Changes to the tax system in 2016 include amendments to transfer pricing, anti-avoidance, tax rulings and VAT

According to the Resolution, the Ministry of Taxes of the Republic of Azerbaijan (the "Ministry of Taxes") will prepare legislation proposals to implement, among other things, the following reforms:

  • easing of tax reporting and associated administration;
  • limiting the application of VAT to certain added values rather than to the full prices of goods in retail trading;
  • extending the application of the "tax free" model to multiple customs stations in addition to airports;
  • the possibility to obtain advance tax rulings (i.e., binding advance agreements with the tax authority on certain tax obligations) to achieve predictability and adopt risk-free tax planning;
  • introduction of different VAT rates to various goods and services in accordance with international best practices;
  • taxation of e-commerce and the digital economy;
  • introduction of additional transfer pricing rules aimed at avoiding the artificial increase of expenses;
  • simplifying the administration of implementing the treaties on avoidance of double taxation;
  • achieving immediate exchange of information with foreign tax authorities to ensure transparency on profits obtained overseas;
  • introduction of anti-avoidance rules based on international best practices; and
  • establishment of efficient control mechanisms to monitor transactions made by Azerbaijani tax residents in relation to offshore jurisdictions and tax havens.

In accordance with the Resolution, the Ministry of Taxes is now required to ensure that on-site and off-tax audits are performed within short periods of time in compliance with legislation. It must also extend the coverage of electronic tax audits to limit face-to-face contact with taxpayers.

Although discussions on the Resolution by the Milli Mejlis (parliament) of the Republic of Azerbaijan are likely to last until the end of 2016, businesses should already take into account the above-mentioned anticipated reforms in their tax planning because they are likely to have a significant impact on their businesses starting as early as 2017.