AGREEMENT BETWEEN THE KINGDOM OF SPAIN AND THE REPUBLIC OF AZERBAIJAN TO AVOID DOUBLE IMPOSITION AND PREVENT TAX EVASION ON RENT AND PATRIMONY TAX
The Kingdom of Spain and the Republic of Azerbaijan, wishing to conclude a convention to prevent double taxation and to prevent tax evasion in the area of income and property taxes, have agreed as follows:
CHAPTER I
Scope of the Convention
Article 1. Persons covered.
This Convention applies to persons resident in one or both Contracting States.
Article 2. Taxes covered.
1. This Convention applies to income and property taxes payable by each Contracting State, its political or administrative subdivisions or local authorities, whatever the system of its levy.
2. Income and property taxes are those that tax all or any part of the income or property, including taxes on profits resulting from the disposal of movable or immovable property, taxes on the amount of wages or salaries paid by enterprises, as well as taxes on capital gains.
3. The current taxes to which this Convention applies are, in particular:
(a) in the Kingdom of Spain:
(i) Personal Income Tax;
(ii) corporation tax;
(iii) the non-resident income tax;
(iv) the Wealth Tax; and
(v) local income and property taxes;
(hereinafter referred to as ‘Spanish tax’).
(b) In Azerbaijan:
(i) personal income tax;
(ii) Tax on profits of legal persons;
(iii) the Wealth Tax; and
(iv) the land tax;
(hereinafter referred to as ‘Azerbaijan tax’).
4. The Convention shall also apply to taxes of an identical or similar nature which are established after the signature of the Convention and which are added to or replaced by existing taxes. The competent authorities of the Contracting States shall notify each other of any substantial changes made to their respective tax laws.
CHAPTER II
Definitions
Article 3. General definitions.
1. For the purposes of this Convention, unless the context of the Convention is different:
(a) the term ‘Spain’ means the Kingdom of Spain and, used geographically, means the territory of the Kingdom of Spain, including internal waters, airspace, territorial sea and areas outside the territorial sea in which, under international law and under its domestic law, the Kingdom of Spain exercises or may exercise in future jurisdiction or rights of sovereignty over the seabed, its subsoil and superjacent waters, and its natural resources;
(b) the term ‘Azerbaijan’ means the territory of the Republic of Azerbaijan, including the Azerbaijani sector of the Caspian Sea, over which the Republic of Azerbaijan exercises jurisdiction and sovereignty rights in relation to the subsoil, seabed and natural resources, airspace over the Republic of Azerbaijan, as well as any other area that has been or may be determined later in accordance with international law and the domestic law of the Republic of Azerbaijan;
(c) the words ‘one Contracting State’ and ‘the other Contracting State’ mean Spain or Azerbaijan, depending on the context;
(d) the term ‘person’ includes natural persons, companies and any other grouping of persons;
(e) the term 'company' means any legal person or any entity which is considered a legal person for tax purposes;
(f) the term 'undertaking' applies to the conduct of any economic activity by any person;
(g) the terms ‘undertaking of a Contracting State’ and ‘undertaking of the other Contracting State’ mean, respectively, an undertaking operated by a resident of a Contracting State and an undertaking operated by a resident of the other Contracting State;
(h) 'international traffic' means any transport carried out by a ship or aircraft operated by an undertaking of a Contracting State, except where the ship or aircraft is operated only between points situated in the other Contracting State;
(i) the expression ‘competent authority’ means:
(i) in Spain: the Minister of Economy and Finance or his authorized representative;
(ii) In Azerbaijan: Ministry of Finance and Ministry of Finance;
(j) the term 'national' means:
(i) a natural person possessing the nationality of a Contracting State;
(ii) a legal person, a company of persons (
partnership
) or association constituted in accordance with the law in force in a Contracting State;
(k) the term 'economic activity' also includes the provision of professional services and the carrying out of other independent activities.
2. For the purpose of the application of the Convention at any time by a Contracting State, any expression or term not defined therein shall have, unless the context in which it is interpreted differs, the meaning attributed at that time to it by the law of that State relating to the taxes which are the subject of the Convention, the meaning attributed by the tax law to which it would result from other branches of the law of that State prevails.
Article 4. Resident.
