Instructions
No. 29, dated November 16, 2023
For the Transfer of Price and Advance Pricing Agreements
In implementation of Article 102, paragraph 4, of the Constitution of the Republic of Albania and Article 70, paragraph 2, of Law No. 29/2023, date March 30, 2023, “For the income tax,” as amended, the Minister of Finance and Economy,
INSTRUCTIONS:
1. General provisions
This instruction establishes the rules and procedures for the administration and enforcement of Article 3, paragraph 13, Articles 32–39, and Article 44 of Law No. 29/2023, dated 30.3.2023, “On Income Tax,” as amended, hereinafter referred to as the “Law.”.
– Transfer of the Price
2. Relying on the OECD Guidelines for Transfer Pricing
2.1 This guidance is based on the principles of the OECD (Organisation for Economic Co-operation and Development) guidelines “On Transfer Pricing for Multinational Companies and Tax Administrations” (OECD Transfer Pricing Guidelines), updated.
2.2 In the event of any discrepancies or conflicts between the OECD Guidelines and the Albanian law and guidelines on income tax, the Albanian law and guidelines shall prevail.
3. Controlled transactions
3.1 The definition of controlled transactions in Article 32, paragraph 2, of the law includes all types of transactions that may affect a taxpayer's taxable profit, including, but not limited to:
– transactions involving goods, such as raw materials, finished products, etc.;
– service transactions;
– transactions involving intangible assets, such as copyrights, licenses, patent usage fees, trademarks, know-how, etc., and any other intellectual property;
– financial transactions, which include rents, interest, guarantee payments, etc.;
– Capital transactions, which include the purchase or sale of shares or other investments, and the purchase or sale of tangible and intangible long-term assets.
3.2 For the purposes of Article 3, paragraph 13, of the law, two persons are considered to be connected if one or both of them could act in accordance with the instructions, requests, suggestions or will of the other person or of a third person, if that person:
a) holds, or may control, 50% or more of the voting rights of another person, which is a legal entity;
b) may inspect the composition of the board of directors of the other party, which is a legal entity;
c) has the right to distribute 50% or more of the other person's profits;
d) the other person is a relative, or a party affiliated with a relative; or
e) Based on verified facts and circumstances, oversees the other person's business decisions.
3.3 For the purposes of this guidance, “relative” means: spouse, partner, descendants and first-degree ancestors.
3.4 The burden of proof to establish that two persons are connected if one or both persons could act in accordance with the instructions, requests, suggestions or will of the other person or of a third person rests with the tax administration.
3.5 Share capital held by a person's related parties will be taken into account in determining whether that person indirectly holds 50% or more of the share capital in another legal entity.
Example. If Company A owns 60% shares of Company B and Company B owns 55% shares of Company C, then Company A will be considered to indirectly own over 50% of the share capital in Company C.
3.6 The list of specific jurisdictions for the purposes of Article 32, paragraph 2(c) of the Law is provided in Annex 1 attached to this guidance.
4. The principle of the market
4.1 The market principle referred to in Articles 36 and 44 of the law is equivalent to the “arm's length” principle in Article 9, paragraph 1 of the OECD Model Tax Convention on Income and Capital and as referred to in the OECD Transfer Pricing Guidelines. (OECD TPG).
4.2 In accordance with Article 36(2) of the law, the application of the arm's-length principle must be based on a comparison of the terms of controlled transactions with the terms of comparable uncontrolled transactions.
5. Comparability
5.1 Comparability is assessed based on the comparability standard set out in Article 33, paragraph 1, and taking into account the five comparability factors specified in Article 33, paragraph 2 of the law.
5.2 In the analysis of the characteristics of the property or services transferred, the relevant elements may include, but are not limited to:
a) in the case of goods: physical characteristics, quality, safety, availability of supply, etc.;
b) in the case of services: the nature and scope of the service, regardless of whether the service involves specific expertise, technical knowledge, or the use of intangible assets, etc.;
c) in the case of financing transactions: the principal amount, the term, guarantees, currency, the debtor's ability to pay, insurance, the interest rate, etc.;
d) in the case of intangible assets: the form of the transaction (e.g., licensing or sale), the type of asset (e.g., patent, trademark, or know-how), the duration and extent of protection, the expected benefits from the use of the asset, etc.;
e) in the event of the transfer of shares or other investments: the issuer's updated capital account, the current value of projected earnings or cash flows, the market quotation for the share stock at the time of transfer, etc.
