KPMG: Armenian taxpayers to start submitting transfer pricing papers to tax agencies soon

YEREVAN, June 7. /ARKA/. In 2018, Armenian taxpayers will start submitting transfer pricing papers to tax agencies, Nerses Nersisyan, head of KPMG Armenia department in charge of tax and legal consulting, told journalists on Tuesday.

In October 2016, he said, a new tax code was adopted in Armenia, in which one section was dedicated to transfer pricing, which applies to almost all big entrepreneurs in the country.

“The law comes into force on January 1, 2018, and tax agencies can demand the first transfer pricing papers only in 2019,” Nersisyan said. “However, this will actually be a heavy burden for businesses, since they will have to comply with new requirements and have to be prepared for them beforehand and also since there were no similar systems in Armenia before [all CIS countries have similar laws].”

Referring to world surveys, Nersisyan said that transfer pricing is the tax segment’s key problem that troubles entrepreneurs – as a rule, business people face the problem the first two or three years after the launch of the system.

Business people should make all necessary preparations to avoid problems.

In particular, the minimum benchmark is set in Armenia for controlled transactions – transfer pricing applies to deals, totaling over AMD 200 million a year, with tied parties or the parties registered in offshore zones.

First of all, it applies to royalty-paying companies [mining companies – ARKA], companies enjoying profit tax preferences or companies registered in free economic zones.

“These rules apply rather to large than to small businesses and they can help in struggling against capital outflow from Armenia,” Nersisyan said.

Konstantin Karpushin, head of KPMG Group in Ukraine, on his side, said that Armenian entrepreneurs have a big paperwork to do, which implies “a history” to be written by taxpayers with their contractors.

The taxpayers have to present the bases of pricing and if their justification is insufficient, in tax agencies’ opinion, then tax sanctions will be imposed on these companies.

“For example, Ukraine started applying tax pricing a few years ago [in 2013 – ARKA], a unit has been established for inspections, some 250 histories have been required from taxpayers since then and 36 of them have already been considered,” Karpushin said. “Some of the decisions have been made in favor of taxpayers, but there are other cases, particularly when taxpayers have already lost in court the necessity of additional tax – the $14.8 million found out by tax agencies.”

The first thing that should be done by the taxpayers subject to transfer pricing is to understand that the government gives a clear message – it says that the profits formed in Armenia should remain in the country and be subject to taxation here.

KPMG is the one of the world biggest consulting and audit companies. It has offices in 160 countries.

The company carries out in Armenia financial audit in conformity with international accounting standards.