Azerbaijan – Transfer Pricing (2025)

Legal framework and scope

Azerbaijan’s transfer pricing framework incorporates the arm’s length principle into domestic law and defines the scope for related-party transactions and permanent establishments. The arm’s length principle is reflected in the Tax Code at Article 13.2.65. Administrative rules titled Rules for Determining and Applying Transfer Pricing (Decision of the Board of The Ministry of Taxes of The Republic of Azerbaijan, 27 January 2017) explicitly refer to the OECD Transfer Pricing Guidelines (TPG) and state that terms used for transfer pricing purposes shall be applied in the meaning adopted in the OECD TPG unless otherwise specified (Rules, para. 2.0).

Material scope covers transactions between residents and non-residents, transactions between permanent establishments of non-residents and their head offices or affiliates, and transactions involving entities resident in preferential tax jurisdictions. Tax Code Article 14-1.2 details covered transactions: 14-1.2.1 covers transactions between a resident and non-resident persons who are mutually dependent, including representative offices and branches; 14-1.2.2 covers transactions between a non-resident’s permanent establishment in Azerbaijan and that non-resident or its other divisions in other states or any other mutually dependent person located abroad; 14-1.2.3 covers transactions between a resident (or a non-resident with a permanent office in Azerbaijan) and entities registered in preferential tax jurisdictions; and 14-1.2.4 applies, subject to conditions, to resident or permanent establishment transactions with non-residents except where the specific exceptions in 14-1.2.1–14-1.2.3 apply. Notably, 14-1.2.4.1 excludes transactions in products traded on international commodity exchanges, and 14-1.2.4.2 provides that the rules apply where a resident’s or permanent establishment’s total income in the tax year exceeds 30 million manats and the share of transactions with each non-resident in total income (expenses) exceeds 30 percent.

Definition of related parties (including PEs)

Related-party definitions for tax purposes appear in Tax Code Article 18 (Interdependent persons). Article 18.1 defines interdependent persons as individuals and/or legal entities whose relations may directly affect the economic results of their activities or of the persons they represent. Article 18.2 enumerates the cases considered mutually dependent: 18.2.1 a person directly or indirectly participates in another’s property/capital and the share or voting rights are at least 20%; 18.2.2 a person is subordinate to another because of their position or is directly or indirectly under another’s control; 18.2.3 persons are directly or indirectly under the control of a third party; 18.2.4 persons directly or indirectly jointly control a third party; and 18.2.5 family members specified in Article 13.2.7 of the Code. Article 18.3 defines control as the ability to restrict or direct another person’s activities. In addition, Article 14-1.2 expands the scope to relationships between residents and non-resident PEs and relationships involving entities in preferential tax jurisdictions.

Arm’s length principle and the role of the OECD Guidelines

Administrative rules state that the concepts used for transfer pricing shall be applied in the sense adopted in the OECD Transfer Pricing Guidelines unless otherwise specified (Rules, para. 2.0). Selection of transfer pricing methods follows the OECD TPG’s general recommendations and aims to find the most appropriate method for each case. Where reliable and applicable, the CUP method has priority. Thus, the OECD Guidelines play a direct interpretative and practical role in Azerbaijan’s transfer pricing framework.

Methods and application criteria

Domestic law contemplates the full set of commonly used methods. Tax Code Article 14-1.7 and Rules for Determining and Applying Transfer Pricing (paras 5.1.1–5.1.5) list the Comparable Uncontrolled Price (CUP) method, Resale Price Method (RPM), Cost Plus Method (CPM), Transactional Net Margin Method (TNMM) and Profit Split. The selection criterion is the “most appropriate method” approach and, where possible, CUP should be applied first (Rules, 5.2). If CUP cannot be applied due to unavailable or unreliable comparables, other methods are used considering the nature of the controlled transaction, characteristics of the parties and other indicators; if both RPM/CPM and TNMM/Profit Split are applicable, RPM or CPM should be preferred (Rules, 5.3–5.4).

