, 2025[8]).

Abusive structuring and pricing of financing for mining operations

In this report, abusive financing refers to financing arrangements between related parties that are structured in a manner to achieve BEPS outcomes. Such arrangements typically seek to artificially inflate an entity’s debt-related deduction (in the form of interest or equivalent payments), for example, by treating de facto equity funding as debt, injecting an excessive level of debt, or contractually establishing an excessive interest rate. Some arrangements may also rely on hybrid mismatch outcomes.

Financing needs in mining operations are generally very high, especially at the exploration and development stages, where there is a need for significant capital expenditure, but the mine or project is not yet generating income. Besides internally generated funds, companies finance their operations through debt or equity. Generally, companies can claim a tax deduction for interest paid on debt, but there is no equivalent ability to claim a tax deduction for equity-related payments. Where funds are available in the MNE group and it is a matter of how to legally structure the financing, for tax optimisation reasons, companies often choose debt financing to take advantage of the associated tax deduction on the accrued interest and other potential deductions, such as foreign exchange differences resulting from indebtedness.

Where such financing is provided by a related party, two main issues may arise. First, the financing provided by shareholder investors as equity for a specific project may be structured as an intercompany loan to achieve the tax deductions. Second, this related party loan may include a non-arm’s length interest rate, or other terms and conditions to maximise tax deductions. The issue can be thus both the excessive rate of interest and quantum of debt, which results in excessive interest deductions in the debtor country, with profit being shifted (via the interest payment) to the country where the creditor is located. Further complex issues can arise when determining the appropriate terms and conditions such as the interest rate for a given related party financing arrangement. This includes considerations as to whether the determination of the interest rate should consider only the risk-profile of the debtor/borrower as a stand-alone entity, or whether its membership as part of the MNE group should be considered. Chapter X of the OECD TPGs provides guidance on this issue and recognises the relevance of being a member of the MNE group for the purpose of determining the credit rating of the debtor in a similar manner as would be done between independent parties in comparable circumstances.6

This particular risk can be especially pronounced in the exploration phase, where the high-risk nature of the project makes attracting third-party debt investment difficult. A significant number of exploration projects fail to discover commercially feasible deposits. Independent investors are generally willing to invest funds in such a risky venture only if they can also share the significant upside value potential resulting from the successful exploration activities. This is why exploration companies (including so-called junior companies) rely primarily on equity-based funding. However, in the related-party context and in multinational groups, investments in these early and high-risk phases are often structured as related-party debt funding at high interest rates to take advantage of the tax benefits associated with debt funding. This results in potentially high early-stage tax deductible expenses that contribute to the erosion of the tax base before the project even reaches the development stage. Due to limited capacities, very few tax administrations pay attention to this BEPS risk in the early stage of the mining project. In combination with statute of limitations and the long period of loss-carry forward, as evidenced by the findings of the Tax Inspectors Without Borders7 (TIWB) programmes in Mongolia and Kazakhstan this practice is wide spread in Central Asia (OECD, 2025[9]; OECD, 2022[10]).

Excessive interest payments are widespread in MNE transactions generally and have been addressed in the BEPS Action 4 report (OECD, 2015[11]), and a joint OECD and IGF document, Limiting the Impact of Excessive Interest Deductions on Mining Revenue (IISD/OECD, 2018[12]). There have been high-profile, significant disputes in countries like Australia and Norway in this area.8 This issue has also been identified as omnipresent in Central Asia, and initial activities are already under way to help countries deal with this challenge. In Kazakhstan, the OECD and TIWB have delivered extensive training on the topic, given the significance of the risk in the country,9 and similar training has been delivered in Mongolia by the OECD and IGF.10

Box 4.1. BEPS Action 4 report

In 2015, the OECD released the report ‘Limiting Base Erosion Involving Interest Deductions and Other Financial Payments, Action 4 - 2015 Final Report’. This was one of 15 BEPS Action reports released as part of the OECD/G20 Base Erosion and Profit Shifting Project.

The focus of this report was on how to ensure companies do not inappropriately minimise their taxes by claiming excessive debt related deductions. The key recommendation in this report is that limits on an entity’s net financing deductions should be directly linked to its level of economic activity, based on taxable earnings before deducting net interest expense, depreciation and amortisation (EBITDA). Such a recommended limit is established through a fixed ratio rule representing 10-30% of tax EBITDA. The tax base can thus never be fully eroded by financing arrangements. To ensure reasonable outcomes, deductions exceeding the stipulated limit may be carried forward and deducted in future periods within the given fixed ratio.

If a country wants to adopt this recommendation, it needs to pass domestic legislation implementing it.

Source: OECD

BEPS risks linked to exchange-rate fluctuations

Given the long-term nature of extractive projects, where financing arrangements can be in operation for several years or even decades, this risk can result in significant profits being shifted out of the producing countries over an extended period. This issue of debt-structured financing is compounded by exchange-rate movements, because most debt instruments will be structured in a foreign currency and yet most Central Asian currencies have experienced gradual devaluation in recent years. This means that the liabilities recognised on the debtor’s balance sheet have been gradually increasing in local currency terms. Foreign exchange differences are recognised as additional tax deductions in the jurisdiction of the debtor, contributing to the erosion of the tax base, while generally not representing any taxable income in the counterparty jurisdiction. Where lender and debtor are (as is often the case) related parties, this is an easy BEPS strategy to adopt and can also present in the form of interest-free loans. Where foreign currency rate movements are significant, the mere foreign exchange difference in relation to such an interest-free loan can erode the tax base and even result in carry-forward tax losses.

Debt/equity classification risks

Further issues can arise where a de-facto equity investment is treated as debt for tax purposes, allowing the debtor to claim interest and foreign exchange deductions. In the creditor’s jurisdiction, however, the same instrument may be treated as equity for taxation purposes. The inconsistent classification of debt versus equity between jurisdictions can result in significant tax base erosion. This mismatch in taxation treatments means the interest and foreign exchanges are treated as deductible expenses in the jurisdiction with mining operations, while the corresponding income is treated as equity-based income (dividend) and subject to preferential tax treatment (mostly exempt from taxation) in the other jurisdiction. This outcome, with deduction and subsequent non-inclusion, is frequently exploited for BEPS practices and is described as a hybrid mismatch arrangement. Specific recommendations have been formulated during the BEPS project in the Action 2 report (OECD, 2015[13]), but no Central Asian country has yet addressed this problem, and these recommendations remain relevant for all three countries in this study.

Box 4.2. BEPS Action 2 report

In 2015, the OECD released the report ‘Neutralising the Effects of Hybrid Mismatch Arrangements, Action 2 - 2015 Final Report’. This was one of 15 BEPS Action reports released as part of the OECD/G20 Base Erosion and Profit Shifting Project.

This report addressed ‘hybrid mismatch’ arrangements, which give rise to double non-taxation outcomes. These arrangements rely on different classifications and tax treatment of financial instruments or legal entities based on the domestic laws of two or more jurisdictions.

The key recommendation in this report is to neutralise the effects of such arrangements through a set of primary and secondary rules that align the tax outcomes and prevent the double non-taxation result. In the context of financial instruments this may be achieved either by denying a tax deduction that would otherwise be granted in the debtor jurisdiction (taking thus into account the tax treatment in the creditor’s jurisdiction) or by including the income in the taxable base (where it would have otherwise been exempt, but the deduction was granted in the debtor’s jurisdiction).

