The Armenian government has once again circulated a bill on regulating transactions with offshore companies in Armenia. The Transfer Pricing Bill is now on the agenda of Thursday's cabinet meeting.

The particularity of this draft law is that all offshore transactions of more than 1 billion AMD (about $2,429,900 USD) will be monitored. This means that any transaction carried out at a price lower than the market price will be taxed based on the arm's length standard. That is, tax authorities will compare the price of the transaction with the market price and specify the size of the tax. This procedure will be applied to all large companies that have a turnover of more than 1 billion AMD, regardless of whether they deal with an offshore company or not. In practice, this means that all mining companies will be controlled. 

The first subject to be monitored are companies that are affiliated. In Armenia, one method of avoiding being taxed adopted particularly by companies with foreign capital is the following: a product manufactured in Armenia is sold to a foreign company, which is, in fact, the owner of the manufacturing company. Consequently, these interconnected companies don't set a market price between them. This method is widespread among mining companies, though there has yet to be any evidence of obvious manipulations; or more accurately, they haven't been made public. Such interconnected transactions are possible also among local companies. 

Note, the Transfer Pricing Bill was sent to the National Assembly once before but was met with objections by the Standing Committee on Economic Affairs, since the government gets additional leverage in terms of taxing businesses. Also not excluded is the possibility that there was a conflict of interest in the parliamentary committee.

Note, many countries have adopted the method of transfer pricing. The first time it was used was in the US, in the 1960s, then in Europe. It has been applied in Russia since 2012.

Hetq asked the Central Bank of the Republic of Armenia for information on transfers by legal entities in Armenia to  offshore companies using the Armenian banking system but received an elusive response.