Comparability and ranges (preference for comparables and adjustments)

Azerbaijan aligns its comparability analysis with Chapter III of the OECD TPG (Rules, Section 4). There is no statutory preference for domestic comparables over foreign comparables, and the use of secret comparables for transfer pricing assessment is not permitted. The domestic framework requires the use of an arm’s length range where comparables exist and defines the interquartile range (Rules, para. 2.0.9) as the interval between the median of the lower quartile and the median of the upper quartile for the selected indicators (price, margin, or specific weight). If a tested price falls outside the interquartile range, tax is calculated using the median of that range. If only one comparable is identified, the transfer price is calculated on the basis of that single comparable’s indicators (Rules, 6.2). When multiple comparables are available, the transfer price is calculated by determining the interquartile acceptable range of the selected relevant indicators (Rules, 6.3). The jurisdiction follows OECD guidance that comparability adjustments must be made where material differences exist, where possible.

Intangibles and specific areas

Rules for Determining and Applying Transfer Pricing include specific guidance for transactions involving intangible property (Rules, articles 4.4.1–4.4.4). In addition to general comparability factors, the guidance directs comparison of the market advantage the acquirer will obtain, any geographic restrictions or prohibitions on use or representation, whether the right is exclusive or non-exclusive, and whether the acquirer has authority to improve or modify the intangible. The profile states there are no other rules outside the transfer pricing framework relevant to intangibles.

Hard-to-value intangibles (HTVI)

The domestic framework does not contain specific guidance for HTVIs; the profile indicates no HTVI approach has been implemented.

Intra-group services

The profile indicates there is no specific domestic guidance for intra-group services; however, it also states that the guidance in Chapter VII of the OECD TPG is followed. There is no domestic provision implementing the simplified low value-adding intra-group services approach and, as of March 2025, regulations for the simplified and streamlined approach for baseline marketing and distribution activities have not been established.

Financial transactions and related rules

The Rules for Determining and Applying Transfer Pricing include guidance specific to financial transactions (para. 4.5) and indicate alignment with Chapter X of the OECD TPG. Additionally, Tax Code Articles 110.1 and 110.3 impose restrictions on interest deductibility. Article 110.1 limits deductible interest to not exceed 125% of the average interbank loan interest rate (from bank auctions for similar periods or, in their absence, from the Central Bank’s published average). Article 110.3 provides a thin-cap rule: if foreign debt (excluding certain debts) exceeds twice the taxpayer’s net assets (capital), interest on the portion of debt exceeding twice net assets is not deductible.

Cost contribution arrangements

Cost contribution arrangements are allowed. The profile states there are no detailed domestic rules specifically regulating CCAs, but these arrangements are permitted under the transfer pricing framework and the approach is largely consistent with the OECD Chapter VIII guidance.

Transfer pricing documentation

Azerbaijan requires Master File, Local File and Country-by-Country Reporting (CbCR) consistent with Annexes I–III to Chapter V of the OECD TPG (Tax Code Articles 16.1.4; 16.1.4-1; 16.9 and Rules, Section 4 and 5; para. 7.4). Practical submission rules are: Master File must be provided within 60 days upon request of the tax administration; Local File submission depends on the threshold of transactions—if controlled transactions exceed AZN 500,000, the Local File (Report on controlled transactions) must be submitted no later than 31 March of the year following the reporting year (the same filing deadline as corporate income tax returns); for transactions below AZN 500,000 the Local File is to be submitted within 60 days upon request of the tax authority. For CbCR, where a multinational enterprise group’s total annual consolidated revenue exceeds the manat equivalent of EUR 750 million in a financial year, the taxpayer resident in Azerbaijan that is part of the MNE must submit the report and notification to the tax authority in the timeframe, format and procedure determined by the relevant executive authority; the Main Enterprise, Authorized Enterprise or Intra-Group Enterprise resident in Azerbaijan shall submit the notification electronically by 30 June of the reporting year. The profile indicates CbCR should be submitted within the reporting year’s applicable period according to administrative rules.