Risks arising from the transfer of mining licences

The offshore indirect transfer (OIT) of a mining licence occurs through the sale of shares in a foreign holding company that owns the shares of a local company, which in turn owns the mining licence. While there may also be commercial reasons for such indirect transfers, present a BEPS risk that requires careful attention.

The OIT of mining licences can allow investors to escape local taxation on large capital gains made from the sale of these domestic resource assets. Mining licences entitle the licence holder to explore or extract minerals from a specific location. As such, a mining licence can become extremely valuable, and its value is driven by the significance and economics of the underlying mineral deposit, world prices and scarcity of the particular mineral. Investors in this sector can sell valuable mining licences directly or transfer them indirectly by selling shares in the companies that hold those licences. Generally, the income or gain from the direct sale of the mining licence is taxable, most commonly as a part of business profits or capital gains of the company owning the mining license. The indirect transfer of a mining license executed via the transfer of shares, however, is often not taxed or may be subject to a more favourable tax treatment such as capital gain from the sale of shares. This difference in tax treatment, combined with the possibility to structure such transactions in a complex manner involving several layers of holding companies across multiple low- or no-tax jurisdictions is a common tax avoidance technique. Mineral rich countries are thus deprived through such practices of significant tax revenues (Box 4.3).

Box 4.3. OIT schemes – the case of Petrotech

An example of an OIT scheme is the Petrotech case from Peru. In 2009, Ecopetrol Colombia and Korea National Oil Corp purchased a Houston-based company (Offshore International Group Inc.) whose main asset was Petrotech Peruana (the license holder), a company incorporated and resident in Peru and the third largest oil producer there, for approximately US$900 million, from Petrotech International, a Delaware incorporated company. Since Peru’s income tax law at the time did not have a specific provision taxing offshore indirect sales, the transaction remained untaxed in Peru. The potential foregone tax revenue for Peru was estimated at USD 482 million.

Source: (The Platform for Collaboration on Tax, 2020[14])

To ensure the neutrality and integrity of the tax system, countries should consider having robust rules in place to allow them to exercise their taxing rights over the transfers of such valuable mining licences. A suggested approach to this legislation is contained in The Taxation of Offshore Indirect Transfers — A Toolkit (the PCT Toolkit), a joint initiative of the IMF, OECD, UN and WBG (The Platform for Collaboration on Tax, 2020[14]). The toolkit proposes two models for domestic legislation. Countries should choose the most appropriate approach based on their circumstances (Box 4.5).

Box 4.4. Legislative options to address OIT schemes

The OIT toolkit proposes two legislative approaches to domestic legislation that can ensure effective taxation of OITs.

The first model places the tax burden on the resident entity holding the licence. There is a deemed disposal and re-acquisition of the mining licence when the OIT occurs. As such, the resident entity pays the tax on the capital gains accrued in respect of the licence at the time of the OIT.

The second model places the tax burden on the non-resident seller of the shares and requires an enforcement mechanism to ensure effective collection of tax – often placing the secondary tax liability on the domestic taxpayer where the non-resident fails to comply with the tax liability.

Source: (The Platform for Collaboration on Tax, 2020[14])

High-level legislation gap analysis and recommendations

Despite the gradual efforts undertaken by Kazakhstan, the Kyrgyz Republic and Uzbekistan to enhance and align their tax systems with international standards and best practices, a number of aspects of their tax frameworks do not yet align with international standards, potentially exacerbating the BEPS risks in their CRM sector. The ability of a country to address BEPS risks depends on its tax law, as the tax administration can only act against BEPS risks where the law allows it to do so. Where the legal framework diverges from international standards and best practices, some BEPS risks can be amplified and even constitute legally acceptable practices that cannot be challenged by the tax administration. By contrast, several BEPS risks can be mitigated where the legal framework is carefully designed in line with international standards and best practices, because such practices could become illegal and most MNEs will refrain from engaging in such activities that are made explicitly unacceptable.

A review of the fiscal frameworks of these countries, in combination with feedback received from other capacity building programmes, has identified several divergences from international standards that hinder the ability of these countries to effectively address the three key specific BEPS risks they are facing in their critical minerals sectors: under-pricing of critical minerals, abusive structuring and pricing of financing for mining projects, and offshore indirect transfers of mining licences.

Common recommendation 1: Introduce and enforce robust legislation to address the BEPS challenges identified in this report

Countries wishing to effectively address the BEPS risks and challenges identified in this report will need to take legislative action to fully align their domestic legal framework with international standards and best practices. Without taking legislative action, some of these BEPS risks may not be addressed and the challenges identified in this report will continue to undermine the revenue potential from the CRM sector. As demonstrated in the illustrative example in Table 4.1, such an effect on the national budget can be dramatic. If left unaddressed for several years or decades, the revenue losses may significantly undermine the development potential of the country, and this may result in lost opportunities.

Once the legislation is in place and is aligned with international standards and best practices, MNEs may choose to comply voluntarily with such legislative improvements. MNEs are less likely to engage in abusive BEPS practices where legislation in the form of primary law establishes clear rules that are aligned with international standards. The effect of voluntary compliance can be further enhanced by targeted guidance addressing the specific BEPS challenges, which may further clarify the application of the primary law provisions. There are nevertheless cases reported globally where MNEs still engage in BEPS practices, especially where the tax administration lacks the necessary administrative capacities or access to information from other jurisdictions. This amplifies the importance of the additional recommendations outlined below.

For the purposes of legal certainty, it is important to ensure that any of the recommended improvements to the legislation are only applicable prospectively – for future tax periods. It is not recommended to introduce any new compliance or tax obligations retroactively. This also means that the timing of introduction of such enhancements is critical. The sooner countries take their legislative actions, the faster they can expect to benefit from the voluntary compliance effect. Complex legal questions may however arise as to whether the investors benefiting from special fiscal stability clauses in their investment agreements should be immune to all these legislative changes that seek to address the existing weaknesses in the legislation resulting in BEPS practices.

The prevailing and broadly endorsed view on this issue is that bona fide anti-avoidance measures or the interpretation of existing laws by host governments to protect the revenue base against BEPS that are consistent with internationally recognised tax practices are not characterised as a change in law constrained by fiscal stabilisation clauses entered into between investors and governments. Such clauses should not prevent the legitimate application of updated, strengthened anti-avoidance measures that merely ensure that tax frameworks operate as intended, and are not new taxes (OECD, 2020[15]).

Common recommendation 2: Strengthen MNE accountability in responsible tax practices

While legislative reforms can enhance the integrity and fairness of tax systems, MNEs also bear responsibility for aligning their tax conduct with the principles set out in the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct. These Guidelines—discussed in greater detail in Chapter 1—encourage enterprises to contribute to sustainable development and to prevent or mitigate adverse impacts on people, the environment, and society.

Two principles within the Guidelines are particularly relevant to taxation: first, that MNEs should comply with both the letter and spirit of the law; and second, that they should integrate tax governance and compliance into their overall risk management and corporate oversight frameworks. Both principles relate to issues and challenges described in this report. Where MNEs comply with the letter and spirit of the law there will be less MNEs engaging in BEPS practices that exploit gaps and loopholes in the tax law. Furthermore, addressing this substantive tax compliance at the level of corporate boards and ensuring robust risk management contributes towards responsible business conduct. Although accountability for responsible tax behaviour ultimately rests with MNEs, proactive and transparent engagement by governments with the business community is essential, and, if backed up by sound tax administration and enforcement, can make a difference. Such co-operation helps promote adherence to these principles while reinforcing mutual trust and accountability between governments and enterprises.