1. For the purposes of this Convention, the term ‘resident of a Contracting State’ means any person who, under the law of that State, is subject to taxation in that State by reason of his domicile, residence, address, place of registration or any other criterion of a similar nature, including also that State and its political or administrative-territorial subdivisions or their local entities. This term does not, however, include persons who are subject to taxation in that State solely on the income they obtain from sources located in that State, or on the property situated therein.
2. Where, under the provisions of paragraph 1, a natural person is resident in both Contracting States, his or her situation shall be resolved as follows:
(a) It shall be considered a resident exclusively of the State in which it has permanent housing at its disposal; if it has permanent housing at its disposal in both States, it shall be considered a resident exclusively of the State with which it has closer personal and economic relations (centre of vital interests);
(b) If it is not possible to determine the State in which the person has the centre of his or her vital interests, or if he or she does not have permanent housing at his or her disposal in any of the States, he or she shall be considered a resident exclusively of the State in which he or she habitually lives;
(c) If he or she habitually lives in both States or does not live in either State, he or she shall be deemed to be a resident exclusively of the State of which he or she is a national;
(d) if he is a national of both States or is not a national of either State, the competent authorities of the Contracting States shall decide the case by mutual agreement.
3. Where under the provisions of paragraph 1 a person other than a natural person is resident in both Contracting States, he or she shall be deemed to be resident exclusively in the State in which his or her place of effective management is located.
Article 5. Permanent establishment.
1. For the purposes of this Agreement, the term ‘permanent establishment’ means a fixed place of business through which an undertaking carries out all or part of its activity.
2. The term ‘permanent establishment’ includes, in particular:
(a) the head offices;
(b) branches;
(c) Offices;
(d) factories;
(e) Workshops;
(f) facilities, structures or vessels or any other site used for the exploration of natural resources; and
(g) mines, oil or gas wells, quarries or any other place of extraction of natural resources.
3. A work, a construction or installation project, or related supervision or consultancy activities, constitute a permanent establishment but only when such works, projects or activities last more than twelve months.
4. Notwithstanding the previous provisions of this Article, it is considered that the term ‘permanent establishment’ does not include:
(a) the use of facilities for the sole purpose of storing, displaying or delivering goods or goods belonging to the undertaking;
(b) the maintenance of a warehouse of goods or goods belonging to the undertaking for the sole purpose of storing, displaying or delivering them;
(c) the maintenance of a deposit of goods or goods belonging to the undertaking for the sole purpose of processing by another undertaking;
(d) the maintenance of a fixed place of business for the sole purpose of buying goods or goods, or collecting information, for the enterprise;
(e) the maintenance of a fixed place of business for the sole purpose of carrying out any other auxiliary or preparatory activity for the undertaking;
(f) the maintenance of a fixed place of business for the sole purpose of carrying out any combination of the activities referred to in subparagraphs (a) to (e), provided that the whole activity of the fixed place of business resulting from that combination retains its auxiliary or preparatory character.
5. By way of derogation from paragraphs 1 and 2, where a person, other than an independent agent to which paragraph 6 applies, acts on behalf of an undertaking and has and exercises habitually in a Contracting State powers enabling it to conclude contracts on behalf of the undertaking, that undertaking shall be deemed to have a permanent establishment in that State in respect of the activities carried out by that person for the undertaking, unless the activities of that person are limited to those referred to in paragraph 4 and if they have been carried out through a fixed place of business, they have not determined that such a fixed place of business is a permanent establishment in accordance with the provisions of that paragraph.
6. An undertaking is not considered to have a permanent establishment in a Contracting State merely because it carries out its activities in that State through a broker, a general commissioner or any other independent agent, provided that such persons act within the ordinary framework of their activity.
However, where that agent carries out all or almost all of its activities on behalf of such an undertaking, and the undertaking and the agent are bound in their commercial or financial relations by terms accepted or imposed that differ from those to be agreed by independent persons, he shall not be regarded as an independent agent within the meaning of this paragraph.
7. The fact that a company resident of a Contracting State controls or is controlled by a company resident of the other Contracting State, or that it carries out business activities in that other State (whether by permanent establishment or otherwise), does not in itself make any of these companies permanent establishment of the other State.
CHAPTER III
Income taxation
Article 6. Income from immovable property.
1. Income from immovable property (including income from agricultural or forestry holdings) situated in the other Contracting State may be taxed in that other Contracting State.