Penalties and compliance incentives

The Tax Code provides specific financial sanctions for documentation failures. Article 57.4 imposes a fine of 6,000 manats where a taxpayer fails to submit reports specified in Articles 16.1.4 and 16.1.4-3 within established deadlines, provides incorrect information in those reports, or fails to submit documents and information specified in Article 16.1.4-1 within 60 days upon request of the tax authority. Article 57.1-2 imposes a fine of 10,000 manats for failure to submit the CbC report and/or notification within the specified period, form and manner. There is an exemption from documentation obligations for transactions below AZN 500,000 unless the tax authority asks for the file.

Administrative approaches to avoid and resolve disputes (APAs and MAP)

Azerbaijan allows Advance Pricing Agreements (APAs) including unilateral, bilateral and multilateral APAs. Section 9 of the Rules for Determining and Applying Transfer Pricing sets out APA procedures: taxpayers may apply to agree in advance on a transfer pricing method prior to conducting a controlled transaction; applications must be submitted at least three months before the transaction (Rules, 9.1–9.2). The tax authority initially reviews the application within 30 days and may extend the review twice, each extension being 30 days, with justification and notification to the applicant (Rules, 9.3). The validity period of the tax authority’s APA letter is three years. Rollback is allowed, and Azerbaijan has MAP Guidance and an OECD MAP Profile. Mutual Agreement Procedures are available to resolve double taxation issues with treaty partners.

Safe harbours and simplification measures

The jurisdiction does not provide safe harbours or other broad simplification measures for particular industries, taxpayers or transaction types beyond the documentation threshold exemption. No specific domestic safe-harbour regimes are reported.

Other legislative or administrative aspects and adjustments

Article 14-1.3 of the Tax Code addresses the tax treatment where a taxpayer’s applied prices lie outside arm’s length bounds: if prices applied are below the lower limit, taxes are calculated at the transfer price; if they exceed the upper limit, taxes are calculated at the actual selling price. The framework does not allow downward corresponding adjustments in the absence of a Mutual Agreement Procedure (MAP). Year-end adjustments are allowed (Tax Code Article 72.5). The profile indicates there are no provisions for secondary adjustments.

Attribution of profits to permanent establishments

Azerbaijan’s tax treaties include both pre-2010 and post-2010 versions of Article 7 of the OECD Model Tax Convention: 55 treaties contain Article 7 as it read before 2010, and 1 treaty contains Article 7 as it reads after 2010. The jurisdiction applies the Authorized OECD Approach (AOA) where applicable, consistent with the 2010 Report on the Attribution of Profits to Permanent Establishments. Domestic law (Tax Code Article 14-1.10) states that determination of profit derived by non-residents from sources in Azerbaijan and tax calculation for a non-resident’s permanent establishment are defined based on that article and transfer pricing rules; there is no separate, detailed domestic regulation beyond the fundamental transfer pricing principles.

Conclusion

Azerbaijan’s transfer pricing regime integrates the arm’s length principle into domestic law and relies extensively on the OECD Transfer Pricing Guidelines as interpretative guidance. The legal framework covers the full suite of OECD-recognized methods, prioritizes CUP where reliable, enforces comparability analysis consistent with the OECD, requires Master File/Local File/CbCR with clear thresholds and deadlines, allows APAs (including unilateral, bilateral and multilateral) with defined processing times and rollback, and applies specific limitations on interest deductibility. No domestic safe harbours are provided and downward corresponding adjustments are not recognized without MAP. Where domestic rules are not detailed in the country profile (for example certain administrative forms or granular practice on services), No domestic specific guidance is provided in the profile and the OECD TPG remain the primary reference.

References

Further information is available on the OECD country profiles page: https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html