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13.4.3. Documentation Requirements

Disclosure Requirements

The transfer pricing rules mandate taxpayers to file a disclosure notice along with their tax return (due by 31 March of the following year). The Notice is required to be submitted with details of all the controlled transactions with a turnover exceeding the threshold of AZN 500,000 per person/per year. The notification includes details such as volume and turnover of the related party transactions (after application of the transfer price), information on the counterparty, and the basis of recognition of the related party.

Standard Documentation

When so requested by the tax authorities in the framework of an audit, taxpayers are required to submit documentation in order to substantiate their transfer pricing policies. In contrast to the Disclosure Notice above, there is no transaction threshold for the standard documentation, and the latter must cover all controlled transactions regardless of their (aggregate) value. Note that for the purposes of preparing transfer pricing documentation, the Rules explicitly authorize the use of

  • Local and international stock market quotes;
  • Foreign trade statistics prepared by the Customs Committee;
  • Reports published in reputable public sources; or
  • Reputable commercial databases to the extent they are also available to the tax administration.

Country-by-Country (CbC) Reporting

Azerbaijan has introduced CbC reporting requirements for resident entities and constituent entities of MNE groups with a consolidated annual income exceeding EUR 750 million.

The CbC reporting requirements apply to financial years beginning on or after 1 January 2020.

The requirement to file CbC report primarily applies to ultimate parent entities resident in Azerbaijan. A secondary filing requirement applies to the Azerbaijani constituent entity of a non-resident parent where:

  • The ultimate parent is not required to submit a CbC report in its jurisdiction of residence;
  • The ultimate parent's jurisdiction has a current international agreement with Azerbaijan on the due date for the report but does not have a qualifying competent authority agreement for the exchange of CbC reports with Azerbaijan; or
  • There has been a systemic failure for exchange by the ultimate parent's jurisdiction, and the notification of failure was provided to the constituent entity.

The secondary local filing requirement does not apply where a surrogate entity has filed a CbC report in another jurisdiction, and certain requirements are met, including that such report will be exchanged with Azerbaijan.

The CbC report must be submitted to the tax authorities within 12 months following the end of the reporting year, with the first report to be submitted by 31 December 2021.

Any constituent entity resident in Azerbaijan must notify the tax authorities by 30 June following the reporting year whether the entity is the ultimate or surrogate parent entity or, if neither, on the identity and residence of the entity submitting a CbC report on behalf of the group. Where there is more than one constituent entity of the same MNE group which is required to file a CbC report, the designated reporting entity must be notified to the tax authorities.

Currently, Azerbaijan has not entered into bilateral Competent Authority Agreements on the exchange of CbC reports (CAAs) nor signed the Multilateral CbC CAA. Therefore, all resident entities of an MNE group are required to submit the notification and the CbC report in Azerbaijan by the end of 2021 (if no CAAs are in force until then).

Language of Documentation

The documentation must, in principle, be prepared in the Azeri language.

Penalties

Failure to comply with the CbC reporting requirements or furnishing inaccurate information in a disclosure notice may result in a fine amounting to AZN 2,000 (increased from AZN 500 effective 1 January 2022).