The Tax Code interpreted by the Constitutional Court: restrictions on freedom of movement equally apply to foreign entities

The Constitutional Court of the Republic of Azerbaijan, by its decision dated March 31, 2026, adopted an important decision on restrictions on exit from the country due to tax debts, providing an expanded interpretation of the concept of "head of the executive body of a legal entity".

The fact that the relevant articles of the Tax Code and the Civil Procedure Code refer to the concepts of individuals who are taxpayers or heads of the executive body of legal entities regarding the restriction of the right to leave the country has caused disagreements in practice when applying the concept of "legal entity" for the purposes of these articles.

However, with the new decision of the Constitutional Court, heads of branches and representative offices of foreign legal entities in the Republic of Azerbaijan are now also considered subjects of this restriction, and their rights to leave the country may be temporarily restricted by a court decision due to debts on taxes, social insurance, compulsory medical insurance and unemployment insurance contributions.

According to the position of the court, the interpretation of the norm according to its purpose in relation to the concept of “head of the executive body of a legal entity” also covers the heads of branches or representative offices of a foreign legal entity for the following reasons:

• the fact that they actually operate in the territory of the Republic of Azerbaijan as a legal entity for tax purposes
• the fact that the responsible employees of the institution are subject to the relevant tax and accounting rules established for local legal entities
• the fact that different treatment of heads of foreign branches and representative offices leads to a violation of the principle of equality
• since the management centers of foreign companies are outside the country, direct and actual responsibility for the fulfillment of tax obligations within Azerbaijan falls on the head of the local enterprise
• the fact that the concept of enterprises under Article 13.2.39 of the Tax Code also covers branches or permanent representative offices of foreign legal entities

The Constitutional Court also noted that when considering the relevant issue, state authorities should examine the evidence, assess the possibility of applying alternative measures and the proportionality of the applied restriction to the expected result, and the application of such a measure should not lead to unnecessary restriction of the rights of the person.