Common recommendation 3: Ensure transparency about the MNE operations and create a supportive framework to ensure targeted risk assessment and audits through an enhanced tax transparency framework

The tax administration should have access to information that allows it to identify BEPS risks, detect potential non-compliance and enforce relevant legislation. In the BEPS Action 13 report (OECD, 2015[16]), the OECD recommends that countries require the submission of three transfer pricing documents by MNEs – the Country-by-Country (CbC) report, Master File and Local File (see Box 4.5). Especially in the case of CbC reports there is an additional need for countries to share this information with each other, and to develop legal and secure systems to exchange confidential taxpayer information. This can be done through government-to-government mechanisms such as the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAAC),11 bilateral tax treaties or tax information exchange agreements.

The MAAC enables multilateral automatic exchange of information with automatic CbC reporting with over 100 jurisdictions through the CbC Multilateral Competent Authority Agreements (MCAA). By signing one MCAA a jurisdiction acquires access to the exchange network of all other participating jurisdictions without the need to negotiate and sign bilateral agreements with each exchange partner.

The MAAC allows jurisdictions to request a wide scope of information including CbC data which can be a starting point for the in-depth investigation of the MNE group's transactions. While Kazakhstan is a party to the MAAC and Uzbekistan has requested to be invited to join the MAAC, the Kyrgyz Republic could explore the benefits of becoming a party to the MAAC.

The Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) is the multinational platform promoting administrative cooperation in tax matters that has currently 172 member jurisdictions, each participating on equal footing. The Global Forum provides support and training to developing countries on how to effectively use all forms of exchange of information. While Kazakhstan and Uzbekistan are members of the Global Forum and have access to the capacity building technical assistance, the Kyrgyz Republic could explore the benefits of membership.

Box 4.5. Transfer Pricing Documentation

BEPS Action 13 recommends that jurisdictions require MNEs to prepare three-tiered standardised transfer pricing documentation: a CbC report, a Master File, and a Local File. Together, these documents are designed to improve tax transparency and help tax administrations identify and address transfer pricing risks more effectively.

The three-tiered approach serves three main purposes: (i) to ensure that MNEs properly consider transfer pricing rules when setting prices for transactions between related companies; (ii) to give tax administrations the information needed to carry out targeted risk assessments; and (iii) to support focused and efficient audits, when necessary.

Each document has a distinct role:

• The Master File provides a high-level picture of the MNE group as a whole, including the nature of its global business operations, its overall transfer pricing policies, and its global allocation of income and economic activities. It helps tax administrations understand how value is allocated within the group.

• The Local File focuses on the local entity. It contains detailed information on the specific intercompany transactions carried out in a particular jurisdiction. The information required in the Local File supplements the Master File and helps to meet the objective of assuring that the taxpayer has complied with the arm’s length principle.

• The CbC Report requires aggregate data for each jurisdiction in which the MNE operates, showing where profits, employees, and taxes paid are located. CbC reports are intended for high-level risk assessment only. It does not replace a detailed transfer pricing analysis and should not be used on its own to make transfer pricing adjustments.

  When implemented effectively and supported by information-exchange mechanisms, this documentation framework strengthens a tax administration’s ability to detect BEPS risks early, allocate audit resources where most needed, and promote voluntary compliance without creating excessive compliance burden.

Kazakhstan has become the first country in the Central Asian region to introduce the three-tiered transfer pricing documentation. Furthermore, it has the legal framework in place to be able to engage in effective exchange of information with most of the relevant jurisdictions in the world by having signed and ratified the MAAC in 2013 and 2015 respectively. Since Kazakhstan also implemented the mechanisms for automatic exchange of information, it can engage in automatic exchange of information on bank accounts (through the Common Reporting System), as well as the Country-by-Country reports. It can also request administrative assistance in various forms from more than 115 jurisdictions around the world, including low- or no-tax jurisdictions, where Kazakhstan does not have other international treaty instruments to request and obtain such assistance (OECD, 2026[17]).

Common recommendation 4: Ensure high-skill capacities in tax administration by introducing suitable professional career conditions as well as policies that promote hiring and retention of skilled experts

Identifying and auditing BEPS risks, as well as applying corresponding legislation, requires strong administrative capacity in the tax administration. The tax administrations of Kazakhstan, the Kyrgyz Republic and Uzbekistan are at differing stages of development, yet their capacity to address international tax matters has been established only recently. The BEPS challenges discussed in this chapter are sophisticated and as such require highly skilled personnel to detect and audit such practices. The skills required include advanced knowledge of international taxation and transfer pricing, in depth knowledge of the critical minerals sector and corporate finance as well as proficiency in foreign languages. Since the tax administrations’ personnel also often interacts with foreign investors and MNEs, their actions also represent the tax administration externally. Where the administrations do not invest in attracting, developing and retaining the expertise needed, taxpayers may take it as a sign that compliance with the law is not effectively enforced. Furthermore, where the tax administration experts lack the necessary level of knowledge or skills, they may misinterpret the facts and circumstances of a particular case, resulting in incorrect tax assessments under international standards. The lack of such expertise may thus have a negative impact not only on the tax revenues but also on the investment climate. All three countries need to do more on this issue, while ensuring that their tax administration becomes an attractive employer for high-skilled experts and professionals.

Country-level gap analysis

Kazakhstan

Key issue 1: Capacity to administer transfer pricing legislation is still developing

Kazakhstan is progressively aligning its transfer pricing legislation with international standards, particularly following reforms undertaken in 2024–25; however, the capacity of the tax administration to effectively enforce this relatively new framework is still being developed. The transfer pricing legislation has measures that reduce the risk of mineral under-pricing. The law requires the CUP method to be applied as a default method for transactions involving critical minerals and other mineral commodities. Appropriate adjustments are also mandated by the legislation12 to determine an appropriate arm’s length price. To motivate voluntary compliance, based on Article 10 point 10 of their transfer pricing law, Kazakhstan has further developed a secondary legal framework, which contains the pricing methodology for selected types of commodities.13 Where taxpayers comply with this methodology, the tax administration will limit its compliance activities to reviewing how it is applied in specific cases. This guidance has significantly contributed towards tax certainty and enhanced voluntary compliance. However, this methodology currently does not cover most critical minerals and there is potential to expand its scope with the development of additional relevant guidance.

Despite this strong legal framework, Kazakhstan continues to experience revenue loss from mineral under-pricing, as evidenced by recent findings of the TIWB programme. Some MNEs choose to remain non-compliant, assessing that the potential gains from avoiding tax in Kazakhstan outweigh the risks and consequences of detection. This underscores the importance of promoting corporate responsibility in taxation, but even more critically, highlights the need for a highly skilled and well-resourced tax administration equipped with robust risk assessment tools to ensure compliance without creating undue distortions to business operations.

One of Kazakhstan’s key objectives is to encourage voluntary compliance through enhanced risk assessment processes, while also attracting, developing and retaining highly skilled professionals within the tax administration and engaging constructively with taxpayers. Based on prior OECD recommendations, the State Revenue Committee made significant progress during 2022-2023 by completing the first phase of building a dedicated transfer pricing team of nine experts at its headquarters. This team includes specialists recruited from the private sector, who bring valuable practical experience and industry knowledge. Investment in these specialised human capacities has already generated significant returns. Between 2022 and 2025, the total assessed tax amount reached approximately USD 566.4 million, of which around USD 363.6 million has been collected, with the remainder currently subject to administrative and judicial appeal. Enhanced proactive risk assessment engagement, combined with measures to encourage voluntary compliance, has also produced strong results, with a further approximately USD 73.7 million received from voluntary adjustments by taxpayers without direct intervention by the tax administration. Such compliance strategies significantly improve overall tax compliance and reduce the number of cases requiring lengthy and complex litigation. Nevertheless, further efforts are needed to continue strengthening this pool of professional expertise and, given the scale and importance of Kazakhstan’s economy, to extend these capacities to regional tax administration levels.

