Taxation (Armenian Tax Code and Tax Audit Considerations)
Structure of the Armenian tax system
The Tax Code of the Republic of Armenia (current consolidated code effective from 2018, as amended) governs profit tax, income tax, VAT, excise, property tax, land tax, and the turnover tax regime for small businesses. Key concepts: residency-based taxation for companies, permanent establishment rules, transfer pricing documentation thresholds, and the distinction between tax avoidance and evasion.
Profit tax and VAT
Profit tax is levied on taxable profit (accounting profit adjusted for non-deductible items, exempt income, and carried-forward losses). VAT is a destination-based, credit-invoice tax; input VAT is creditable only with proper tax invoices and where the purchase relates to taxable supplies. Traps: entertainment expenses and fines are typically non-deductible; bad debt deductions require specific conditions; VAT registration thresholds and the special regimes (micro, turnover tax) have specific turnover limits that change with amendments - verify the current threshold rather than memorising an old figure.
Tax audits
Understand the types of tax control (desk, field, on-site), the taxpayer's right to appeal to a higher tax authority and then to the Administrative Court, and the statute of limitations for assessment. The auditor's role in a statutory audit is to test tax balances and disclosures, not to perform a tax audit; but ISA 250 requires consideration of compliance with laws and regulations.
Worked rule of thumb
When a client's tax provision is uncertain, evaluate whether the position is more likely than not to be sustained; if not, recognise a liability. Document the basis - uncertainty is not a substitute for analysis.