Caucasus and Central Asia in the Globalization Process
294
To help attract further investments in countries,
corporate income tax laws and transfer pricing laws
should be amended so that the rules for setting
prices in intercompany transactions are based on
OECD transfer pricing guidelines. The legislature
reforms should also address the procedure for
competent authorities to use inexamining cross
border disagreements between related parties in
cases that involve a trading partner of Russia and
Azerbaijan that has entered into and ratified a tax
treaty. Tax payers should also have the opportunity
to enter into safe harbors with advance pricing
agreements with the tax authorities for related-party
transactions - a practice that currently does not exist
in either country.
33
Tax Audit Rules and Administration must
be modify to better protect legitimate rights
and interests of taxpayers. Legislation and
regulations affecting investors should be
improved to ensure a favorable climate to the
foreign investors. There are also some problems
in tax audit processes of both countries. Fo
example; although tax legislation in Russia has
moved closer to OECD norms, it is not unusual
for tax auditors to ignore key provisions of the tax
laws or of contracts. It is also proving difficult for
audit issues to be closed and resolved, and
taxpayer rights can regularly be thrown out the
window by a declaration of ‘‘badfaith.’’ In
Russia, 16 months after Putin’s State of the Nation
address (March2005), in which he declared the
need to stop ‘‘tax terrorism’’ by reining in the
unchecked powers of the tax administration. Also
in Russia, a number of important pro-taxpayer
amendments survived the turbulent legislative
process. The result was alimitation of the Ministry
of Interior’s powers to initiate tax-related criminal
charges against taxpayers until after obtaining a
court order.
34
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