Recommendation: Continue and sustain investments in building the capacity of the tax administration at both central and regional levels to apply transfer pricing legislation effectively. Further enhance risk assessment and monitoring tools and strategies to ensure early detection of deviations from the arm’s length price, and expand the voluntary compliance initiatives to guide taxpayers into compliance.

Key issue 2: The use of offshore trading hubs by MNEs remains widespread

The key challenge detected during the TIWB programme relates to MNEs’ continued use of offshore trading hubs. Offshore trading hubs are entities located in jurisdictions with low or no taxation, which purchase minerals from mineral-producing entities operating in Kazakhstan and then re-sell them to third parties at the market price. In most cases where non-compliance was identified, these trading hub entities claimed significant profit margins on the resale of the commodity, which did not correspond to the actual functions they perform, assets they use and actual risks they assume. These entities were identified as having little or no functional substance and, even for the functions they claim to perform, were found to have outsourced them either to other related parties or to third-party service providers.

The effective exchange of information with other jurisdictions is critical to combating such practices. On this front, Kazakhstan has implemented key international standards on the exchange of information and, as noted above, signed the MAAC, which enables it to request information from offshore jurisdictions with which Kazakhstan does not have bilateral tax treaties. While Kazakhstan continues to enhance the exchange of information framework, it is already able to benefit from the active use of relevant tools, including the ability to receive and exchange CbC reports. Combined with other elements of the BEPS Action 13 transfer pricing documentation, namely Master File and Local File, as well as monitoring reports on transfer pricing, Kazakhstan has the necessary tools in place to benefit from tax transparency and actively use it for risk assessment and effective tax audits.

Kazakhstan is also making efforts to enhance and align its transfer pricing legislation with the international standard represented by the OECD TPGs. The legislation is being enhanced gradually through annual updates. The OECD has provided technical assistance in developing the legislation and continues to support capacity building for its administration. Kazakhstan has also benefited from a TIWB programme. During 2021-23, audit cases conducted under the TIWB programme raised an additional USD 211 million in assessed tax (OECD, 2025[9]).

Overall, the OECD has seen notable improvements in Kazakhstan’s capacity to apply the transfer pricing legislation. Kazakhstan’s reference to a quoted price for exchange traded commodities is positive, as it aligns with the OECD TPGs. However, Kazakhstan needs to ensure that the relevant comparable adjustments are taken into account for any material differences between the quote price and tested transaction.

Recommendation: Develop guidance on determining the appropriate remuneration of such offshore trading hubs to ensure that such entities are remunerated only for the actual value they create through their genuine economic functions, which may also be reflected in the operational costs borne by such entities in performing those functions.

Key issue 3: Interest limitation rules are not aligned with international best practices

Kazakhstan has thin capitalisation rules in Article 263 of the Tax Code.14 An entity is considered to be thinly capitalised when its funding relies heavily on debt rather than equity. Thin capitalisation can be used as a BEPS strategy because interest on debt is generally tax deductible. As a result, companies may structure their financing arrangements to artificially increase debt levels in order to claim higher interest deductions. This practice is addressed in the OECD’s BEPS Action 4 report (OECD, 2015[11]) (see Box 4.1), and Chapter X of the OECD Transfer Pricing Guidelines (OECD TPGs) also provides further guidance on how to deal with such challenges from the perspective of transfer pricing.

In the case of Kazakhstan, the thin capitalisation rule is based on a debt-to-equity ratio of 4:1 for non-financial institutions. This means that, where a company’s level of debt exceeds four times its equity, deductions related to the debt exceeding that limit are restricted.

However, a thin capitalisation rule based on a debt-to-equity ratio does not fully achieve the intended policy objectives and is vulnerable to exploitation by MNEs. The key weakness of such rules is that the taxpayer can easily manipulate the debt-to-equity ratio either with additional cash or asset contributions to equity or through asset valuations, ensuring a level of equity that will allow the deduction of all interest expense payments. A company’s equity valuation is heavily influenced by its asset value, which represents two tax policy issues. First, asset-based measures such as the debt-to-equity ratio are not the primary method used by lenders to assess the borrowing power of a company – they will instead look at a company’s cash flow when assessing its ability to service debt. Therefore, asset-based measures do not accurately reflect a company’s borrowing capacity. Second, a company may manipulate its asset values for tax purposes if there is no prohibition on the revaluation of asset values for tax purposes. This artificially inflates the value of the equity, and therefore artificially inflates the deductions they can claim.

Further, a 4:1 debt to equity ratio represents a high level of gearing for a non-financial entity and sets the deduction threshold at a level that does not effectively constrain excessive debt financing. As discussed above, thin capitalisation rules are intended to approximate a commercially justifiable level of leverage, allowing interest deductions only up to that level.

Recommendation: Adopt the international best practice approach to interest limitation, as outlined in BEPS Action 4 report, being a net interest deduction to the EBITDA15 ratio of 10-30%. This addresses both the concern of the ratio being based on equity values, and the ratio being too generous. The practical effect of these rules is that the taxpayer can never fully erode the tax base via abusively structured financing arrangements. The BEPS Action 4 recommendations also require a broad definition of interest, which also covers the payments equivalent to interest, such as guarantee fees and foreign exchange differences arising in relation to indebtedness. For the excess amount of interest, the taxpayers may be allowed to carry forward the excessive interest expense, unless this amount is further limited by the application of other targeted anti-avoidance rules, such as a well-designed thin-capitalisation rule or the application of transfer pricing rules. This ensures that bona-fide taxpayers do not lose their right to deduct the legitimate interest expense in future tax periods, assuming they earn sufficient profit levels to utilise those excess carry forward interest positions.

Key issue 4: The ability of the current legislation to tax OITs is undermined by exemptions in the law

Kazakhstan has laws that can be applied to tax the disposal of mining licenses through offshore indirect transfers, but current exemptions may give rise to abuse. Kazakhstan has a robust rule, accompanied by a special enforcement mechanism, which corresponds with the Model 2 from the PCT toolkit. Specifically, article 679(1)(7) provides that a capital gain made from the sale of a non-resident entity is taxable in Kazakhstan if 50% or more of the value of the assets is derived from property located in Kazakhstan.

However, there is an exemption in Article 681(4), which states that the gain is not taxable where the share sale occurs through open bids on a stock exchange operating in Kazakhstan. Any such exemption from the general rule, despite having potentially sound policy rationale, may give rise to abuse as was observed in other cases, where premeditated transactions are carried out via stock-exchange transactions.

Recommendation: Design and implement the risk assessment procedures to ensure the timely detection of indirect transactions executed through any Kazakhstan stock exchange and compliance with the existing rules. This includes monitoring the large-scale transactions of mining license transfers executed via Kazakhstan stock exchanges. Where such abuse of this exemption or other special regimes (such as transactions structured via the Astana Financial Centre) is detected, Kazakhstan’s tax administration may consider invoking the recently introduced General Anti-Avoidance Rule and/or rethink the design the operation of such exemption and special regime. Focus should also be directed on ensuring the full disclosure of the transaction details, where the transaction may be complex and involve multiple types of considerations, such as cash, exchange of shares, contingent payments or special mining royalties.

