New Amendments To The Tax Code

On 16 December 2016 the President of the Republic of Azerbaijan signed a law amending the Tax Code (the "Amendment Law"). These are the long-awaited amendments whose adoption was expected after the President signed on 4 August 2016 an instruction on the directions of tax reforms in Azerbaijan for 2016.

Below is general summary of the changes introduced by the Amendment Law.

Definition of Income Introduced

Nearly 16 years after the current Tax Code became effective, a definition of the "income" now has been introduced. In accordance with the Amendment Law, income is defined as the total value of transactions in connection with the sale of goods (works, services), as well as non-sales income.

The time of the receipt of income for tax purposes shall be determined in accordance with Articles 132 and 135 of the Tax Code, i.e., reference is made to the time of the receipt of income based on the cash and accrual methods.

In general, sub-article 13.2 of the Tax Code, providing definitions used in the Code, has been thoroughly amended and new definitions were added such as "voluntary tax disclosure", "trade mark-up", "retail", "wholesale", "transfer price", "financial institution", "electronic audit", "tax advantage", "tax avoidance scheme", and "actual economic index of a taxable operation".

Transfer pricing provisions introduced

As was expected, Article 14 concerning the notion of market price has been supplemented by a new Article 14-1 with regard to transfer pricing provisions.

Taxes taking into account a transfer price may be calculated on transactions, inter alia, between (i) a resident of Azerbaijan and a non-resident person related to it or (ii) a permanent establishment of a non-resident and its head office or its representative offices, branches or departments located in other countries provided that the total value of the operations exceeds AZN 500,000 per each person.

Additional reporting also has been introduced with regard to transfer pricing provisions, e.g., where the value between above mentioned persons exceeds AZN 500,000 per each person. The failure to submit a report would result in a financial sanction of AZN 500.

Taxpayers will now be entitled to apply to the tax authorities for an advance assessment of tax liabilities ("Advance Tax Ruling").

Procedures for the application and issuance of a tax ruling are regulated by the new amendments to the Tax Code. When issued, the ruling will be applied to each taxpayer and each taxable...