2. The term ‘real property’ shall have the meaning attributed to it by the law of the Contracting State in which the property is situated. In any event, that term includes assets attached to immovable property, livestock and equipment used on agricultural and forestry holdings, the rights to which the provisions of private law relating to real estate, the use of immovable property and the right to receive fixed or variable payments in exchange for the exploitation, or the granting of the exploitation, of mineral deposits, sources and other natural resources apply; ships and aircraft shall not be regarded as immovable property.
3. The provisions of paragraph 1 are applicable to income derived from direct use, lease or shareholding, as well as from any other form of exploitation of immovable property.
4. Where ownership of shares or shares or other rights directly or indirectly assigns to the owner of such shares or rights, the right to the enjoyment of immovable property, income derived from direct use, lease or shareholding, or use in any other form of such right of enjoyment, may be subject to taxation in the Contracting State in which the immovable property is situated.
5. The provisions of paragraphs 1, 3 and 4 shall also apply to income derived from the immovable property of an undertaking.
Article 7. Business profits.
1. The profits of an undertaking in a Contracting State may be taxed only in that State, unless the undertaking carries out its business in the other Contracting State through a permanent establishment situated in that State. If the undertaking does so, the profits of the undertaking may be taxed in the other State, but only to the extent that they are attributable to that permanent establishment.
2. Without prejudice to the provisions of paragraph 3, where an undertaking of a Contracting State carries out its business in the other Contracting State by means of a permanent establishment situated therein, in each Contracting State the profits it could have obtained from being a separate and separate undertaking carrying out the same or similar activities shall be attributed to that permanent establishment under the same or similar conditions and shall deal entirely independently with the undertaking from which it is a permanent establishment.
3. For the purpose of determining the benefit of the permanent establishment, the deduction of expenses incurred for the purposes of the permanent establishment, including management and general administrative expenses for the same purposes, shall be permitted, whether incurred in the Contracting State in which the permanent establishment is located or elsewhere.
4. As long as it is customary in a Contracting State to determine the profits attributable to a permanent establishment on the basis of a distribution of the total profits of the enterprise among its various parties, the provisions of paragraph 2 shall not prevent that Contracting State from determining the taxable profits in this way; however, the method of distribution adopted shall be such that the result obtained is in accordance with the principles contained in this Article.
5. No profits shall be attributed to a permanent establishment by reason of the mere purchase of goods or goods by that permanent establishment for the enterprise.
6. For the purposes of the preceding paragraphs, the profits attributable to the permanent establishment shall be determined each year by the same method, unless there are valid and sufficient grounds for proceeding otherwise.
7. Where profits include income covered separately by other articles of this Convention, the provisions of those articles shall not be affected by those of this Article.
Article 8. Shipping and air transport.
1. The profits of an enterprise of a Contracting State arising from the operation of ships or aircraft in international traffic can only be taxed in that State.
2. For the purposes of this Article, the profits of an undertaking of a Contracting State arising from the operation of ships or aircraft in international traffic shall also include:
(a) profits from bareboat chartering of ships or aircraft in international traffic; and
(b) profits from the use, maintenance or rental of containers in international traffic (including trailers and equipment related to the transport of containers),
where the rental, use, maintenance or rental, as appropriate, is auxiliary to the operation of ships or aircraft in international traffic.
3. The provisions of paragraphs 1 and 2 also apply to profits from participation in a pool, on a joint holding or on an international operating body.
Article 9. Associated enterprises.
1. When
(a) an undertaking of a Contracting State participates directly or indirectly in the direction, control or capital of an undertaking of the other Contracting State; or
(b) the same persons participate directly or indirectly in the direction, control or capital of an undertaking of a Contracting State and of an undertaking of the other Contracting State,
and in either case the two undertakings are, in their commercial or financial relations, bound by accepted or imposed conditions which differ from those which would be agreed by independent undertakings, the profits which would have been obtained by one of the undertakings in the absence of such conditions, and which in fact have not been made because of them, may be included in the profits of that undertaking and may be taxed accordingly.
2. Where a Contracting State includes in the profits of an enterprise of that State - and consequently subjects to taxation - the profits on which an enterprise of the other Contracting State has been taxed in that other Contracting State and that other State recognizes that the profits thus included are profits that would have been realized by the enterprise of the State concerned in the first place if the terms agreed between the two companies had been those agreed between independent undertakings, that other State shall make the adjustment that would result in the amount of the tax that has taxed those profits. In determining such adjustment, account shall be taken of the other provisions of this Convention and the competent authorities of the Contracting States shall be consulted where necessary.
Article 10. Dividends.