5.3 In the analysis of the functions undertaken, the assets used, and the risks anticipated, the relevant elements may include, but are not limited to:
a) functions, such as: design, production, assembly, research and development, service, purchasing, distribution, marketing, advertising, transportation, financing, management, etc.;
b) assets, such as machinery and equipment, the use of valued intangible assets, financial assets, etc., and taking into account the nature of the assets used, such as age, market value, location, available property rights protections, etc.;
c) risks, such as: market risks, risks of loss associated with the investment in and use of the property, machinery and equipment, the risks of success or failure of investment in research and development, financial risks such as those caused by currency exchange rates and interest rate volatility, credit risks, etc.
5.4 In analyzing the contractual terms, in addition to the provisions of the Civil Code of the Republic of Albania on the interpretation of contracts, articles 681–689, an examination must be undertaken to determine whether the parties' conduct complies with the terms of the contract, or whether the parties' conduct shows that the contractual terms have not been fulfilled, or whether we are dealing with a case of fraud. In the latter case, further analysis is required to determine the true terms of the transaction. When there is no written contract, the terms of the transaction may be inferred from correspondence or other communications between the parties, their conduct, and/or the economic principles that generally govern relationships between independent companies.
5.5 In the analysis of economic conditions, the relevant elements may include, but are not limited to: geographic location; market size; the extent of competition in markets and the respective competitive positions of buyers and sellers; the availability (i.e., the risk) of substitute goods and services; market supply and demand levels in general and in particular regions, consumer purchasing power, the nature and extent of government regulation in the market, production costs (including land, labor, and capital costs), transportation costs; market level (e.g., retail or wholesale); and the date and time of transactions.
5.6 In the analysis of business strategies, the relevant elements may include, but are not limited to, strategies related to market penetration, diversification, innovation, product development, risk avoidance, political changes, etc.
5.7 The following process should be taken into consideration when assessing comparability. However, following this process is not mandatory – what matters is the outcome, not the process.
1. Determining the years to be covered;
2. A comprehensive analysis of the taxpayer's circumstances;
3. Understanding of the controlled transaction(s) under examination, based in particular on a functional analysis, in order to assist in the selection of the party to be tested in accordance with this guidance (where necessary); selecting the most appropriate method of price transfer under the circumstances of the case in accordance with this guidance; selecting the financial indicator to be tested (when necessary); and identifying the important comparability factors that should be taken into account;
4. Review of existing comparable uncontrolled internal transactions, if any;
5. Identification of the available sources of information on comparable external transactions, when such comparable external transactions are necessary, taking into account their relative reliability;
6. Selection of the most appropriate method of price transfer in accordance with this guidance and, depending on the method, determination of the relevant financial indicators;
7. Identification of potential comparable transactions: determining the key characteristics that must be met by any uncontrolled transaction in order to be considered potentially comparable, based on the relevant factors identified in step 3 and in accordance with the comparability factors specified in Article 33, paragraph 2 of the law;
8. Determining and carrying out comparability adjustment measures when necessary, taking into account point 6 below;
9. Interpretation and use of collected data, determination of conditions in accordance with market principles.
6. Comparability Regulatory Actions
6.1 For the purposes of Article 33(1)(b) of the law, comparability regulatory actions shall be taken into consideration only if they are expected to increase the reliability of the results, taking into account considerations such as:
a) the materiality of the difference for which the adjustment has been considered;
b) the quality of the data that are subject to regulation;
c) the purpose of the regulation; and
d) the reliability of the method used to perform the adjustment.
6.2 Comparability adjustment actions may include, but are not limited to, adjustments for:
a) ensuring accounting consistency, for example, specified adjustments to eliminate differences that may arise from changes in accounting practices applied to controlled and uncontrolled transactions;
b) differences in capital, functions, assets, risks;
c) the difference under the current conditions; or
d) the difference between geographic markets.
