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13.4.1. Main Rules

The Armenian transfer pricing rules were adopted in October 2016 in the framework of the new Tax Code and are effective from 1 January 2020.

The rules apply to the following:

  • Supply of goods, disposal of intangibles, and rendering of services between a resident entity and a non-resident related party;
  • Supply of goods, disposal of intangibles or rendering of services between two resident related parties to the extent one of the parties (a) enjoys tax incentives with respect to profit tax, mineral tax or VAT, (b) operates in a free economic zone, or (c) pays the mineral royalty tax; and
  • Transactions between resident entities and persons established in “offshore jurisdictions” (or “jurisdictions with exceptionally liberal taxation” as now formally called) (see Sec. 13.5.), regardless of whether the parties are related or not.

Definition of Related Parties

Parties are deemed to be related when one party controls the business decisions of another party or holds therein an interest of 20% or more of the share capital; or when a third party controls the business decisions of 2 or more other parties or holds in those parties an interest of 20% or more in the share capital.

One party is deemed to control the business decisions of another party if:

  • It holds therein 20% or more of the voting rights;
  • Has the power to appoint the majority of the board of directors of the other party;
  • Debt lent or guaranteed by one party represents 51% or more of the net book value of total assets of the other party;
  • More than 80% of one party’s revenue or expenditure derives from transactions with the other party (with the exclusion of acquisition/sale of intangibles and interest income/expense);
  • The parties entered into an agreement lasting longer than one year for the use of the property for no consideration and such property constitutes 51% or more of the net book value of the assets of the party using the property; or
  • The parties concluded a joint venture agreement whereby one of the parties invests more than 50% of its assets in the joint venture.

As mentioned above, dealings with persons established in offshore jurisdictions (see Sec.13.5.) fall under the transfer pricing rules ambit regardless of whether or not the parties are actually related.

Applicable TP Methods

The law provides for the use of one of the OECD approved traditional or transactional methods as under:

  • Comparable uncontrolled price (CUP) method;
  • Resale price method;
  • Cost-plus method;
  • Profit split method; or
  • Transactional net margin method (TNMM).

If two or more methods are selected as the most appropriate and one of those methods is the CUP method, then the CUP method should be applied in priority.

Use and Availability of Comparables

The use of comparables depends on the facts and circumstances of the transactions. Taxpayers may use internal or external comparables for determining the arm’s length price. Taxpayers may use the information sources prescribed by the Tax Code for searching the comparables on uncontrolled transactions. While applying a comparability factor, the results of the controlled transaction are compared with the results of the uncontrolled transaction for the same tax year.