1. Dividends paid by a company resident of one Contracting State to a resident of the other Contracting State may be taxed in that other State.
2. However, such dividends may also be subject to taxation in the Contracting State in which the company paying the dividends resides and in accordance with the law of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax thus required may not exceed:
(a) 5 per cent of the gross amount of dividends if the beneficial owner is a company (other than a company of persons) which holds directly at least 25 per cent of the capital of the company that pays the dividends and has invested more than EUR 250 000 (250,000), or the equivalent amount in any other currency, in the company that pays the dividends.
(b) 10 per cent of the gross amount of dividends in all other cases.
This paragraph does not affect the company's taxation of the profits from which dividends are paid.
3. The term ‘dividends’ within the meaning of this Article means the income from shares, shares or enjoyment bonds, from the parties of founders or other rights allowing participation in profits, except credit, as well as income from other social participations subject to the same tax regime as the income from shares under the law of the State of which the distribution company is resident.
4. The provisions of paragraphs 1 and 2 do not apply if the beneficial owner of the dividends, resident of one Contracting State, carries out in the other Contracting State, of which the company paying the dividends is resident, an economic activity through a permanent establishment located there, and the share of the dividends is effectively linked to that permanent establishment. In such a case, the provisions of Article 7 shall apply.
5. Where a company resident of one Contracting State obtains profits or income from the other Contracting State, that other State may not require any tax on dividends paid by the company, except to the extent that such dividends are paid to a resident of that other State or the share generated by the dividends is effectively linked to a permanent establishment located in that other State, or subject the undistributed profits of the company to a tax on them, even if dividends paid or profits not distributed consist, in whole or in part, of profits or income from that other State.
Article 11. Interest.
1. Interest from one Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
2. However, such interest may also be subject to taxation in the Contracting State from which it comes and under the law of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax thus required may not exceed 8 per cent of the gross amount of interest.
3. Notwithstanding the provisions of paragraph 2, interest from one Contracting State and paid to a resident of the other Contracting State may be subject exclusively to taxation in that other State if the recipient of the interest is its beneficial owner and
(a) is the State or the Central Bank, a political or administrative-territorial subdivision or a local entity thereof;
(b) the interest is paid by the State from which it originates or by one of its political or administrative-territorial subdivisions or by public or local entities;
(c) interest is paid on the basis of a loan or credit due to that State or to one of its political or administrative-territorial subdivisions, local entities or export credit agency, or granted, granted, guaranteed or insured by any of the above;
(d) is a public financial institution;
4. The term ‘interest’ within the meaning of this Article means income from claims of any kind, with or without a mortgage guarantee or a benefit-sharing clause of the debtor, and in particular income from public securities and income from bonds or bonds, including premiums and lots attached to such securities. Penalizations for late payment are not considered interest for the purposes of this article.
5. The provisions of paragraphs 1 and 2 do not apply if the beneficial owner of the interest, resident of one Contracting State, carries out an economic activity in the other Contracting State from which the interest derives, through a permanent establishment situated in that other State, and the credit generated by the interest is effectively linked to that permanent establishment. In such a case, the provisions of Article 7 shall apply.
6. Interest is considered to come from a Contracting State where the debtor is a resident of that State. However, where the debtor of interest, whether or not he is a resident of a Contracting State, has in a Contracting State a permanent establishment in respect of which the debt for which the interest is paid has been incurred and which bears the burden thereof, such interest shall be deemed to have come from the State in which the permanent establishment is situated.
7. Where, on account of the special relations between the debtor and the beneficial owner, or of those between them and third parties, the amount of interest, having regard to the claim for which it is paid, exceeds that agreed between the debtor and the beneficial owner in the absence of such relationships, the provisions of this article shall apply only to the latter amount. In such a case, the excess amount may be imposed in accordance with the law of each Contracting State, taking into account the other provisions of this Convention.
Article 12. Royalties.
1. Fees from one Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
2. However, such fees may also be subject to taxation in the Contracting State from which they come and in accordance with the law of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State the tax thus required may not exceed:
(a) 5 per cent of the gross amount of fees paid for the use or grant of software, patents, trademarks, designs, drawings, formulas or secret procedures, or for information relating to industrial, commercial or scientific experience;
(b) 10 per cent of the gross amount of royalties in all other cases.