The Kyrgyz Republic

Key issue 1: The country currently lacks specific transfer-pricing rules

Existing rules explicitly allow taxpayers to diverge from market prices in mineral sales by up to 20%. This is an extremely large deviation and raises the prospect and opportunity for significant under-pricing of minerals. In addition, the Kyrgyz Republic has not introduced specific transfer pricing legislation. There are provisions in Articles 139 and 140 of the Kyrgyz tax code that require transactions broadly to be priced at a “market price”. Market price is defined as either the state-regulated price for goods, works and services that have state-regulated prices, prices on recognised exchanges for metals and petroleum products, the price in the quarterly price bulletin of the National Statistical Committee of the Kyrgyz Republic, where there is such a price, or the price arrived at by applying certain methods, which are similar to three of the five OECD transfer-pricing methods.

There are many deviations in these rules as compared to the international standard and best practice as contained in the OECD Transfer Pricing Guidelines. Most significantly, as noted above, under Article 139, the tax administration is only able to adjust the price where it deviates from the “market price” by more than 20%. This means that companies are legally able to sell critical minerals for 20% below the arm’s length price. In some cases, this means that the whole profit margin can be erased, leaving little or no profit to be taxed in the Kyrgyz Republic. Such under-pricing of minerals would also affect mining royalty revenues and the withholding tax on repatriation of profits (dividends), since such profits are not recognised by the companies in the Kyrgyz Republic, instead being booked by foreign companies in low- or no-tax jurisdictions. The fiscal effects of this legally permissible divergence should thus be considered in the context of the illustrative example in Table 1.1.

Recommendation: Introduce modern transfer pricing legislation to align the market price framework with international best practices and the arm’s length principle in the case of related party transactions. Additionally, most importantly, remove the ability for companies to misprice transactions by 20%, so that the tax administration can apply the transfer-pricing laws to any transfer mispricing.

Key issue 2: The use of the sales price as the tax base for certain minerals presents an under-pricing risk.

There is a special income tax regime for gold, silver, copper, antimony, mercury, tungsten and tin in Chapter 33 of the Tax Code of the Kyrgyz Republic. Instead of using the arm’s length principle to determine the price of minerals for tax purposes, this regime determines the price of the critical minerals to be the quoted prices where they are in ore/concentrate form, or actual sales price where they are in processed form (noting that, as above, the sales price might be 20% below the arm’s length price). The gross tax rate applied to these prices ranges from 1 to 21%, based on the quoted price of the mineral.

Not using the arm’s length principle to determine the price of the mineral combined with legally permissible divergence of 20% presents a significant transfer pricing risk. The risk primarily exists for the minerals sold in processed form which are taxed on the basis of sales price. On the other hand the use of the quoted prices for the minerals in ore/concentrate form approximates the CUP method, which is generally the preferred transfer pricing method for these minerals. The risk is compounded by the fact that this special corporate income tax is a gross tax, meaning no deductions are recognised, unlike most corporate income taxes which are profit-based, so a company has in incentive to lower the mineral sale price so that less tax is payable.

Recommendation: Total alignment with the international standard would require that the price of these minerals, in both forms, be determined on the basis of the most appropriate of the five transfer-pricing methods, of which the CUP would be likely the most appropriate. A similar approach already applies to the minerals in the intermediate form – namely the use of quoted prices for these minerals when sold in both ore/concentrate and processed form with appropriate adjustments to ensure comparability and an appropriate arm’s length price.

Key issue 3: The absence of transfer pricing documentation, limited disclosure requirements and the absence of risk assessment tools increase transfer pricing risks

Having information on a company’s related party transactions is crucial for tax administrations to identify and effectively audit transfer pricing risks. The BEPS Action 13 report (OECD, 2015[16]) recommends that countries introduce requirements for taxpayers to prepare and submit three layers of documentation for this purpose – a Country-by-Country report, Master File and Local File. Many countries have these requirements in place.16 The Kyrgyz Republic does not require in-scope taxpayers to prepare or lodge any of these documents. It would therefore be exceptionally difficult for the tax administration to identify and audit transfer pricing risks, even with the introduction of transfer-pricing legislation.

Recommendation: Introduce legislation requiring the preparation of three-tiered transfer pricing documentation, in line with BEPS Action 13. Introduce a monitoring/risk assessment tool to enable early-stage risk assessment, such as the annual transfer pricing return or its equivalent. It is further recommended that the Kyrgyz Republic signs and ratifies the MAAC, to allow for effective exchange of information with other tax administrations. It is also necessary to introduce mechanisms for the Kyrgyz Republic to be able to effectively access relevant information held by other tax administrations. As discussed above, many countries, including Kazakhstan, have legislation in place that allows them to send and receive information with other tax administrations that can be used to identify and audit risks.

Key issue 4: The capacity of the tax administration is currently insufficient to address transfer pricing and other BEPS risks

As transfer pricing has not historically been a key focus for the government, the Kyrgyz Republic has not made significant investment in its transfer pricing legislation and administrative capacity. However, they have demonstrated recent interest in doing so and have been working constructively with the OECD Secretariat, which currently provides technical assistance to address these challenges.

Recommendation: Continue and maintain the investments in building the capacity of the tax administration in transfer pricing, and for the Government to ensure there are effective policies in place to attract and retain talent. Development of adequate human capital in this sphere is essential if the legislation is to be effective. The level of taxpayer’s compliance with the tax legislation will have a direct correlation with the administrative and compliance efforts and the tax administration will play a critical role in ensuring correct application of international standards on transfer pricing and other BEPS challenges.

Key issue 5: No interest-limitation rules are currently in place, which translates into an over-reliance on largely missing transfer pricing rules

The Kyrgyz Republic does not have any protection from abusive structuring of related party financing arrangements. It lacks any form of interest-limitation rules, and the current rules do not allow application of transfer pricing rules or market price concept to financial transactions. The Kyrgyz Republic is thus fully exposed to this risk. As discussed above, the Kyrgyz Republic only has basic transfer pricing rules, which are not aligned with international best practice, but the explicit prohibition in the law excludes even application of those rules to financial transactions.

Recommendation: Adopt interest-limitation rules that align with international best practice approach, being a net interest deduction to EBITDA ratio of 10-30% (see Box 4.1). Furthermore, implement adequate and modern transfer pricing rules to further address this risk.

Key issue 6: Legal provisions addressing indirect offshore transfers are in place but have a design weakness, which undermines their effectiveness

The Kyrgyz Republic has a special provision that contemplates taxing offshore indirect transfers in Article 174 of the Tax Code, but the formula to calculate the sale price may undervalue the transaction. Under this law, income includes income received by a foreign organisation or a foreign individual from the sale of a share in the capital or other share in a domestic organisation. Therefore, the offshore indirect transfer would be taxable in the Kyrgyz Republic. However, income is determined as the “the positive difference between assets and liabilities in the organisation’s balance sheet, drawn up on the date of the decision on such sale, proportional to the amount realised”. This does not necessarily reflect the actual sale value, which may be significantly higher than the book value (which typically reflects the historical cost value), as the agreement between buyer and seller may not necessarily value the transfer based on the accounting values of assets minus liabilities. The objective of indirect offshore transfer rules is to tax the gain, which is the difference between the original investment and actual market value of the mining license, which may be significant due to successful exploration and development activities. This current approach does not enable the Kyrgyz Republic to determine and to tax that actual capital gain derived from such transactions.

