Azernews.Az

By Aynur Jafarova

The draft law on transfer pricing will be re-submitted to the Azerbaijani government after revision and improvements in accordance with proposals, head of the legal affairs department of the Ministry of Taxes Samira Musayeva told Trend news agency.

According to her, special attention should be paid to the intersecting of transfer and market prices.

The draft law on transfer pricing was developed a year ago. Then it was submitted to the government, which sent it back for revision in accordance with the conclusions of relevant government agencies and the proposals made by entrepreneurs.

"The bill still needs to be improved as there is also the economic side of the issue -- with regard to protecting the rights of taxpayers and ensuring tax administration efficiency," Musayeva said.

According to international practice, the introduction of tax control over transactions of head companies and subsidiaries of interdependent companies is a moot point. Some countries cancel transfer pricing a year after its adoption, she said.

"It has not justified itself in view of the fact that the legal regulation was flawed, although transfer pricing is relevant and prioritized for us, and we do not want to repeat the mistakes of other countries. This issue requires a comprehensive approach, and it will be improved while taking into account the interests of all parties," Musayeva said.

The law will go into effect in 2014, depending on the progress of discussions and conclusions, as transfer pricing affects the interests of all entrepreneurs, as well as the country's image, she said.

"Transfer pricing as well as partnerships in the evaluation of the taxation system and overall image of the country is one of the important issues in terms of compliance with international obligations," Musayeva said.

Taxation of transfer prices in Azerbaijan was initially planned to be introduced in the Tax Code. However, it was later decided to regulate this matter through a separate law.

The world practice provides five basic methods for determining transfer prices for the purpose of taxation.

In Azerbaijan, this is currently regulated by Article 14 of the Tax Code. In case a new law is passed, the application of this provision will be expanded. The law will specify specific mechanisms of transfer pricing taxation.

Transfer prices are formed during transactions between subsidiaries of large companies and lead to an artificial increase in costs. This process has turned into a negative trend with regard to tax evasion.

The problems arise when companies resell products at low prices to their affiliated companies, which then re-sell them at the market price, as well as when taxation differs from country to country.

Given that these factors affect state revenues from income tax, the outcome from the use of this type of tax will be felt at least one year after this law takes effect.

Earlier Azerbaijan's Taxes Minister Fazil Mammadov said that the taxation of transfer prices is a complex area, therefore, a decision was taken to develop a separate law.