Item 1. Report of the Secretary of the Council on the implementation of previously discussed issues

Item 2. Regarding the draft Law of the Republic of Armenia “On Making Additions and Amendments to the Tax Code of the Republic of Armenia” developed by the State Revenue Committee of the Republic of Armenia (revision of certain transfer pricing regulations)

Regulations proposed by the draft

a) The draft proposes that transfer pricing audits should not be planned in advance, since the analysis of transfer pricing documentation may create a need to initiate a transfer pricing audit of a taxpayer who was not included in the audit plan.

b) With respect to subparagraph (b) of the definition of a “country with special preferential tax systems” provided under Point 5, Part 1 of Article 361 of the Tax Code, it is proposed to develop an order of the Chairman of the State Revenue Committee of the Republic of Armenia that will also clearly define the specific features relating to organizations or entities benefiting from special tax regimes.

c) The scope of application of transfer pricing regulations has been clarified for non-resident profit taxpayers operating in the Republic of Armenia through a permanent establishment. In particular, it has been established that transfer pricing regulations shall apply where income or transactions are attributable to the permanent establishment of a non-resident profit taxpayer operating in the Republic of Armenia through such permanent establishment.

d) Part of the amendments and proposals envisaged by the draft concern the procedure for submitting transfer pricing tax calculations (including revised calculations) based on a proposal made by the tax authority following transfer pricing analyses conducted by the tax authority. As a result of the proposed amendments, even more favorable conditions are established for taxpayers to submit transfer pricing tax calculations without penalties or fines. At the same time, deadlines are clarified in order to regulate the dialogue process between the tax authority and the taxpayer.

e) The draft also provides for an extension of the deadline for taxpayers to submit notifications regarding controlled transactions until July 30 inclusive.

f) For the application of transfer pricing regulations and the obligation to submit notifications regarding controlled transactions, a threshold exceeding a cumulative amount of AMD 600 million during the tax year is proposed.

g) It is proposed to reduce the amount of liability for failure to submit transfer pricing documentation within the prescribed deadline by establishing fines of AMD 1 million, AMD 3 million, or AMD 5 million, depending on the amount of gross income for the reporting year in which the controlled transaction was carried out.

SME Development 40th Sub-Council Meeting