Albania: Albanian transfer pricing regulations
Transfer pricing (TP) rules have been present for more than a decade in the Albanian Corporate Income Tax (CIT) Law, but specific and detailed regulations on the application of these rules were only published in the Official Journal No. 70, dated May 20 2014. These changes have totally transformed Article 36 of the Law on Income Tax (No. 8438, dated December 28 1998) by adding seven more provisions on specific rules and actions.
Companies and groups of companies with related party transactions must comply with the revised TP rules, and failure to do so can lead to hefty fines.
An entity is considered a related party if there is a possibility of exercising control over or exerting considerable influence on the business decisions made. The direct or indirect possession of 50% or more of the shares in capital mean that control over the taxpayer is possible, while owning at least 50% of the voting rights is considered as having an influence on business decisions.
The types of transactions subject to TP rules include:
Management fee payments;
Provision of management services;
Cost-sharing within the group;
Research and development activities;
Provisions for other services; and
The use of other services.
Taxpayers should choose one of the methods described in the OECD's TP Guidelines when engaging in transactions with a related party. A taxpayer should also describe the decisive reasons for the determination regarding the method used for the reconciliation of the transfer prices with the arm's length principle for the transactions carried out with the associate enterprises.
The taxpayer should choose one of the following TP methods:
The comparable uncontrolled price (CUP) method;
The resale price method (RPM);
The cost plus method (CPM);
The transactional net margin method (TNMM); or
The profit split method (PSM).
Taxpayers can use another method only when none of the above methods can be reasonably applied.
TP audits and penalties
TP documentation must be submitted to the tax authorities in Albania on an annual basis by filling a "controlled transaction notice". It may be submitted in hard copy along with the balance sheet and the financial statements or electronically, as required by the tax authority.
In the case of a potential tax audit, the tax administration is obligated to perform the same transfer pricing method used by the taxpayer.
It is worth noting that TP penalties were only introduced in Albania less than a decade ago. Article 115/1 was introduced into Law No. 9920 on May 19 2008 "On Tax Procedures" to impose penalties relating to TP. Before this change, no provisions or penalties regarding TP were in force.
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