Armenia transfer pricing laws entered into force in 2020, and they generally align with the Guidelines set by the Organization for Economic Co-operation and Development (OECD). They are incorporated within the Armenian Tax Code.
Arm’s Length Principle
Armenia’s transfer pricing rules generally follow the OECD guidelines and require transactions between related parties to be on arm’s length terms. This means prices in controlled transactions must reflect what would have been charged between independent parties in comparable conditions. As per the requirement of the Armenian Tax Code, the transfer pricing rules apply only if the total sum of all controlled transactions conducted by the taxpayer during the tax year exceeds 200 million drams. Taxes subject to transfer pricing are the VAT, Corporation Income Tax, and mining royalties.
Related Party Definition
In Armenia, two or more taxpayers are considered related parties when one has significant control or influence over the other. This relationship is established if one taxpayer directly or indirectly owns at least 20% of the other’s capital or voting rights, appoints its board members, or guarantees loans exceeding 51% of the other’s assets. Also, a relationship is established when 80% of a taxpayer’s income or expenses comes from transactions with the other party, investments in joint ventures exceed 50% of total assets, or when a free-use property agreement covers over 51% of the property user’s total assets.
Transfer Pricing Methods
The methods that can be used to determine the arm’s length price in Armenia are:
- Comparable Uncontrolled Price Method (CUP)
- Resale Price Method (RSM)
- Cost Plus Method (CPM)
- Transactional Net Margin Method (TNMM)
- Profit Split Method (PSM)
The selection of the method is based on the most appropriate principle. However, a priority is given to the CUP method, if it can be applied with equal confidence as for other methods.
Comparability Analysis
The comparability analysis is used to evaluate whether a transaction between related parties is in line with market conditions. An uncontrolled transaction is considered comparable if there are not big differences affecting the financial indicators, or if those differences can be adjusted. Several factors affect the comparability analysis, including the characteristics of the goods or services, functions performed, risks assumed, assets used, contractual terms, and economic conditions of the market. The analysis also considers business strategies like market entry or innovation plans.
Documentation Requirements
In Armenia, only the taxpayers whose controlled transactions overpass the threshold of 200 million drams in a tax year, are required to notify the tax authority by April 20 of the following year. Taxpayers have to prepare and maintain transfer pricing documentation to prove their pricing complies with the arm’s-length principle. This documentation should describe the taxpayer’s business functions, organizational structure, and details of each controlled transaction, including the parties involved, methods used, and why those methods were chosen. It should also include comparability analysis, any adjustments made, and relevant financial information. If requested by the tax authority, this documentation must be submitted within 30 days, either on paper or electronically.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
There are no provisions for advance rulings or pricing agreements in Armenia.
Penalties
Armenia does not apply penalty provisions for improper pricing. However, nonpayment and late payments are governed by the general penalties.
Taxation at a Glance
The key source of tax legislation in Armenia is Law No. HO-165-N of October 4, 2016, establishing the Tax Code of Armenia, which entered into force on January 1, 2018, and as amended from time to time. The currency of Armenia is the Armenian dram. The official name of the Armenia Tax Authority is the State Revenue Committee.
The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 18% |
VAT | 20% |
Withholding tax on dividends to non-residents | 5% |
Withholding tax on interest to non-residents | 10% |
Withholding tax on royalties to non-residents | 10% |
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