Legislative alert: Rules on Partner Taxpayers

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1 December 2016 An up-to-the-minute guide to developments in the legislation of the Republic of Azerbaijan Legislative alert: In this issue, we would like to bring to your attention a brief overview of the recent amendments to the legislation concerning the following: Rules on Partner Taxpayers; The Law on Credit bureaus; Ratification of Double Taxation Treaties with Malta and Kingdom of Sweden; Rules on Build-Operate-Transfer model; Amendment to the Administrative Offences Code; Amendments to the Code of Criminal Procedure. Rules on Partner Taxpayers According to the Order of the Minister of Taxes (the Ministry ) # dated 9 December 2016, the Rules on arrangement of works with the taxpayers acting based on transparent tax partnership (in this section, the Rules ) were approved. The Rules are aimed at encouraging compliance with the tax legislation and set procedures for provision of a personalized approach and expedited services to the taxpayers acting based on transparent tax partnership (the Partner Taxpayer ). Taxpayers should meet, inter alia, the following criteria to be qualified as Partner Taxpayers: - Timely submitting tax returns; - Paying taxes in full amount and on time; - Possessing enhanced electronic signature and preferring electronic correspondences; - No criminal prosecution for economic crimes against such taxpayer during the last 3 years (except for the criminal cases terminated based on exculpatory grounds); and etc. The Rules introduced the new notion of Green corridor, which provides for rendering personalized and expedited services to the Partner Taxpayers. Furthermore, the Rules distinguish between provision of personalized and expedited services via either conventional or

2 innovative methods. The innovative services include, among others: - Rendering services through video calls (via official website of the Ministry, Facebook, Skype, WhatsApp and other communication technology means); - Preparation of special training programs by the Ministry s Training Centre at the initiative of either the Partner Taxpayer or the tax authority; - Entitlement to use a dedicated line of the Ministry s Call center specifically designated for the Partner Taxpayers, and etc. Conventional services, in its turn, include verbal advice, electronic and SMS information services, targeted (on-site) services, and etc. Moreover, there will be specifically designated employee of the respective tax authority (the curator ) appointed to each Partner Taxpayer. The curator, inter alia, ensures rendering of targeted services to the Partner Taxpayers, informs and explains the latest updates on tax legislation and tax compliance, initiates participation of a given Partner Taxpayer in discussions on proposed improvements of tax legislation, renders assistance in resolving any discrepancy or misunderstanding with such taxpayer during the tax audits, and etc. In addition to the above, applications (requests) of the Partner Taxpayers submitted to the respective tax authority are reviewed three times more promptly as compared to the default timeframes set by the Tax Code and the Law on administrative proceedings. The Law On Credit bureaus On 8 December 2016, the Law On Credit bureaus (in this section, the Law ) entered into force. The purpose of the Law is to advance access of individuals and legal entities to the financial services by way of establishing a long-term database on performance of their financial obligations, to boost financial discipline in credit relations and to support stability of the financial system in the country.

3 The Law defines credit bureaus as registered commercial legal entities, mainly engaged in collecting, storing, analyzing information on credit history of the subject and giving credit reports. In addition, credit bureaus conduct the below activities: Compilation of credit histories, preparation and realization (sale) of special software for automatization of credit history usage; Realization (sale) of special literature on the activity of credit bureaus and other information materials; Advisory services on preparation and usage of credit histories; Evaluation of credit obligations fulfillment and solvency of credit history subjects; Provision of individual credit ratings; Conducting statistical researches; Other supporting activities. According to the Law, the credit organizations are obliged to submit information that comprises credit histories to at least one acting credit bureau. The below entities can voluntary submit the said information to credit bureaus: Insurers, reinsurers, lessors (under leasing agreements), factors (under factoring agreements); The Central Bank of the Republic of Azerbaijan (in specific cases); The legal entities and individual entrepreneurs engaged in deferred sales and purchases of goods; Mobile phone operators; The entities providing public utilities (i.e. cold and hot water, sewerage, electricity, gas and heating supply); Other subjects (e.g., courts, notaries, National TV and Radio Board, and etc.)

