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13.4. Transfer Pricing

In June 2014, Albania introduced new transfer pricing rules which are aligned with the Organization for Economic Co-operation Transfer Pricing Guidelines of 2010. The legislation is supplemented by two administrative instructions, the first of 18 June 2014 on TP practical application modalities and documentation requirements, and the second of 27 February 2015 on Advance pricing Agreements.

Definition of Related Parties

Under the rules, controlled transactions between related parties and cross-border transactions with related parties are subject to transfer pricing requirements. Parties are considered to be related if:

  • One party participates, directly or indirectly, in the management, control or capital of the other party; or
  • Same third-party entity participates, directly or indirectly, in the management, control or capital of both the parties

  

A person is deemed to directly or indirectly participate in the management, control or ownership of another person where that person owns, directly or indirectly, 50% or more of the share capital in the other person, is entitled to 50% or more of the profits of that other person, or effectively controls the business decisions of that other person.

The TP regulations only apply to cross-border transactions. While this will often involve transactions between a resident and non-residents, it may also involve situations involving two residents where one has a PE abroad to which the transaction is attributed, or two non-residents where one has a PE in Albania to which the transaction is attributed.

Accepted TP Methods

According to Albanian law, taxpayers may use the OECD transfer pricing method that is most appropriate in the circumstances:

  • Comparable uncontrolled price method
  • Resale price method
  • Cost plus method
  • Transactional net margin method
  • Transactional profit split method

A taxpayer may use another method where none of the OECD methods listed above can appropriately determine an arm’s length price.  However, in that case, the burden of proof lies with the taxpayer.

Documentation Requirements

If a transaction is subject to transfer pricing rules, then the following requirements must be met:

  • Adequate transfer pricing documentation and analysis must be maintained in support of the arm’s length nature of transactions. Such documentation must be submitted to the tax authorities within 30 days of request from the tax authorities
  • If the value of controlled transactions entered into by a taxpayer exceeds ALL 50 million, then an annual Controlled Transactions Notice (containing list of inter-company transactions and transfer pricing methods applied to such transactions) is required to be submitted to the tax authorities by 31 March of the following year

Penalty

In the event of a transfer pricing audit, any failure to maintain/ furnish transfer pricing documentation may attract penalty in the range of 5% to 25% of the additional tax liability for each month of delay.

Failure to furnish Controlled Transactions Notice by the due date attracts a penalty of ALL 10,000 for each month of delay.

Country-by-Country (‘CbC’) Reporting

Albania till date has not introduced a Country-by-Country reporting requirement. However, it has joined the OECD’s Inclusive Framework, membership of which presupposes a commitment to implement the BEPS minimum standards, including Country-by-Country reporting.

Advance Pricing Agreements

Taxpayers have an option to enter into an Advance Pricing Agreement (APA) with the tax authorities. APA’s can be entered into for a maximum period of 5 years. Further, APA’s can only be entered into if the taxpayer’s total value of related-party transactions exceeds EUR 30 million during the entire term of the APA (i.e. 5 years).