The tax authority’s decision has been revoked

The Protocol drawn up by the Baku City Local Revenues Main Department of the State Tax Service under the Ministry of Economy of the Republic of Azerbaijan regarding the Company indicated that it did not apply an internal control program. According to the conclusion of the tax authority, the enterprise committed an administrative offense stipulated in Article 598.7 of the Code of Criminal Procedure of the Republic of Azerbaijan.

In the descriptive-substantiating part of the relevant Act on the mobile inspection of the supervised entity, it is noted that the Law “On Combating the Legalization of Property Obtained by Crime and the Financing of Terrorism” entered into force on February 1, 2023, and the Decision of the Financial Monitoring Service of the Republic of Azerbaijan on the approval of the “Minimum Requirements to be Met by the Internal Control Program of Obliged Persons” was approved on February 21, 2023 and entered into force on that date, and the requirements of that Decision were violated by the Company, whose inspection was conducted. The body conducting the inspection considered that, in accordance with paragraph 3.2.1 of the aforementioned Decision, the Obliged Persons must have a responsible person at the level of management or management of structural units (if any), and in the absence of a responsible person, the person who will do so must be appointed and information about this must be provided to the Financial Monitoring Service and the supervisory authority within 3 (three) working days.

We have filed a complaint with the court against the aforementioned decision of the tax authority and noted that there are no mandatory norms for appointing a responsible person specified in the aforementioned Decision to a legal entity that does not carry out any of the operations specified in Article 3 of the Law on Combating the Legalization of Criminally Acquired Property and the Financing of Terrorism (purchase and sale of real estate; management of the client's funds, securities or other property; management of the client's bank, depository, postal, payment and cash accounts; establishment of legal entities, provision and management of their activities, organization of the collection of funds for these purposes, as well as purchase and sale of shares or stakes of legal entities).

The tax authority exercising control in this area claimed that since the legal entity in respect of which the Protocol was drawn up was engaged in the type of activity “Tax Advice”, the requirements of the Law “On Combating the Legalization of Property Acquired by Crime and the Financing of Terrorism” should apply to that legal entity. This position is incorrect because the aforementioned Law conditioned the falling of the persons bearing the obligation under the aforementioned Law not on the fact that these persons were engaged in the type of activity “Tax Advice”, but on the fact that they carried out specific operations specified in Article 3 of the Law. Nevertheless, the supervisory authority made a decision to bring the inspected entity to administrative liability without any evidence that it participated in the operations specified in Article 3 of the Law. However, since the Company held liable did not fall within the scope of the Law "On Combating the Legalization of Criminally Acquired Property and the Financing of Terrorism", it was not obliged to comply with the requirements of the said law, and therefore, holding this legal entity administratively liable did not comply with the requirements of the legislation.

As a result, the proceedings on the case of a legal entity committing an administrative offense under Article 598.7 of the Code of Administrative Offenses of the Republic of Azerbaijan were terminated due to lack of proof of guilt.