Amendments to the Albanian Tax Legislation related to Transfer Pricing

7 May 2014

On 24 April 2014, the Albanian Parliament approved Law
No. 42/2014 on Certain Amendments to Law No. 8438 dated
28 December 1998 on Income Tax, as amended and Law
No. 43/2014 on Certain Amendments to Law No. 9920 dated
19 May 2008 on Tax Procedures in the Republic of Albania, as amended. The main amendments consist of the following:

Amendments to the Law on Income Tax

For transfer pricing (TP) purposes, Law No. 42/2014 introduces new definitions of related parties, controlled/uncontrolled transactions and advanced price agreements.

The definition of controlled transaction provides that a transaction between related parties applies only to transactions between an Albanian taxpayer and a foreign taxpayer (domestic transactions are excluded).

The new Law sets out the TP methods to be used by taxpayers when performing a controlled transaction depending on the specifics of the transaction. However, it also provides for the possibility that, if the taxpayer proves that none of the methods laid down in the Law can be used in a reasonable way to apply the market principles in the controlled transactions, then the taxpayer has the right to choose another appropriate TP method.

Pursuant to Law No. 42/2014, if a taxpayer performs, under the same or similar circumstances, two or more controlled transactions, which are economically related or in consequence or combination of each other and which cannot be reliably analyzed separately, then these transactions can be combined and be subject to the comparability analysis and application of TP methods.

According to the new Law, the taxpayer is obliged to present to the tax authorities, upon their request within 30 days, TP documentation proving that the taxpayer has analyzed the transaction for TP purposes. Provisions about the TP documentation will be issued by the Minister of Finance in an Instruction. Furthermore, the taxpayers performing controlled transactions above a certain amount to be specified in the special Instruction should present to the tax authorities an annual notification/report for the controlled transactions performed.

In addition, according to the amendments, a taxpayer may enter into an advance price agreement with the tax authorities to determine the necessary conditions that the taxpayer should fulfill to perform controlled transactions in compliance with the market principles. If this is the case, no adjustment to the TP should be made as long as the defined conditions are fulfilled.

The procedures to be followed in relation to the TP documentation, annual notification/report and advanced price agreement will be defined in a special Instruction to be approved by the Minister of Finance.

Amendments to the Law on Tax Procedures

Law No. 43/2014 provides for the applicable penalties in case a taxpayer does not act in accordance with the TP regulation. A taxpayer who fails to declare on time the annual controlled transactions is liable for a penalty amounting to ALL 10,000 (approximately EUR 70) for each month of delay.

In the event of adjustments of tax liabilities for TP purposes, the taxpayer will be liable to pay:

  • The assessed tax liability plus interest and a penalty of
    5 percent of the outstanding liability for each month or part of the month during which the payment is not made. The penalty cannot be higher than 25 percent of the outstanding liability.
  • The assessed tax liability and interest. No penalty applies in case the taxpayers have prepared and submitted the appropriate TP documentation.

Entry into force

Law No. 42/2014 and Law No. 43/2014 enter into force 15 days after their publication in the Official Gazette.


For Information

Arkadiusz Mierzejewski
Partner, Tax
Tel: +355 (4) 2274 524
Fax: +355 (4) 2235 534

Alba Paparisto
Senior Manager, Tax
Tel: +355 (4) 2274 524
Fax: +355 (4) 2235 534

In this issue

Amendments to the Law on Income Tax

Amendments to the Law on Tax Procedures

Entry into force

For Information
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