Recommendation: Amend this provision to implement one of the two suggested approaches from the PCT toolkit (see Box 4.4). Any approach chosen will require the determination of the capital gain with reference to real market value of the transferred license, rather than relying on historical accounting values. Also, any such approach will also require effective enforcement rules to ensure early detection and effective audit of such transactions.

Uzbekistan

Key issue 1: Administrative capacity to enforce transfer pricing legislation remains low

Uzbekistan recently introduced transfer pricing laws, largely derived from Russia’s transfer-pricing legislation. As a result, these rules are only partially aligned with international standards and lack the key provisions and principles derived from the 2015 BEPS project despite the fact they entered into force in 2022. Due to the legislation’s relatively recent introduction, administrative capacity to enforce the rules is still developing. The pre-conditions are in place as the existing rules could allow the tax administration to deal with some of the key risks in respect of the critical minerals under-pricing. The tax administration has a small but dedicated team of experts working in transfer pricing. Like Kazakhstan, Uzbekistan’s legal framework requires the CUP method be applied first if it can be reliably applied, which provides some degree of clarity on what method should be used. However, unlike in Kazakhstan, there is no further guidance on how to apply the CUP method to the key critical minerals exported from Uzbekistan.

The tax administration has experienced administrative and technical challenges obtaining taxpayer documentation due to weaknesses in tax policy design and implementation gaps. The transfer pricing documentation is currently limited to only some elements of the Local File and an annual transfer pricing notification. Important elements of the Local File needed for effective risk assessment and tax audit are not currently required. Master File and Country-by-Country Reports are currently not required. These gaps, as well as limited administrative capacities, prevent the tax administration from ensuring compliance with the transfer pricing rules through the effective risk assessment as well as challenges preventing the initiation of tax audits. The OECD Secretariat is currently providing technical assistance to overcome these challenges.

Recommendation 1: The tax administration should continue the investment into building a highly skilled and motivated team of experts and to scale up the initiatives, with a focus on targeted risk assessment and transfer pricing audits. This includes developing effective risk assessment tools and processes to enable early risk detection and thus enable effective and targeted tax audits. Administrative capacities to administer transfer pricing rules should also be built at the inter-regional department for large taxpayers and gradually also in the regional offices.

Recommendation 2: Address the legislative gaps that constitute divergences from international standard and best practices, and ensure the implementation of the transfer pricing documentation best practice as recommended in the BEPS Action 13 report (see Box 1.5), being the Master File, Local File and Country-by-Country reports.

Key issue 2: Maintain the special rent tax and ensure its effectiveness as well as the level playing field among investors

Uzbekistan has a “special rent tax” that applies to the extraction of minerals, contained in Chapter 64.1 of the income Tax Code. Various changes have been introduced over the past three years, resulting in an uneven playing field, where some projects and investments are already subject to this tax while other investors benefit from ad hoc exemptions. The uneven playing field will have a detrimental effect on the investment climate and will trigger further calls for exemptions and changes that can render this tax ineffective. Further legislative changes are currently pending, which, when combined with the special concessions, may impact the ability of Uzbekistan to raise revenue effectively from this tax. The tax is applied to “rent income”, defined as the “price applied by the parties to the transaction” minus certain deductions, at a rate of 25%.

Recommendation: Resist the pressures to repeal this tax. Ensure careful calibration of this tax through economic modelling and consider introducing a cap on deduction of historical expenses, which also benefit a from generous uplift. Such historical costs may have been subject to abusive BEPS practices due to historical absence of transfer pricing rules and continued limited capacities of tax administration.

Key issue 3: interest limitation rules are not aligned with international standards

Uzbekistan has thin capitalisation rules in Article 310 of the Tax Code. At a high level, the thin capitalisation rule in Uzbekistan is based on a debt-to-equity ratio of 3:1 for non-financial entities. This rule determines the debt-to-equity ratio only with reference to debt with related parties and ignores existing indebtedness from unrelated parties. This is a significant weakness of the design of this rule, because it will unavoidably result in excessive interest deductions due to the fact that the taxpayer can get fully commercially leveraged with debt from unrelated parties and further additional financing may be structured as debt from related parties within the given statutory limit of debt-to-equity ratio. This may result in an uncommercial level of debt leverage, that may then result in full tax base erosion. As above, in relation to Kazakhstan, having a thin capitalisation rule that is based on a debt-to-equity ratio is vulnerable to exploitation by multinational entities. Further, the 3:1 leverage ratio is relatively high and even when both related and unrelated party financing will be considered – it will result in uncommercially high levels of debt.

It is noted that Uzbekistan also has a special rule in Article 299 of the Tax Code that effectively requires recognition of income where certain benefits are derived by taxpayers – such as when receiving goods or services free of charge or below the market price. This includes also benefits derived from some financial transactions, such as outbound interest-free-loans and certain domestic loans. Under this rule, where the interest rate on a loan is either zero or is below the official interest rate as determined by the Central Bank of Uzbekistan, the debtor is deemed to receive a benefit equal to the amount of interest they would have otherwise had to pay, which is deemed to be assessable income of the debtor company. The effect of this rule should be further analysed to better understand its effectiveness to protect the tax base while preventing potential spill-over effects.

Recommendation: Adopt the international best practice approach to interest limitation as outlined in BEPS Action 4, being a net interest deduction to EBITDA ratio of between 10-30% (see Box 4.1). To the extent that Uzbekistan desires to also maintain this targeted thin capitalisation rule, it should be carefully recalibrated to ensure its effectiveness and reasonability, and include the third-party debt into the calculation of the debt-to-equity ratio and review the allowable debt-to-equity ratio to ensure that it is appropriate.

Key issue 4: Absence of effective rules to tax an offshore indirect transfer

Uzbekistan does not have rules that can be applied to effectively tax a mining licence sold through the offshore indirect sale of a licence. Uzbekistan does have provisions in Article 356 of their tax code that apply to recognise income earned by non-residents in Uzbekistan from the sale of shares of Uzbekistan resident legal entity. The weakness of this rule is that it applies only to direct sales of the Uzbek resident company, but the rule will not apply in case sales executed indirectly when such transfer is executed via sale of shares of foreign holding company, which owns the shares in Uzbek company. As such, this rule is not able to apply to OIT schemes and the tax on capital gain can be avoided by MNEs.

Recommendation: Amend this provision so that it allows Uzbekistan to tax the sale of a mining licence sold through an OIT or introduce a new provision allowing the taxation of OITs, aligned with the most appropriate model from the PCT toolkit (see Box 4.4).

Opportunities and risks in the context of attracting the investment into critical raw materials sector

While a review of tax incentives in these countries is outside of the scope of this chapter, the authors note that Central Asia faces fiscal challenges associated with the “race to the bottom”, which may be exacerbated by efforts to attract investment in the CRM sector. The “race to the bottom” refers to the lowering of corporate or other tax rates by countries to compete for mobile investment, resulting in erosion of their tax bases and reducing governments’ capacity to finance public goods, often without generating net new investment.

