Tax Audits in Azerbaijan: Rules, Types and Importance for Business

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Tax audits in Azerbaijan are carried out to ensure that taxpayers operate in accordance with the law. This article explains the legal basis for tax audits, desk and field tax audits, the procedures for conducting them, and their importance for businesses.

Legal basis for tax audits

Tax audits are carried out within the powers of the tax authorities. This right is established in Article 23 of the Tax Code.

Tax authorities may also carry out tax monitoring at financial institutions. The purpose of this monitoring is to ensure compliance with international agreements to which the Republic of Azerbaijan is a party (Tax Code, Article 36.6).

In addition to the Tax Code, tax audits are regulated by the Regulation on the State Tax Service and other legal acts.

Examples include:

• Rules for Conducting Desk Tax Audits;
• Rules for Conducting Field Tax Audits;
• Rules for Conducting Electronic Audits and other related regulations.

Article 36.7 of the Tax Code also gives taxpayers the right to apply to court in connection with tax audits.

Types of tax audits

In Azerbaijan, tax audits are mainly divided into two categories (Tax Code, Article 36.1):

• desk tax audit;
• field tax audit.

A desk tax audit is carried out without visiting the taxpayer’s place of business. It is based on the tax returns submitted by the taxpayer, other documents available to the tax authority and information from known sources. Tax authorities analyse the submitted information and may request additional explanations if any inconsistency is found.

A field tax audit is carried out at the taxpayer’s place of business. During the audit, the tax authorities may review financial and accounting records, tax reports, transactions and other relevant documents. A formal decision by the tax authority is required to conduct a field tax audit, including an electronic audit. A field audit may be scheduled or unscheduled.

Scheduled field tax audit

This type of tax audit may be carried out no more than once during a calendar year. When a scheduled field tax audit is planned, the tax authority must send written notice to the taxpayer at least 15 days before the audit begins.

The notice should include:

• the basis for the tax audit;
• the start date of the audit;
• the duration of the audit;
• the period covered by the field tax audit.

The notice must also explain the rights and responsibilities of both the taxpayer and the tax authority. A taxpayer’s refusal to receive the audit notice does not provide grounds for cancelling the audit.

Unscheduled field tax audit

The circumstances in which an unscheduled field tax audit may be conducted are set out in Article 38.3 of the Tax Code.

Examples include:

1. At the taxpayer’s own request, for example:
   • when a legal entity applies for liquidation or reorganisation;
   • when an individual entrepreneur applies to terminate business activity without establishing a legal entity;
   • when a taxpayer disagrees with the results of a tax audit and submits a written request for an unscheduled field audit or files a complaint with the higher tax authority together with supporting documents (Tax Code, Article 38.3.9).
2. Based on a request from a court or law enforcement authority.
3. By decision of the tax authority, for example:
   • when there is specific information about illegal activity or tax evasion;
   • when specific facts indicating a violation of tax legislation are identified or there are reasonable doubts about whether tax obligations have been fulfilled.
4. When serious violations are identified during tax control measures, for example during operational tax control or analysis of accounting records.
5. In other cases provided by tax legislation, including when a field audit is required within the framework of international tax cooperation.

Stages of a field tax audit

Tax audits are carried out in accordance with the Tax Code and the requirements of the State Tax Service.

The process usually includes the following stages:

1. Adoption of the audit decision and notification of the taxpayer.
2. Review of the relevant documents and tax records.
3. Presentation of preliminary findings and collection of explanations.
4. Preparation of the final audit report and adoption of a decision.

If tax debt is identified as a result of the audit, the taxpayer must either pay the amount due or challenge the decision through the legal procedures available.

Tax authorities are responsible for conducting audits in accordance with the law and for protecting taxpayers’ rights during the process.

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Duration of a field tax audit

According to Article 38.2 of the Tax Code, a field tax audit should normally not exceed 30 working days. In special circumstances, this period may be extended up to 90 working days. The extension must be approved by the higher tax authority.

The period for preparing the tax audit report may also be extended by up to 30 working days by decision of the higher tax authority in certain cases, including:

• late submission of required documents or information, or obstruction of the audit by the taxpayer;
• the need for additional investigation, clarification or expert review;
• delays related to court proceedings or investigations by other state authorities.

The extension of the report preparation period is regulated by the third paragraph of Article 38.2 of the Tax Code.

Features of a desk tax audit

A desk tax audit is one of the main types of tax control carried out by the tax authorities in Azerbaijan. Unlike a field tax audit, it is not conducted at the taxpayer’s place of business. Instead, the tax authority reviews the information available in its systems and the documents submitted by the taxpayer. The tax authority analyses tax returns and other reports to assess whether they comply with the requirements of the law.

The main features of a desk tax audit include:

• no visit is made to the company or entrepreneur; the audit is carried out through the tax authority’s systems;
• the audit is based on the analysis of submitted tax returns and other reports;
• automated checks are often carried out through the tax authority’s information systems;
• the process is usually faster than a field tax audit and causes less disruption to the taxpayer.

Importance of tax audits for businesses

Desk tax audits can have several practical advantages for businesses:

• lower administrative burden – compared with field audits, they generally require less direct involvement from the business;
• limited disruption to business activities – the company’s daily operations and employees are not directly affected by an on-site inspection;
• faster and more efficient control – tax authorities can review tax reports within a shorter period;
• greater tax transparency – businesses are encouraged to maintain accurate and transparent accounting records.

Field tax audits also help ensure that financial and accounting records are maintained correctly and that businesses operate transparently. Such tax audits can help prevent tax violations and tax evasion and support the timely collection of tax revenues for the state budget.