4 The information submitted to the credit bureaus includes, inter alia: Initial and current amounts of the debt; The purpose of the debt; Payments as per the debt; Prolongation of the payment period; Irrecoverable debts written off from the balance; Amounts of fines and other sanctions, alimony, taxes, mandatory social contributions, and etc. It is also worth to note that provision of all information on the debtors of credit organizations stored in the centralized credit register (maintained by Central Bank) should be provided to any credit bureau created within 2 years from the date of this Law enforcement upon its request once and free of charge. Provision of information from the centralized credit register to credit organizations and credit bureaus should be stopped upon expiry of 2 years from enforcement of this Law. The Law also determines detailed rules on submission of the information, formation of the database of credit histories, usage of credit histories, and etc. Ratification of Double Taxation Treaties with Malta and Kingdom of Sweden On September 30, Parliament of the Republic of Azerbaijan ratified Double Taxation Treaties concluded between Government of the Republic of Azerbaijan and Government of the Republic of Malta and Double Taxation Treaty concluded between Government of the Republic of Azerbaijan and Government of the Kingdom of Sweden. However, there is no yet confirmation received regarding ratification of the treaties from Swedish and Maltese sides respectively. Therefore, the said treaties have not come into force yet. Rules on Build-Operate-Transfer model As we delivered in our May issue of the Legislative alert, the Law on implementation of investment projects related to construction and infrastructure facilities based on special financing came into

5 force on 22 April 2016 (in this section, the Law ) introducing and encouraging implementation of investment projects related to construction and infrastructure facilities based on Build- Operate-Transfer model (the BOT ). On 8 December 2016, detailed Rules implementing the Law and regulating the following matters: conditions of implementation investment projects related to construction and infrastructure projects within the BOT frames by the investors; requirements set for investment projects and investors depending on the type of construction and infrastructure objects; conditions for running respective tenders; specifications and conditions of the BOT agreements; pricing of goods and services received/obtained as a result of respective investment and other relevant matters, came into force as approved by the Presidential Decree. Amendment to the Administrative Offences Code Amendment introduced penalties for violation of the rules on sale and purchase of remote-controlled drones. In particular, acquisition and sale of drones without a special permission of State Civil Aviation Administration of Azerbaijan is now subject to a penalty in the amount from AZN 150 to AZN 300 with confiscation of the drone. Amendments to the Code of Criminal Procedure According to the Law on amendments to the Code of Criminal Procedure of the Republic of Azerbaijan (the CP Code ) dated 29 November 2016, a new chapter of the CP Code was introduced on proceedings concerning application of criminal-legal measures with respect to legal entities. The chapter regulates both pre-trial and trial criminal proceedings for legal entities. As a reminder, substantive provisions on criminal-legal measures applied to legal entities were included into the Criminal Code of the Republic of Azerbaijan (the Criminal Code ) on 7 March However, according to the said amendments to the Criminal Code, effectiveness of those substantive provisions is conditioned by entry of the provisions on application of such criminal-legal measures into force by respective amendments to the CP Code and the Code on Execution of Penalties. As no amendments are

6 made to the Code on Execution of Penalties up to the date in this regard, the respective mechanism is not yet in force. Please note that under the Criminal Code the criminal-legal measures can be applied against the legal entities for commitment of exhaustive list of crimes defined in Article of the Criminal Code by its officials and employees (in certain cases), including money-laundering, bribery, and etc.

7 EY Assurance Tax Transactions Advisory Contacts We hope that you will find this overview helpful. For more detailed information, please contact the following specialists: Arzu Hajiyeva Partner, Tax & Law Tel: +994 (12) Zaur Gurbanov Senior Manager, Tax & Law Tel: +994 (12) Ilya Murzinov Head of Law, Tax & Law Tel: +994 (12) About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY works together with companies across the CIS and assists them in realizing their business goals. 4,500 professionals work at 20 CIS offices (in Moscow, St. Petersburg, Novosibirsk, Kazan, Togliatti, Vladivostok, Yuzhno- Sakhalinsk, Almaty, Astana, Bishkek, Baku, Kyiv, Tashkent, Tbilisi, Minsk and other locations). EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com Ernst & Young (CIS) B.V. All Rights Reserved. This publication has been carefully prepared, but it necessarily contains information in summary form and is therefore intended for general guidance only, and is not intended to be a substitute for detailed research or the exercise of professional judgment. EY can accept no responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate adviser. Contacts Almaty +7 (727) Astana +7 (7172) Baku +994 (12) Kazan +7 (843) Kyiv +380 (44) Minsk +375 (17) Moscow +7 (495) St. Petersburg +7 (812) Tashkent +998 (71) Tbilisi +995 (32)