Tax incentives can be effective in encouraging investment but come with risks and costs. In particular, tax incentives can generate fiscal costs, and if they are not properly designed, they can give significant tax relief for investment or activity that is happening or would have happened anyway in the absence of the incentive (pure windfall gain). This risks forgoing tax revenue without creating additional investment.17 They may also encourage firms to focus on tax planning (to maximise their fiscal benefits) rather than new investment. Tax incentives can also exacerbate BEPS risks when they are not accompanied by sufficient integrity measures. Moreover, harmful tax incentives are particularly common in the mining sector and significantly erode government revenues from mining projects (IMF, 2021[2]). An example of this is when critical mineral projects receive a reduced corporate tax rate or when part of the activities (such as processing and refining) benefit from a full corporate tax exemption. If one part of a company’s business has access to a reduced corporate tax rate, the company is incentivised to shift income from one part of the business activity into the other business activity, to utilise the lower tax rate.

Corporate tax rates are already relatively low in Central Asia, with the Kyrgyz Republic’s at 10%, Uzbekistan 15%, and Kazakhstan 20%, all below the OECD/G20 Inclusive Framework18 average of 21.2% in 2025 (OECD, 2025[18]). Moreover, they have comparatively low overall tax-to-GDP ratios.19 In 2023, Kazakhstan had a tax-to-GDP ratio of 19.5%, while Uzbekistan’s stood at 11.5% and the Kyrgyz Republic had a somewhat higher tax-to-GDP ratio of 21.9% despite the low corporate income tax rate.20 These are all below the OECD average of 34.1% in 2024 (OECD, 2025[19]).

Despite these overall low tax rates, tax incentives appear to be relatively common in Central Asia, for example through Special Economic Zones (which reduce the tax rates on activity in certain geographical areas) or exempt business fully from taxation, sometimes without even a filing requirement). The OECD Investment Tax Incentives Database (ITID) (OECD, 2025[20]) shows that 62% of all 70 emerging and developing economies in the ITID grant some form of tax incentive for extractive industries. Income-based incentives (e.g. tax exemptions or reduced rates) appear less common in the extractives sector than in others but remain prevalent. Income-based tax incentive are often associated with low ‘bang for the buck’ (i.e. little additional investment per dollar spent) and opportunities for shifting profits even domestically – mainly because they do not tie the tax benefit directly to investment. Although not specific to Central Asia, these statistics illustrate both the importance of investment tax incentives in the relevant sectors and the diversity in their design, pointing to the need for further work.

Recently growing importance of Central Asian countries in the critical minerals supply chains may also lead to pressures from investors for new tax incentives for investments targeting this sector. Any such tax incentive should be carefully considered to assess the potential benefits as well as potential revenue expenditures associated with such measures. The risks associated with tax incentives are not only related to the direct tax expenditure, but introduction of such exemptions give rise to the additional risks of profit shifting that such incentives and tax exemptions trigger. This is because the profits can be shifted also within two companies in the same country to maximise the value of such incentives and exemptions and such issues may also arise in the context of the same legal entity, where different activities may be subject to different tax rates and tax regimes.

Beyond reforming tax incentives, one integrity measure that can be used to reduce revenue risks created by tax incentives is the ring-fencing of a company’s mining projects/business operations for tax purposes,21 to reduce the ability to artificially shift income/expenses between projects, as described in the joint publication between the OECD the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development  (IGF), Ring-Fencing Mining Income: A Toolkit for Tax Administrators and Policymakers (OECD; IISD, 2025[21]). While not a response to all BEPS practices, ring-fencing can discourage investors from structuring base erosion arrangements, artificially inflating exploration or development expenditures, or abusing specific tax incentives. However, as the OECD-IGF report makes clear, the design of the ring fence is not a simple matter: the potential downsides include slowing or postponing the potential tax savings that can result from consolidation, which can discourage mining investment, particularly in marginal ore bodies, and it can increase the administrative burden on tax authorities and raise the cost of tax compliance for taxpayers. Nonetheless, it merits careful consideration by governments of mining jurisdictions.

Overall, the general recommendations include that tax incentives are only used when their expected benefits outweigh their costs and that they need to be justified and aligned with national priorities. Their design should limit unnecessary costs and distortions and their impact should be evaluated regularly and carefully and lead, where necessary, to reform (IMF-OECD-WB-UN, 2025[22]; OECD, forthcoming 2026[23]). Tax incentives should be designed to ensure additionality and avoid windfall gains (i.e., to avoid subsidising activity that would have occurred anyway).

Where it is deemed expedient to introduce specific tax incentives for investors, these incentives should focus on expenditure (rather than income) and on forms of support that will foster new, self-sustaining activities. If direct tax incentives are considered, for example, they should be linked to the process of capital formation (e.g., accelerated depreciation, investment tax credits). Such expenditure-based incentives can directly reduce the cost of capital for new investment projects, and they can also be easier to phase out than income-based incentives, as their significance tends to wane as the project matures. By contrast, income-based incentives, such as CIT holidays and exemptions or reduced tax rates, risk limited additional investment, can offer windfall benefits to profitable projects and can often encourage tax planning and transfer pricing in an effort to shift activity from non-exempt to exempt enterprises. In addition, income-based incentives may offer little to firms engaged in capital-intensive, risky new projects that, in the early stages of development, may not generate income; expenditure-based incentives can be more valuable. Furthermore, these countries will need to consider the implementation of the Global Minimum Tax (Pillar Two), which will have a pronounced impact of the effectiveness of tax incentives (particularly those that are income-based).

Conclusion

For Kazakhstan, the Kyrgyz Republic and Uzbekistan to receive appropriate revenue from the exploitation of their critical mineral reserves, it is important that they ensure their international tax framework is aligned with international best practices, particularly those identified in this report. The primary challenges they face are related to mineral pricing, financing, and the transfer of mining licences. This chapter makes country-specific recommendations on how each country can align their fiscal framework with such practices. In making these changes, there is various assistance available, such as online toolkits and training resources, the OECD TPGs, publications containing the recommendations on relevant OECD BEPS Actions, and capacity building assistance from the OECD Secretariat and TIWB. Addressing the challenges set out above will help Kazakhstan, the Kyrgyz Republic and Uzbekistan maximise the benefits arising from development of their mineral resources and improve domestic resource mobilisation. There is much to do, but the returns from successful reforms to tax policy and administration in the sector will be great, for both current and future generations of citizens in all three countries. And the OECD stands ready to assist.

References

[12] IISD/OECD (2018), Limiting the Impact of Excessive Interest Deductions on Mining Revenue, https://www.oecd.org/content/dam/oecd/en/about/programmes/beps-in-mining/limiting-the-impact-of-excessive-interest-deductions-on-mining-revenue.pdf (accessed on 3 March 2026).

[2] IMF (2021), Tax Avoidance in Sub-Saharan Africa’s Mining Sector, https://www.imf.org/-/media/files/publications/dp/2021/english/tassamsea.pdf.

[22] IMF-OECD-WB-UN (2025), Tax Incentive Principles, Platform for Collaboration on Tax, https://www.tax-platform.org/sites/pct/files/publications/Tax-Incentives-Principles.pdf.

[17] OECD (2026), Country-by-country reporting for tax purposes, https://www.oecd.org/en/topics/sub-issues/country-by-country-reporting-for-tax-purposes.html (accessed on 29 January 2026).

[1] OECD (2025), Base erosion and profit shifting (BEPS), https://www.oecd.org/en/topics/policy-issues/base-erosion-and-profit-shifting-beps.html.

[18] OECD (2025), OECD Corporate Tax Statistics.

[20] OECD (2025), OECD Investment Tax Incentives Database - 2024 Update, OECD Publishing, Paris, https://www.oecd.org/content/dam/oecd/en/publications/reports/2025/03/oecd-investment-tax-incentives-database-2024-update_f3a3a175/b0de19dc-en.pdf.

