Aykhan Asadov, Partner

Baker & McKenzie – CIS, Limited (Baku)

Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.

Update on Double Taxation Avoidance Treaties

AmCham Tax and Customs Committee

February 9, 2010

Update on Double Taxation Avoidance Treaties

Double Taxation Avoidance Treaties: Background

• International Trade Leads to Situations where Tax Resident of One State is Taxed in One or More Other States

• Conflict between Provisions of Two or More Taxing Jurisdictions with Regard to Same Income Is Known as “Double” Taxation

• To Avoid Double Taxation, Trading Nations Agree through Bilateral Treaties Not to Tax Income and Assets which Are Otherwise Subject to Taxation in Any or Both Jurisdictions

Update on Double Taxation Avoidance Treaties

Double Taxation Avoidance Treaties of Republic of Azerbaijan

• 39 Treaties Signed

• 39 Treaties Ratified by Azerbaijan

• 33 Treaties Effective

• Negotiations with More (Syria, Libya) Are Underway

• By Comparison, as of Beginning 2007, Azerbaijan Had 26 Signed Treaties with Only 22 Effective

• As of March 2009, Azerbaijan Had 29 Effective Treaties

Update on Double Taxation Avoidance Treaties

Treaty Mechanisms andUse in Azerbaijan

• Double Taxation Can Be Avoided through Limited or Complete Exemption

• Where Exemption Granted Results in Reduced or No Taxes, Exemption Is Applied through Tax Refund or Advanced Clearance Procedures

• Treaties Rarely Used to Structure Investments in/out of Azerbaijan as No Complete Exemptions Are Granted thereunder and, until Recently, there Were No Treaties with “Popular” Jurisdictions

• “Old” Soviet Treaties Implemented with Germany (before Replaced with New Treaty) and Japan (Still in Effect)

• Situation Is Improving with New Treaties Coming into Effect

Update on Double Taxation Avoidance Treaties

Updates as of January 1, 2010

• Start of Calendar Year Is Traditionally Used for Double Taxation Treaties to Come into Effect in Relation to Particular Taxes Listed in Treaty

• Treaty with Luxembourg, “Popular” and Credible Jurisdiction, Came into Effect (According to Azerbaijani Ministry of Taxes, July 2, 2009)

• Treaty with Netherlands, Another “Popular” and Credible Jurisdiction, Came into Effect (According to Ministry of Taxes, December 18, 2009)

• Status of Treaty with UAE Remains Unclear

• Reference to Ministry of Taxes’ Webpage on Status of Treaties: http://www.taxes.gov.az/?name=beynelxalq&lang=

Update on Double Taxation Avoidance Treaties

List of Azerbaijani Double Taxation Avoidance Treaties

Country Date of Ratification by Azerbaijan Date of Implementation

1 Great Britain September 29, 1995 October 18, 1991

2 Norway June 25, 1996 January 1, 1997

3 Pakistan June 25, 1996 Not Implemented

4 Uzbekistan July 16, 1996 January 1, 1997

5 Kazakhstan November 15, 1996 January 1, 1998

6 Turkey December 27, 1996 January 1, 1998

7 Georgia April 15, 1997 January 1, 1998

8 Poland February 13, 1998 January 1, 2006

9 Russia April 10, 1998 January 1, 1999

10 Moldova December 8, 1998 January 1, 2000

11 Ukraine March 24, 2000 January 1, 2001

12 Austria October 24, 2000 January 1, 2002

13 Belarus February 1, 2002 January 1, 2003

14 France February 19, 2002 January 1, 2006

15 Romania December 5, 2003 January 1, 2005

16 Lithuania September 10, 2004 January 1, 2005

17 Belgium October 26, 2004 January 1, 2007

18 Italy October 26, 2004 Not Implemented

19 Germany March 1, 2005 January 1, 2006

20 China June 14, 2005 January 1, 2006

Update on Double Taxation Avoidance Treaties

List of Azerbaijani Double Taxation Avoidance Treaties

Country Date of Ratification by Azerbaijan Date of Implementation

21 Canada December 30, 2005 January 1, 2007

22 Latvia March 1, 2006 January 1, 2007

23 Czech Republic March 1, 2006 January 1, 2007

24 Finland April 21, 2006 January 1, 2007

25 Luxembourg October 2, 2006 July 2, 2009

26 Switzerland April 10, 2007 January 1, 2008

27 UAE April 10, 2007 July 25, 2007

28 Qatar October 19, 2007 March 11, 2008

29 Tajikistan October 19, 2007 October 23, 2007

30 Estonia December 18, 2007 November 27, 2008

31 Bulgaria April 1, 2008 November 25,2008

32 Japan April 1, 2008 December 28, 1991

33 South Korea May 18, 2008 January 1, 2009

34 Hungary June 13, 2008 December 15, 2008

35 Jordan October 2, 2008 Not Implemented

36 Netherlands December 16, 2008 December 18, 2009

37 Greece April 3, 2009 Not Implemented

38 Kuwait April 28, 2009 Not Implemented

39 Iran April 28, 2009 Not Implemented