On June 26, 2014, The Ministry of Finance published the Instruction on Transfer Pricing that enter into force on that same date. Subject to Transfer Pricing Regulation are all Albanian taxpayers engaged in cross-border transactions with ‘associated parties’.
Two persons are considered to be associated parties where (i) one person participates directly or indirectly in the management, control or capital of the other person or (ii) whenthe same person or persons participate(s) directly or indirectly in the management, control or capital of both persons.
For the purposes of the application of the Albanian Transfer Pricing rules only cross-border transactions will be will be considered as a controlled transaction, ie only those transactions effectuated between an Albanian resident /an Albanian permanent establishment of a nonresident and a nonresident/a foreign permanent establishment of an Albanan resident.
The new regulation specifies as such any type of transactions between associated parties that affect the taxable profit of the Albanian taxpayer, including but not limited to:
- Transactions involving tangible goods, like raw materials, finished goods, fixed assets, etc.;
- Services transactions;
- Transactions involving intangible property, like royalty, license, payment for use of patents, trademarks, know-how, etc., and any other intellectual properties;
- Financial transactions, including leases, interest, guarantee fees.
- Capital transactions, including purchase or sale of shares or other investments, purchase or sale of long term tangible and intangible assets.
Any transactions with parties established in tax haven countries will be deemed controlled transactions and will be subject to Transfer Pricing Regulation, regardless of the relationship between the parties. Annex I of the Instruction provides a list of 65 countries considered as tax havens, e.g. Monaco, San Marino, British Virgin Islands, Liechtenstein, Marshall Islands, Monaco, U.S. Virgin Islands, Philippine, Hong Kong etc..
Transfer Pricing Methods
The approved and recommended methods to determine consistency of the controlled transaction with the market principle are the following:
- Comparable Uncontrolled Price Method;
- Resale Price Method;
- Cost plus Method;
- Transactional Net Margin Method; and
- Transactional Profit Split Method.
The taxpayer may also apply other methods, where it can be proved that none of the above methods can reasonably be applied to determine consistency with the market principle for the controlled transaction, and such other method yields a result consistent with the market principle.
The new regulation requires taxpayers engaging in controlled transactions exceed aggregate 50,000,000 ALL (approx. 360,000 Euro) within a year, to complete and submit to the Regional Tax Directorate an Annual Controlled Transactions Notice Form. The Annual Controlled Transactions Notice should be submited to the tax authorities within the 31st March of the following year for information purposes.
The Transfer Pricing Regulation requires the taxpayers to prepare the Transfer Pricing documentation up-front and make it available to the Tax Administration within 30 days following a request. The preparation and submission of the documentation on time does not prevent the Tax Administration from making a Transfer Pricing adjustment (if necessary), but avoids the application of penalties on any additional tax liabilities assessed (only interest for late payment applies).
The Transfer Pricing documentation must address at least the following:
- Overview of the taxpayer’s business operations and organizational chart;
- Description of the corporate organizational structure of the group;
- Description of the controlled transaction(s), including analysis of the comparability factors and details of applicable transfer pricing policy (where relevant);
- Explanation of the selection of most appropriate transfer pricing method;
- Comparability analysis as described above;
- Explanation of any economic analysis and projections relied on;
- Details of any advance pricing agreements or similar applicable to the controlled transactions;
- Conclusion as to consistency of the conditions of the controlled transactions with the market principle, including details of any adjustment made to ensure compliance.
This documentation may be submitted in electronic or paper format, in Albanian or English language (in which case the Tax Administration reserves the right to request translation).
- In case of failure to submit it on time, the Annual Controlled Transactions Notice, taxpayer will be subject to a fixed fine of 10,000 LEK per month of delay.