[19] OECD (2025), Revenue Statistics in Asia and the Pacific 2025: Personal Income Taxation in Asia and the Pacific, OECD Publishing, Paris, https://doi.org/10.1787/6c04402f-en.

[9] OECD (2025), Tax and Development Case Study: Strengthening the capacity to tackle tax avoidance in Kazakhstan.

[3] OECD (2022), OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022, OECD Publishing, Paris, https://doi.org/10.1787/0e655865-en.

[10] OECD (2022), OECD, Tax and Development Case Study: Tackling multinational tax avoidance in Mongolia, OECD Publishing.

[15] OECD (2020), Guiding Principles for Durable Extractive Contracts, OECD Development Policy Tools, OECD Publishing, https://doi.org/10.1787/55c19888-en.

[11] OECD (2015), Limiting Base Erosion Involving Interest Deductions and Other Financial Payments, Action 4, OECD Publishing, https://doi.org/10.1787/9789264241176-e.

[13] OECD (2015), Neutralising the Effects of Hybrid Mismatch Arrangements, Action 2 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, https://doi.org/10.1787/9789264241138-en.

[16] OECD (2015), Transfer Pricing Documentation and Country-by-Country Reporting, Action 13 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, https://doi.org/10.1787/9789264241480-en.

[23] OECD (forthcoming 2026), A Practical Guide to Tax Incentive Policymaking, OECD Publishing, Paris.

[8] OECD, IISD (2025), Determining the Price of Minerals: A transfer pricing framework for copper, https://www.oecd.org/en/events/public-consultations/2025/07/determining-the-price-of-minerals-a-transfer-pricing-framework-for-copper.html.

[6] OECD, IISD (2024), Determining the Price of Minerals: A Transfer Pricing Framework for Lithium, https://www.oecd.org/en/publications/determining-the-price-of-minerals_a607ff0a-en.html.

[7] OECD, IISD (2023), Determining the Price of Minerals: A transfer pricing framework for bauxite, https://www.oecd.org/en/publications/determining-the-price-of-minerals_91c16436-en.html.

[26] OECD, IISD (2018), Limiting the Impact of Excessive Interest Deductions on Mining Revenue.

[21] OECD; IISD (2025), Ring-Fencing Mining Income: A toolkit for tax administrators and policy-makers.

[5] OECD; IISD (2023), Determining the Price of Minerals: A transfer pricing framework, https://www.oecd.org/en/publications/determining-the-price-of-minerals_de6ec0c5-en.html.

[25] The Central Bank of the Republic of Uzbekistan (2026), Policy rate, https://cbu.uz/en/monetary-policy/refinancing-rate/ (accessed on 23 January 2026).

[14] The Platform for Collaboration on Tax (2020), The Taxation of Offshore Indirect Transfers— A Toolkit, https://www.tax-platform.org/sites/default/files/publications/PCT_Toolkit_The_Taxation_of_Offshore_Indirect_Transfers.pdf.

[4] The Platform for Collaboration on Tax (2017), A Toolkit for Addressing Difficulties in Accessing Comparables Data for Transfer Pricing Analyses.

[24] World Bank Group (2025), World Development Indicators, https://databank.worldbank.org/source/world-development-indicators.

Notes

← 1.  See cases emerging in public domain as a result of administrative and judicial disputes Commissioner of Taxation v Glencore Investment Pty Ltd (Australia), Canada v. Cameco Corporation (Canada), and the recent dispute between Southgobi Sands LLC and the Tax Dispute Resolution Council in Mongolia

← 2.  This assumes the application of the reduced rate of withholding tax due to application of benefits derived from bilateral tax treaties. Full domestic rates are typically 15%.

← 3.  See further the disputes Commissioner of Taxation v Glencore Investment Pty Ltd and Canada v. Cameco Corporation

← 4.  See the following guidance from the OECD TPGs at 2.18 on the meaning of ‘quoted price’: The term “quoted price” refers to the price of the commodity in the relevant period obtained in an international or domestic commodity exchange market. In this context, a quoted price also includes prices obtained from recognised and transparent price reporting or statistical agencies, or from governmental price-setting agencies, where such indexes are used as a reference by unrelated parties to determine prices in transactions between them

← 5.  See the discussion in the OECD Transfer Pricing Guidelines at paragraphs 2.18 to 2.21

← 6.  See further the discussion at paragraphs 10.76 to 10.80 of the OECD Transfer Pricing Guidelines

← 7.  TIWB is a joint initiative of the UNDP and the OECD, which deploys tax experts worldwide to help developing countries build international tax audit and investigation capacity through work on real audit and criminal tax investigation cases.

← 8.  See further the disputes Chevron Australia Holdings Pty Ltd v Commissioner of Taxation (Australia), Norway vs Petrolia Noco AS (Norway)

← 9.  See further OECD (2025), Tax and Development Case Study: Strengthening the capacity to tackle tax avoidance in Kazakhstan, OECD Publishing, Paris

← 10.  See further OECD (2022), Tax and Development Case Study: Tackling multinational tax avoidance in Mongolia, OECD Publishing, Paris https://www.oecd.org/content/dam/oecd/en/topics/policy-issues/tax-and-development/tackling-multinational-tax-avoidance-in-mongolia.pdf

← 11.  The Multilateral Convention on Mutual Administrative Assistance in Tax Matters was developed jointly by the OECD and the Council of Europe in 1988 and amended by Protocol in 2010. With 150 participating jurisdictions, it is currently the most comprehensive multilateral instrument available for all forms of tax co-operation to tackle tax evasion and avoidance.

← 12.  See, Republic of Kazakhstan, Law on Transfer Pricing (Law No. 67-IV of 5 July 2008, as amended, Articles 10(2) and 13.

← 13.  The minerals covered are natural uranium concentrate; titanium sponge; titanium ingots (including those produced by electron-beam melting); primary magnesium ingots; natural gas; crude oil; gas condensate; sulphur; and steel products (cold-rolled, hot-rolled and galvanised steel).

← 14.  Thin capitalisation rules cap the amount of debt for which interest is tax deductible. Typically, interest deductibility is restricted if a measure of the company's debt relative to its assets or equity exceeds a certain ratio. A company is considered thinly capitalised if its level of debt greatly exceeds its equity (i.e., it is highly leveraged).

← 15.  Earnings before interest, taxes, depreciation, and amortisation.

← 16.  At the time of this report, around 120 jurisdictions required at least Country-by-Country reporting

← 17.  The Platform for Collaboration on Tax has released a set of general Tax Incentive Principles (not focusing on CRMs) to help policymakers identify and secure any potential social gains from tax incentives while avoiding their pitfalls (IMF-OECD-WB-UN, 2025[22]). The OECD has developed a Practical Guide to Investment Tax Incentives to support policymakers and practitioners to better design and implement tax incentives based on these principles (OECD, 2025[1]).

← 18.  The OECD/G20 Inclusive Framework is a group of over 145 countries and jurisdictions

← 19.  A tax to GDP ratio measures tax collected compared to the size of the economy, as measured by GDP.

← 20.  This may in part reflect issues related to the measurement of the informal economy in Kyrgyz GDP statistics, but also the surge in re-export activities since early 2022

← 21.  Ring-fencing of mining income is an approach that requires each mine or project to be taxed separately, rather than allowing multiple mines to be taxed on a consolidated basis. This means that revenue, deductions, and ultimately tax liability are assessed on a mine-by-mine or project basis, preventing profits from one mine or project from being reduced by losses from another.