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    Recent transfer pricing developments

AZERBAIJAN - Recent transfer pricing developments

March 2019

The definition of the term “transfer price” has been modified to bring more clarity: the transfer price is the price established in transactions between persons set out in Article 14-1.2 of the Tax Code and is commensurate with the prices charged in comparable transactions carried out under the same conditions between independent persons.

Alongside the updated definition of transfer price, other noteworthy amendments concerning transfer pricing include, in particular:

  • The removal of the requirement to apply the comparable uncontrolled price (“market price”) method to transactions on which specific transfer pricing methods (resale price, cost-plus, transactional profit, profit split methods) are to be applied.
  • The range of persons (the “Covered Person/s”) between which transactions are subject to transfer pricing has been modified. Now the transfer pricing methods are to be applied with regard to transactions between the following persons:
  • Transactions of residents of the Republic of Azerbaijan with their related parties qualifying as non-residents;
    • Transactions of a non-resident’s permanent establishment in the Republic of Azerbaijan (the PE[1]) with the non-resident itself or with its branch offices, representative offices or divisions in other countries, and of the PE with any other person that is a related party to the PE and is domiciled in another country;
    • Transactions between a resident of the Republic of Azerbaijan or a non-resident with persons incorporated (registered) in low tax countries.
  • There is no longer an annual threshold (previously controlled transactions exceeding AZN 500,000) for the application of transfer pricing. This effectively means that the taxpayers may well have to consider transfer pricing implications in respect of each transaction with the Covered Person/s carried out within the calendar year;
  • Taxpayers will be required to file an annual report on controlled transactions no later than 31 March of the following calendar (reporting) year – not merely on transactions the value of which exceeds AZN 500,000 per annum per Covered Person, but on transactions where the transfer-price-based value exceeds AZN 500,000 per annum per Covered Person. As noted above, this requirement will necessitate undertaking a transfer pricing study for each controlled transaction, not only because this has an impact on a taxpayer’s corporate income tax (profit tax), but also because a new financial sanction of AZN 500 will be imposed for the failure to submit accurate information in the above-mentioned annual report. Previously this financial sanction applied only for the failure to submit this report on time.

Azer Akbarov
[email protected] or
[email protected]


[1] ; for instance, a branch office of foreign legal entity in the Republic of Azerbaijan