Transfer Pricing Initiative

The draft regulation on Transfer Pricing developed by the State Revenue Committee addresses several issues previously raised by the Investment Council of Armenia and discussed during the Sub-Council meeting.

Proposed Regulations under the Draft

a) The draft proposes that transfer pricing audits should not be pre-scheduled, as the analysis of transfer pricing documentation may reveal the need to initiate a transfer pricing audit for a taxpayer who was not included in the planned audit list.

b) With regard to sub-point (b) of the definition of a “country with a special preferential tax system” under Article 361, Part 1, Point 5 of the Tax Code, it is proposed to develop an order of the Chairman of the SRC of the Republic of Armenia, which will clearly define the specifics related 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 is established that transfer pricing regulations will apply where the income or transaction is attributable to the permanent establishment.

d) Part of the proposed amendments relates to the procedure for submitting transfer pricing tax calculations (including revised calculations) based on proposals made by the tax authority following transfer pricing analyses. The proposed changes introduce more favorable conditions for taxpayers to submit transfer pricing tax calculations without penalties or fines. At the same time, deadlines are clarified to regulate the dialogue process between the tax authority and the taxpayer.

e) The deadline for taxpayers to submit notifications on controlled transactions is proposed to be extended until July 30 inclusive.

f) The application of transfer pricing regulations and the obligation to submit notifications on controlled transactions will arise where the aggregate amount of transactions during the tax year exceeds AMD 600 million.

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