Albania: Albanian transfer pricing regulations
Transfer pricing 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 have been published in the Official Journal No 70, dated May 20 2014. The recent changes have totally transformed Article 36 of the Law on Income Tax (No. 8438, dated December 28 1998) by adding seven more articles related to specific rules and actions.
Who is affected?
Companies and groups of companies with related party transactions are affected by transfer pricing rules.
Related party definition
An entity is considered a related party if there is a possibility of exercising control over, or exerting considerable influence on, business decisions made. The direct or indirect possession of at least 50% of the shares in capital shall mean that control over the taxpayer is possible.
The case of direct or indirect possession of at least 50% of the voting rights is considered as having an influence on business decisions.
Type of transactions
The type of transactions subject to transfer pricing are: product sales; product acquisition; lendings; borrowings; royalties; management fee payment; provision of management services; cost-sharing within the group; research and development activities; provision of other services; and use of other services.
Transfer pricing methods
The taxpayer should choose one of the methods described in the OECD guidelines. Taxpayers 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 methods:
Comparable Uncontrolled Price (CUP) method;
Resale Price Method;
Cost Plus Method;
Transactional Net Margin Method (TNMM); or
Profit Split Method.
The taxpayer can use another method only if none of the above methods can be reasonably applied.
Transfer pricing audit and penalties
In case of a potential tax audit, the Tax Administration should perform the same transfer pricing method used by the taxpayer.
Another important change is introduced in the Law no. 9920, dated May 19 2008 "On Tax Procedures" with penalties related to transfer pricing being added (Article 115/1). Previously, no provision or penalties regarding transfer pricing were in force.
Transfer pricing documentation is to be submitted to the Tax Authorities in Albania on an annual basis by filing a "controlled transaction report", the submission timeframe of which shall be determined by the Ministry of Finance.
Advance pricing agreements (APAs)
Taxpayers that carry out transactions with related parties may address the tax authorities to obtain an APA regarding the conditions and methods of determining the transfer pricing. Specific announcements will be issued, related to APAs, by the Ministry of Finance.
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