Why is transfer pricing a key issue for your business?
- Transfer pricing has become one of the most frequent and disputed areas of tax investigation;
- Very large tax reassessments possible, with significant penalties and interest on overdue tax;
- Transfer pricing adjustments can trigger economic double taxation;
- Expensive and time-consuming conflicts with regulatory authorities;
- Damage to reputation and corporate brand if seen as a bad corporate citizen;
- Transfer prices affect not only your tax position, but also your key performance indicators, cash flow and business strategy.
What are the local Albanian transfer pricing regulations?
- Cross-border transactions between related parties must be carried out at arm’s length;
Taxpayers whose controlled transactions exceed ALL 50,000,000 in aggregate (loan balances included) per tax period, are required to complete and submit an annual controlled transactions notice by 31 March of the following year;
Taxpayers engaged in controlled transactions have to prepare and present a local transfer pricing documentation file within 30 days from the tax authorities’ request;
Transfer pricing documentation may be submitted in Albanian or English, in electronic or paper format, however, where documents are submitted in English, the tax authorities have the right to request translation into Albanian;
Transfer pricing documentation prepared in accordance with the requirements of the Code of Conduct on transfer pricing documentation for associated enterprises in the European Union (EUTPD) will be also considered to fulfil the documentation requirements.
An advance pricing agreement (APA), a procedural agreement between one or more taxpayers and one or more Tax Administrations regarding the adoption of a pricing method to be applied to cross-border transactions between affiliated entities can be implemented. Applications for APAs will only be considered if the controlled transactions for the entire period covered by the agreement will exceed EUR 30 million and the maximum covered period for the APA is five years.
What are the consequences of non-compliance?
If the transfer prices for controlled transactions are not set at arm’s length, Albanian tax authorities can increase a company’s taxable income in Albania, they have the right to adjust revenues and expenses to reflect the market value of a transaction;
Additional taxable income assessed in addition to the standard 15% corporate income tax rate, is also subject to a penalty set up to 25% of the tax shortfall and related late payment interest;
Regarding the annual controlled transactions notice, a penalty of ALL 10,000 applies for every month of post due date delivery;
Failure to present the transfer pricing documentation file results in the tax authorities performing their own assessment of the market value, the same assessment occurs if the transfer pricing file is deemed incomplete.
What are the benefits of a proactive approach?
Preparing documentation in advance is the best defence against the potential negative consequences of transfer pricing audits;
Gaining awareness of exposure areas so as to take corrective measures before a transfer pricing audit starts;
Pro-active self-adjustment of a transaction not at arm’s length can be performed at any point in the market range, whereas the tax authorities reassess transaction prices at the market median;
Self-adjustment is limited to the payment of additional obligation and interest, not the penalties;
A formalised transfer pricing policy facilitates a clear and structured picture of your inter-company transactions, pricing and invoicing mechanism;
Advance Pricing Agreements (if eligible) enable you to clear up-front your proposed transfer pricing policy with the Albanian tax authorities.
How can we help you?
PwC Albania can assist you with any transfer pricing matters by leveraging upon industry specific expertise and an experienced regional and global network of professionals:
Preparation of your local transfer pricing documentation file by leveraging upon any group transfer pricing documentation;
Assistance during tax audits performed by the tax authorities;
Development and implementation of transfer pricing policies properly aligned to your business model;
Assistance in the preparation of Advance Pricing Agreement requests and during the negotiation process;
Assistance in assessing the local implications of your proposed group business restructuring;
Design of tax efficient business models and assistance in their implementation;
Value chain analysis for controlled transactions and their optimisation;
Analysis of inter-company agreements in order to identify and address transfer pricing issues;
Our approach is tailored to suit the size and nature of your organisation.