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In which cases is the assessment of additional taxes not allowed?
One of the most discussed issues among taxpayers recently is the assessment of additional taxes under Article 67.3-1 of the Tax Code. But can this provision be applied during desk (cameral) or field tax audits?
Altay Jafarov provides clarification.
According to Article 67.3-1 of the Tax Code, if a taxpayer's taxable income has not been formally recorded, but the tax authority possesses related information regarding the deductible expenses, the taxable profit (income) is calculated by applying a profitability margin of 50%.
In other words, the tax authority determines additional taxable profit using a 50% profitability ratio and then calculates corporate income tax at 20% on that amount.
For this provision to apply, all of the following conditions must be met:
the taxpayer must have taxable income;
the income must not have been formally recorded;
there must be expenses related to that unrecorded income;
information about those expenses must be available to the tax authority.
What is meant by "unrecorded income"?
First, the income must actually exist, and then it should be formally recorded.
There are two possible situations:
the income is concealed and omitted from the accounting records and tax returns;
the income exists and is reflected in the accounting records and tax returns, which means it has been formally recorded.
Therefore, formal recording and documentary support are two different concepts.
Article 67.3-1 applies to unrecorded income, not merely to income lacking supporting documentation. Accordingly, it should only apply where income actually exists but has been concealed from the accounting records and tax reporting.
If the income has been reported in the accounting records and tax returns, even if it lacks complete documentation, applying Article 67.3-1 would be inappropriate.
Simply put, the provision applies when a taxpayer conceals income while the tax authority is able to determine that income based on related expense information and assess additional corporate income tax accordingly.
In addition, several Presidential Decrees governing the documentation of income and expenses in wholesale trade, retail trade, catering, and manufacturing are currently in force. These decrees refer to documentation, not to the formal recording of income.
Furthermore, Article 73 of the Constitution of the Republic of Azerbaijan provides that everyone must pay taxes and other mandatory state payments in full and on time. No one may be required to pay additional taxes without a legal basis. Therefore, the same income cannot be taxed twice.
Example
"AA" LLC reported AZN 1,000,000 of turnover in its 2025 corporate income tax return, supported by electronic invoices, cash register receipts, and export customs declarations.
Additionally:
AZN 50,000 of income from the sale of a vehicle to an individual was supported by a sale agreement;
goods worth AZN 40,000 were damaged, as confirmed by an official report;
goods worth AZN 30,000 were not documented due to shortages, but the related income was still declared in the corporate income tax return.
In practice, the taxpayer declared all of these amounts as income and reported the corresponding expenses.
Most of the income was documented in a way that allowed the tax authority to verify it. The remaining income may not have been fully documented but was still reflected in the accounting records and tax return.
Under these circumstances, applying Article 67.3-1 to "AA" LLC would be incorrect.
Such application would also contradict Article 73 of the Constitution, since the company had already declared AZN 120,000 (AZN 50,000 + AZN 40,000 + AZN 30,000) as taxable income and paid corporate income tax on it.
Therefore, assessing additional tax on the same income based on related expense information and the profitability principle would be contrary to the law.
One of the most discussed issues among taxpayers recently is the assessment of additional taxes under Article 67.3-1 of the Tax Code. But can this provision be applied during desk (cameral) or field tax audits?
Altay Jafarov provides clarification.
According to Article 67.3-1 of the Tax Code, if a taxpayer's taxable income has not been formally recorded, but the tax authority possesses related information regarding the deductible expenses, the taxable profit (income) is calculated by applying a profitability margin of 50%.
In other words, the tax authority determines additional taxable profit using a 50% profitability ratio and then calculates corporate income tax at 20% on that amount.
For this provision to apply, all of the following conditions must be met:
the taxpayer must have taxable income;
the income must not have been formally recorded;
there must be expenses related to that unrecorded income;
information about those expenses must be available to the tax authority.
What is meant by "unrecorded income"?
First, the income must actually exist, and then it should be formally recorded.
There are two possible situations:
the income is concealed and omitted from the accounting records and tax returns;
the income exists and is reflected in the accounting records and tax returns, which means it has been formally recorded.
Therefore, formal recording and documentary support are two different concepts.
Article 67.3-1 applies to unrecorded income, not merely to income lacking supporting documentation. Accordingly, it should only apply where income actually exists but has been concealed from the accounting records and tax reporting.
If the income has been reported in the accounting records and tax returns, even if it lacks complete documentation, applying Article 67.3-1 would be inappropriate.
Simply put, the provision applies when a taxpayer conceals income while the tax authority is able to determine that income based on related expense information and assess additional corporate income tax accordingly.
In addition, several Presidential Decrees governing the documentation of income and expenses in wholesale trade, retail trade, catering, and manufacturing are currently in force. These decrees refer to documentation, not to the formal recording of income.
Furthermore, Article 73 of the Constitution of the Republic of Azerbaijan provides that everyone must pay taxes and other mandatory state payments in full and on time. No one may be required to pay additional taxes without a legal basis. Therefore, the same income cannot be taxed twice.
Example
"AA" LLC reported AZN 1,000,000 of turnover in its 2025 corporate income tax return, supported by electronic invoices, cash register receipts, and export customs declarations.
Additionally:
AZN 50,000 of income from the sale of a vehicle to an individual was supported by a sale agreement;
goods worth AZN 40,000 were damaged, as confirmed by an official report;
goods worth AZN 30,000 were not documented due to shortages, but the related income was still declared in the corporate income tax return.
In practice, the taxpayer declared all of these amounts as income and reported the corresponding expenses.
Most of the income was documented in a way that allowed the tax authority to verify it. The remaining income may not have been fully documented but was still reflected in the accounting records and tax return.
Under these circumstances, applying Article 67.3-1 to "AA" LLC would be incorrect.
Such application would also contradict Article 73 of the Constitution, since the company had already declared AZN 120,000 (AZN 50,000 + AZN 40,000 + AZN 30,000) as taxable income and paid corporate income tax on it.
Therefore, assessing additional tax on the same income based on related expense information and the profitability principle would be contrary to the law.