3. The term ‘royalties’ used in this Article means the amounts of any kind paid for the use or granting of copyright in literary, artistic or scientific works, including cinematographic films or films or tapes or other means used for the reproduction of the image or sound, software, patents, trademarks or trade marks, designs, plans, formulas or secret procedures, or for the use or granting of use of industrial, commercial or scientific equipment, or information relating to industrial, commercial or scientific experience.
4. The provisions of paragraphs 1 and 2 do not apply if the beneficial owner of the royalties, resident of one Contracting State, carries out in the other Contracting State, from which the royalties come, an economic activity through a permanent establishment located in that other State and the right or for which the royalties are paid is effectively linked to that permanent establishment. In such a case, the provisions of Article 7 shall apply.
5. The fees are considered to come from a Contracting State where the debtor is a resident of that State. However, where the debtor of the royalties, whether or not he is a resident of a Contracting State, has in a Contracting State a permanent establishment in respect of which the obligation to pay the royalties has been entered into and which bears the burden thereof, such fees shall be deemed to have come from the State where the permanent establishment is situated.
6. Where due to special relations between the debtor and the beneficial owner, or between them and third parties, the amount of the royalties, in view of the use, right or information for which they are paid, exceeds the amount that the debtor and beneficial owner would have agreed in the absence of such relationships, the provisions of this article apply only to the latter amount. In such a case, the excess amount may be imposed in accordance with the law of each Contracting State, taking into account the other provisions of this Convention.
Article 13. Capital gains.
1. Profits that a resident of one Contracting State obtains from the disposal of immovable property as defined in article 6 located in the other Contracting State may be taxed in that other State.
2. Profits arising from the disposal of movable property forming part of the assets of a permanent establishment held by an undertaking of one Contracting State in the other Contracting State, including profits arising from the disposal of that permanent establishment (only or with the enterprise as a whole), may be taxed in that other State.
3. Profits obtained by an undertaking of a Contracting State from the disposal of ships or aircraft operated in international traffic, or from movable property affected by the operation of such vessels or aircraft, may only be taxed in that State.
4. Profits obtained by a resident of a Contracting State from the disposal of shares or similar rights, the value of which derives by more than 50 per cent, directly or indirectly, from immovable property situated in the other Contracting State, may be taxed in that other State.
5. Profits resulting from the disposal of shares or other rights which, directly or indirectly, grant the owner of such shares, shares or rights, the right to the enjoyment of immovable property situated in a Contracting State, may be subject to taxation in that State.
6. Profits arising from the disposal of any property other than those referred to in the preceding paragraphs of this Article may be taxed only in the Contracting State in which the transferor resides.
Article 14. Income from employment.
1. Without prejudice to articles 15, 17 and 18, salaries, salaries and other similar remuneration obtained by a resident of a Contracting State on account of employment may only be taxed in that State unless the employment takes place in the other Contracting State. If the employment is carried out in this way, the remuneration derived therefrom may be subject to taxation in that other State.
2. By way of derogation from paragraph 1, remuneration obtained by a resident of a Contracting State on account of employment in the other Contracting State may be subject to taxation only in the State referred to above if:
(a) the recipient remains in the other State for a period or periods of not more than 183 days together in any twelve-month period beginning or ending in the fiscal year concerned; and
(b) remuneration is paid by or on behalf of an employer who is not a resident of the other State; and
(c) remuneration is not borne by a permanent establishment held by the employer in the other State.
3. Notwithstanding the preceding provisions of this article, remunerations earned by employment on board a ship or aircraft operated in international traffic by an undertaking of a Contracting State may be subject to taxation in that State.
Article 15. Directors’ fees.
Shareholdings and other similar remunerations which a resident of a Contracting State obtains as a member of a board of directors or similar body of a company resident of the other Contracting State may be taxed in that other State.
Article 16. Entertainers and sportspersons.
1. By way of derogation from Articles 7 and 14, any income which a resident of a Contracting State obtains from the exercise of his personal activity in the other Contracting State as a performer, theatre, film, radio or television actor, or as a musician, or as an athlete, may be subject to taxation in that other State.
2. Notwithstanding Articles 7 and 14, where income derived from activities carried out by an artist or athlete personally and in that capacity is attributed not to the artist or athlete himself but to another person, such income may be taxed in the Contracting State in which the activities of the artist or athlete are carried out.
3. Notwithstanding the provisions of paragraphs 1 and 2 of this Article, the income obtained by an artist or sportsman shall be exempt from taxation in the Contracting State in which such activities are carried out where such activities are financed wholly or basically from public funds of one or both States and are carried out under a cultural cooperation agreement between the Contracting States.
