ARMENIA Law and Practice Contributed by: Aram Orbelyan, Narine Beglaryan, Artur Hovhannisyan, Lilit Karapetyan, Sarkis Knyazyan and Shushanik Stepanyan, Concern Dialog
5.5 Thin Capitalisation Rules and Other Limitations There are no thin capitalisation rules in Armenia. At the same time, there are some limitations on the deductibility of interest expenses. The following are not deductible from gross income: • interest on loans and credit facilities exceeds twice the settlement rate set by the Central Bank of Armenia (currently, the deductible interest rate is capped at 24%); and • annual interest on loans received from non-bank and non-credit entities that, according to fiscal year results, is above: (a) the two-fold positive amount of the equity of the taxpayer (excluding banks and credit organisations) on the last day of the fiscal year; and (b) the nine-fold positive amount of the equity of a taxpayer that is a bank or credit organisation on the last day of the fiscal year. 5.6 Transfer Pricing Under the Tax Code, transfer pricing rules are appli - cable for a taxpayer if the amount of all supervised transactions of the taxpayer exceeds AMD200 million for the current year. According to the Tax Code, there are several transfer pricing methods allowed: • the comparable uncontrolled price method – where the price of the object of a controlled transaction is compared with the price of the object of a compa - rable uncontrolled transaction; • the resale price method – where the mark-up derived from the resale of an object of a controlled transaction is compared with the mark-up derived from the resale of an object of a comparable uncontrolled transaction; • the cost-plus method – where the mark-up on the direct and indirect costs incurred during the supply of an object of a controlled transaction is com - pared with the mark-up on the direct and indirect costs incurred during the supply of an object of a comparable uncontrolled transaction; • the transactional net margin method – where the net profit realised from a controlled transaction rel -
ative to an appropriate base – in particular, costs, sales and assets – is compared with the net profit realised from a comparable uncontrolled transac - tion relative to the same base; and • the profit split method – where each of the related taxpayers participating in a controlled transaction receives the share of the profit generated or loss incurred from the transaction in question, which a person not considered as related would anticipate when participating in a comparable uncontrolled transaction (within the meaning of this point, the profit generated from the transaction shall mean the positive difference between the income gener - ated and the costs incurred within the scope of the The Armenian legislation envisages liabilities provided by the Code on Administrative Offences of the Repub - lic of Armenia, Tax Code of the Republic of Armenia and Criminal Code of the Republic of Armenia. • The Code on Administrative Offences of the Republic of Armenia provides for administrative liability in cases where a taxpayer fails to submit information to the tax authorities within the pre - scribed time limit or submits incorrect information (Article 170.6). For these offences, the Code pro - vides for the imposition of a fine on the taxpayer. • The Tax Code of the Republic of Armenia estab - lishes tax liability for tax evasion. Such liability may arise where a taxpayer fails to pay taxes within the prescribed time limits, submits a tax return after the prescribed deadline or fails to submit one at all, understates the amount of tax due, overstates a tax loss, fails to maintain accounting records in the prescribed manner, or fails to provide accounting records to the officials responsible for conducting tax audits. • Apart from the liability for the taxpayer legal enti - ties, natural persons (individuals) are obliged to annually declare their income, from which the relevant income tax should be calculated. The Tax Code provides tax liability in the form of fines, pen - alties and interests for taxpayers who have com - mitted the abovementioned tax offences. transaction in question). 5.7 Anti-Evasion Rules • Concerning criminal liability, it should be men - tioned that, pursuant to the anticipated amend -
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