Country-by-Country (CbC) reporting is a regulatory requirement implemented by the Organisation for Economic Co-operation and Development (OECD) under the Base Erosion and Profit Shifting (BEPS) Action Plan. The CbC reporting framework is designed to improve transparency in international tax matters and help prevent multinational corporations from shifting profits to low-tax jurisdictions. In Azerbaijan, CbC reporting is mandatory for multinational corporations with annual consolidated group revenue of at least EUR 750 million. In this article, we will explore how CbC reporting is presented in Azerbaijan and everything that a company must know to match the requirements.

Overview of CbC Reporting in Azerbaijan

In Azerbaijan, CbC reporting is regulated by the Law on Taxation, which was amended in 2018 to include the CbC reporting requirements. According to the law, Azerbaijani resident entities that are part of a multinational group with annual consolidated group revenue of at least EUR 750 million are required to prepare and file a CbC report.

The CbC report must be filed with the Azerbaijani tax authorities within 12 months after the end of the fiscal year. The report must be submitted electronically, in XML format, through the online platform of the State Tax Service. The CbC report should provide detailed information on the activities, profits, and taxes paid by the multinational group in each jurisdiction where it operates.

The CbC report should also include information on the identity and tax residency of the constituent entities of the multinational group, their business activities, and the amount of revenue, profit before income tax, income tax paid and accrued, and the number of employees in each jurisdiction.

The CbC report should be prepared in Azerbaijani or English, and in case of any discrepancies between the two versions, the Azerbaijani version shall prevail.

Penalties for Non-Compliance

Failure to comply with the CbC reporting requirements in Azerbaijan may result in penalties. According to the Law on Taxation, the penalty for non-compliance with the CbC reporting requirements is AZN 50,000 (approximately USD 30,000). Additionally, failure to provide accurate and complete information in the CbC report may result in an additional penalty of up to 1% of the annual consolidated group revenue.

Requirements for Multinational Groups

Multinational groups with Azerbaijani resident entities that are required to prepare and file a CbC report must appoint a reporting entity to file the report on behalf of the group. The reporting entity should be the ultimate parent entity of the multinational group, unless:

• The ultimate parent entity is not obliged to file a CbC report in its jurisdiction of tax residence, or
• The tax authorities of the jurisdiction of tax residence of the ultimate parent entity have not entered into an agreement for the exchange of CbC reports with the Azerbaijani tax authorities.

In these cases, another constituent entity of the multinational group may be designated as the reporting entity.

The multinational group should also appoint a surrogate parent entity to file the CbC report in case the ultimate parent entity is not obliged to file a CbC report in its jurisdiction of tax residence or if the tax authorities of the jurisdiction of tax residence of the ultimate parent entity have not entered into an agreement for the exchange of CbC reports with the Azerbaijani tax authorities.

Conclusion

In conclusion, CbC reporting is a mandatory requirement in Azerbaijan for multinational groups with annual consolidated group revenue of at least EUR 750 million. The CbC report should be filed electronically, in XML format, through the online platform of the State Tax Service. The report should provide detailed information on the activities, profits, and taxes paid by the multinational group in each jurisdiction where it operates. Failure to comply with the CbC reporting requirements may result in penalties, and multinational groups with Azerbaijani resident entities should appoint a reporting entity and a surrogate parent entity to file the CbC report.

To ensure compliance with CbC reporting requirements in Azerbaijan, multinational corporations should establish internal procedures to collect the necessary information and ensure that the reporting entity has access to this information. It is also essential to keep track of changes in regulations and reporting requirements in each jurisdiction where the multinational group operates.

In addition to compliance requirements, multinational corporations should also consider the potential benefits of CbC reporting. CbC reporting can provide useful information on the distribution of profits, taxes paid, and economic activities of the multinational group, which can be used to identify areas for improvement and optimize the group’s tax strategy.

Overall, CbC reporting is an essential regulatory requirement in Azerbaijan that multinational corporations must comply with. By establishing robust internal procedures and appointing a reporting entity and surrogate parent entity, multinational corporations can ensure compliance with CbC reporting requirements and potentially benefit from the insights provided by CbC reporting.