Article 17. Pensions.
Without prejudice to Article 18(2), pensions and similar remuneration paid to a resident of a Contracting State on account of previous employment may only be taxed in that State.
Article 18. Civil service.
1.
(a) Salaries, salaries and other similar remuneration paid by a Contracting State or by one of its political or administrative-territorial subdivisions, or by one of its local entities, to a natural person for services rendered to that State, subdivision or entity may be subject to taxation only in that State.
(b) However, such salaries, salaries and similar remuneration may be subject only to taxation in the other Contracting State if the services are provided in that State and the natural person is a resident of that State who:
(i) is a national of that State; or
(ii) has not acquired the status of resident of that State solely to provide the services.
2.
(a) Notwithstanding paragraph 1, pensions and other similar remuneration paid by a Contracting State or by one of its political or administrative-territorial subdivisions, or by one of its local entities, either directly or from constituted funds, to a natural person on account of services rendered to that State, subdivision or entity, may only be subject to taxation in that State.
(b) However, such pensions and similar remuneration may be subject only to taxation in the other Contracting State if the natural person is a resident and a national of that State.
3. The provisions of Articles 14, 15, 16 and 17 apply to salaries, salaries, pensions and other similar remuneration paid for services rendered in the context of an economic activity carried out by a Contracting State or one of its political or administrative-territorial subdivisions, or one of its local entities.
Article 19. Students.
The amounts received to cover the costs of maintenance, study or practical training by a student or an apprentice or trainees who is, or was, immediately before arriving in a Contracting State, resident of the other Contracting State and who is in the State referred to first for the sole purpose of continuing his studies or practical training, may not be subject to taxation in that State provided they come from sources outside that State.
Article 20. Other income.
1. The income of a resident of a Contracting State, irrespective of its origin, not mentioned in the previous articles of this Convention, may be taxed only in that State.
2. Paragraph 1 does not apply to income, other than that derived from immovable property within the meaning of Article 6(2), where the beneficiary of such income, resident of a Contracting State, carries out an economic activity in the other Contracting State through a permanent establishment situated in that other State, and the right or for which the income is paid is effectively linked to that permanent establishment. In such a case, the provisions of Article 7 apply.
CHAPTER IV
Imposition of assets
Article 21. Capital.
1. Property constituted by immovable property as defined in Article 6, which has a resident of one Contracting State and is situated in the other Contracting State, may be taxed in that other State.
2. Property consisting of movable property forming part of the assets of a permanent establishment held by an undertaking of one Contracting State in the other Contracting State may be taxed in that other State.
3. Property constituted by ships and aircraft operated in international traffic by an undertaking of a Contracting State, or by movable property affected by the operation of such vessels or aircraft, may only be taxed in that State.
4. Property consisting of shares or shares or other rights in a company or other group of persons, the value of which derives in more than 50 per cent, directly or indirectly, from immovable property situated in a Contracting State or from shares or shares or other rights granting its owner the right to enjoy immovable property situated in a Contracting State, may be subject to taxation in the Contracting State in which the immovable property is located.
5. All other assets of a resident of a Contracting State may be subject to taxation only in that State.
CHAPTER V
Methods for elimination of double taxation
Article 22. Elimination of double taxation.
1. In Spain, double taxation shall be avoided either in accordance with the provisions of its domestic law or in accordance with the following provisions, in accordance with Spanish domestic law:
(a) Where a resident of Spain obtains income or possesses assets which, in accordance with the provisions of this Convention, may be taxed in Azerbaijan, Spain shall permit:
(i) the deduction of the income tax of that resident equal to the income tax paid in Azerbaijan;
(ii) the deduction from the property tax of that resident in the amount equal to the tax paid in Azerbaijan on those assets;
(iii) the deduction of corporation tax actually paid by the company distributing the dividends, corresponding to the profits from which the dividends are paid, in accordance with Spain's domestic law.
However, such deduction may not exceed the part of income tax or property tax, calculated before deduction, corresponding to the income or assets that may be taxed in Azerbaijan.
(b) Where, under any provision of this Convention, income obtained by a resident of Spain, or the property held by him, is tax-exempt in Spain, Spain may, however, take into account the income or wealth exempted in calculating the tax on the rest of the income or property of that resident.
2. In Azerbaijan, double taxation will be avoided as follows:
Where a resident of Azerbaijan obtains income or property which, in accordance with the provisions of this Convention, may be taxed in Spain, the amount of income or property tax paid by that person in Spain shall be deducted from the tax applied to him in Azerbaijan in respect of such income or property.
However, such deduction may not exceed the amount of tax on such income or wealth calculated in accordance with the laws and tax rules of Azerbaijan.
CHAPTER VI
Special provisions
Article 23. Non-discrimination.
1. Nationals of one Contracting State shall not be subject in the other Contracting State to any taxes or obligations relating thereto which are not or are more burdensome than those to which nationals of that other State who are under the same conditions, in particular with regard to residence, are or may be subject. Notwithstanding Article 1, this provision shall also apply to persons who are not residents of one or any of the Contracting States.
2. Permanent establishments held by an undertaking of one Contracting State in the other Contracting State shall not be subject to taxation in that State in a less favourable manner than undertakings of that other State carrying out the same activities. This provision may not be interpreted as obliging a Contracting State to grant to residents of the other Contracting State the personal deductions, reliefs and tax reductions it grants to its own residents in view of their marital status or family burdens.
3. Unless the provisions of Article 9(1) of Article 11(7) or Article 12(6) apply, interest, royalties and other expenses paid by an undertaking of a Contracting State to a resident of the other Contracting State shall be deductible to determine the profits subject to taxation of that undertaking, under the same conditions as if they had been paid to a resident of the State referred to first. Similarly, the debts of an undertaking of a Contracting State contracted with a resident of the other Contracting State shall be deductible for the determination of the assets subject to taxation of that undertaking under the same conditions as if they had been contracted with a resident of the State referred to in the first instance.
4. Undertakings of a Contracting State whose capital is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State shall not be subject in the State referred to above to any tax or obligation relating thereto which is not or is more burdensome than those to which other similar undertakings of the State referred to in the first instance are or may be subject.
5. Notwithstanding Article 2, the provisions of this Article apply to all taxes irrespective of their nature or name.
Article 24. Mutual agreement procedure.
1. Where a person considers that the measures taken by one or both Contracting States involve or may entail for him an imposition which is not in conformity with the provisions of this Convention, irrespective of the remedies provided for by the domestic law of those States, he may submit his case to the competent authority of the Contracting State of which he is resident or, if Article 23(1) applies, to that of the Contracting State of which he is a national. The case must arise within three years of the first notification of the measure involving an imposition not in accordance with the provisions of the Convention.
2. The competent authority shall, if it considers the complaint well founded and if it is not in itself able to reach a satisfactory solution, make every effort to resolve the matter by means of an amicable agreement with the competent authority of the other Contracting State, in order to avoid an imposition which does not comply with this Convention. The agreement shall apply irrespective of the time limits laid down by the national law of the Contracting States.
3. The competent authorities of the Contracting States shall endeavour to resolve any difficulties or doubts arising from the interpretation or application of the Convention by means of an amicable agreement. They may also agree to try to avoid double taxation in cases not covered by the Convention.
4. In order to reach agreement within the meaning of the preceding paragraphs, the competent authorities of the Contracting States may communicate directly, including within a Joint Committee composed of themselves or their representatives.
Article 25. Exchange of information.
1. The competent authorities of the Contracting States shall exchange information which is likely to be relevant to the application of this Convention or to the administration or application of national law relating to taxes of any kind or designation required by the Contracting States, their political or administrative-territorial subdivisions, or their local entities, to the extent that such taxation is not contrary to the Convention. The exchange of information is not limited by Articles 1 and 2.
2. Information received by a Contracting State pursuant to paragraph 1 shall be kept secret in the same way as information obtained under the domestic law of that State and shall be communicated only to the persons or authorities (including courts and administrative bodies) responsible for the management or collection of the taxes referred to in paragraph 1 of their effective application or the prosecution of the non-compliance with such taxes, the determination of the remedies relating thereto, or the supervision of such activities. Such persons or authorities shall use this information only for those purposes. They may disclose the information at public court hearings or in court judgements.
Notwithstanding the provisions of the preceding paragraph, information received by a Contracting State may be used for other purposes where, under the law of the requesting State, such information may be used for the same purposes.
3. In no case may the provisions of paragraphs 1 and 2 be interpreted as obliging a Contracting State to:
(a) take administrative measures contrary to its legislation and administrative practice or those of the other Contracting State;
(b) to provide information which cannot be obtained on the basis of their own legislation or in the exercise of their normal administrative practice, or that of the other Contracting State;
(c) providing information revealing business, industrial, commercial or professional secrecy, or an industrial procedure, or information the communication of which is contrary to public policy (ordre public).
4. Where a Contracting State requests information under this Article, the other Contracting State shall use the measures available to it to gather information for the purpose of obtaining the information requested, even if that other Contracting State may not need such information for its own tax purposes. The above obligation is limited by paragraph 3, but in no case may Contracting States interpret such limitations as a basis for refusing the exchange of information solely because of the absence of national interest in it.
Article 26. Members of diplomatic missions and consular posts.
The provisions of this Convention shall not affect the tax privileges enjoyed by members of diplomatic missions or consular offices in accordance with the general principles of international law or under the provisions of special agreements.
CHAPTER VII
Final provisions
Article 27. Entry into force.
1. Each Contracting State shall notify the other, through diplomatic means, that the internal procedures necessary for the entry into force of this Convention have been complied with.
2. The Convention shall enter into force within three months of the date of receipt of the last notification referred to in paragraph 1 and its provisions shall apply:
(a) in relation to taxes withheld at source, to income obtained from (one) January, including from the calendar year following the year in which this Agreement enters into force;
(b) in respect of other income taxes and property taxes, to taxes payable in tax periods beginning on or after 1 January (one) of the calendar year following that in which this Convention enters into force.
Article 28. Termination.
This Convention shall remain in force until its denunciation by one of the Contracting States. Any Contracting State may denounce the Convention by written notification, sent through diplomatic channels, at least six months before the end of any calendar year after a period of five (five) years from the date of entry into force of the Convention.
In such a case, the Convention shall cease to have effect in both Contracting States:
(a) in relation to taxes withheld at source, on income obtained from (one) January, including from the calendar year following that in which the complaint is notified;
(b) in respect of other income taxes and property taxes, on taxes payable in the tax periods beginning on or after 1 January, including the calendar year following that in which the complaint is notified.
In faith, the signatories, duly authorized to do so, have signed this Convention.
Done in duplicate in Baku on 23 April 2014, in the English, Azeri and Spanish languages, all texts being equally authentic. In the event of a divergence between any of the texts it shall be settled in accordance with the text written in English.
THE KINGDOM OF SPAIN,
BY THE REPUBLIC OF AZERBAIJAN,
José Manuel García-Margallo,
Minister for Foreign Affairs and Cooperation
Elmar Mammadyarov,
Minister for Foreign Affairs
PROTOCOL
At the time of signing the Convention between the Kingdom of Spain and the Republic of Azerbaijan to Prevent Double Taxation and Tax Evasion in Income and Property Taxes, the signatories have agreed on the following provisions which are considered an integral part of the Convention:
I. In relation to article 5.
The term ‘permanent establishment’ also includes a fixed place of business used as a retail store even though, on the other hand, that fixed place of business is maintained for the purposes of any of the activities referred to in paragraph 4 of this Article.
II. In relation to Article 5(5).
Any person authorized to negotiate the terms and conditions of a contract in such a way as to bind the undertaking shall be deemed to be exercising those powers in the Contracting State, even if the contract is signed by another person in the other Contracting State in which the undertaking is situated.
III. Right to benefit from the Convention.
(i) Contracting States declare that their domestic rules and procedures with respect to abuses of the rule (including tax treaties) are applicable to combat such abuses.
(ii) The benefits of this Convention shall not be deemed to be granted to a person other than the actual beneficiary of the income from the other Contracting State or of the assets therein situated.
In faith, the signatories, duly authorized to do so, have signed this Protocol.
Done in duplicate in Baku on 23 April 2014, in the English, Azeri and Spanish languages, all texts being equally authentic. In the event of a divergence between any of the texts, the text shall be settled in accordance with the English text.
THE KINGDOM OF SPAIN,
BY THE REPUBLIC OF AZERBAIJAN,
José Manuel García-Margallo,
Minister for Foreign Affairs and Cooperation
Elmar Mammadyarov,
Minister for Foreign Affairs
This Convention shall enter into force on 13 January 2021, within three months of the receipt of the last notification from the Parties reporting compliance with their internal requirements, as set out in its Article 27.
Madrid, October 28, 2020.–Technical Secretary General José María Muriel Palomino.