Example. During 2014, Company X sold 8 million units of Product G to Company Y, a related party, and 1 million units of the same product to an independent party, Company A. The only significant difference between the transactions, taking into account the five comparability factors specified in Article 33(1)(b), is that Company Y is offered a volume discount of 51 TP3T. Company A did not purchase a sufficient quantity of product units to qualify for the volume discount. The volume discount offered to Company Y is in line with industry practices, and the contractual terms show that the same discount would have been made available to Company A had it purchased the same quantity as Company X. In such a case, a comparability adjustment must be made to eliminate the effects of this difference.
7. Comparable Information Sources
7.1 Comparable uncontrolled transactions may be:
a) Uncontrolled comparable intra-company transactions, which are uncontrolled comparable transactions in which one of the parties to the controlled transaction is also a party to the uncontrolled comparable transaction;
b) Comparable uncontrolled external transactions, which are comparable uncontrolled transactions in which neither of the parties to the controlled transaction is a party to the comparable uncontrolled transaction.
7.2 An uncontrolled transaction may be used by the tax authorities for the purposes of carrying out a corrective action under Article 32(1) of the law only if the relevant elements of the transaction do not contain tax secrecy and there are other sources of information about that transaction.
7.3 In the absence of uncontrolled comparable domestic transactions, the tax authorities will accept the use of uncontrolled foreign comparable transactions provided that the impact of geographic differences and other factors on the financial indicator under examination is analyzed according to the appropriate method, transfer pricing, and, where appropriate, to make comparability adjustments.
7.4 In the absence of uncontrolled comparable external transactions relating to the same fiscal year as the controlled transaction(s), available at the time of preparing the transfer pricing documentation specified in Article 37 of the law, the taxpayer may rely on information relating to uncontrolled comparable external transactions from the most recent period for which such information is available, provided that the comparability standard in Article 33 of the law is met.
8. Price transfer methods
Uncontrolled comparable price method
8.1 The price is the appropriate financial indicator for applying the uncontrolled comparable price method as defined in Article 34, paragraph 1(a) of the law. This price may be a specified amount in a given currency, or a direct determination such as an interest rate or a royalty fee. The comparison of the price in the controlled transaction may be made with the price of an internally comparable uncontrolled transaction or with the price of an externally comparable uncontrolled transaction, depending on the availability of information and/or the existence of such transactions.
Example. Suppose that company X produces bottled water, of which it sells to an independent party (company A) and a related party (company Y), and the sales to both parties are of the same type, quality, and brand bottled water; involve similar quantities; are carried out at almost the same time, at the same stage of the production/distribution chain and under similar conditions, and are in comparable markets. If there are no differences between the transactions that materially affect the price, or, when such differences exist, the effect can be eliminated through reasonable and accurate comparability adjustments, then the consistency of conditions in the controlled transactions can be determined by directly comparing the price set in the transaction with the price set in the transaction with the independent party.
Resale price method
8.2 The relevant financial indicator for the application of the resale price method, as defined in Article 34, paragraph 1, letter “b” of the law, is the resale price margin. This margin is the gross profit (i.e., profit before deducting operating and other selling expenses), as a percentage of revenue from the sale of goods. The resale price margin may be compared with the resale price margin(s) of a comparable uncontrolled domestic transaction or a comparable uncontrolled foreign transaction, depending on the availability of information and/or the existence of such transactions.
Example.Company X, a resident of State X, manufactures electronic products using the technology it has developed and sells these products to an affiliated party, Company Y, which is a resident of State Y. Company Y distributes the product in the State Y market to independent parties and does not perform any significant value-adding functions. A search for comparable independent distributors operating in State Y identified seven independent distributors with resale price margins ranging from 39% to 46%. A comparability analysis reveals that there are no significant differences that would materially affect the resale price margin. Consequently, assuming the resale price method is the most appropriate method, if Company Y earns a resale price margin ranging from 39% to 46%, it can be concluded that the terms of the controlled transaction(s) (e.g. the sale of products from company X to company Y) are in accordance with the arm's-length principle.
Cost-plus method“
8.3 The relevant financial indicator for the application of the “cost-plus” method, as defined in Article 34, paragraph 1(c) of the law, is cost plus the required margin. The required cost-plus margin is defined as the margin on direct and indirect costs, but not on operating costs. When the cost-plus method is applied, it is very important to apply a required cost-plus margin that is comparable to a comparable cost base (e.g., by including the same types of direct and indirect costs). The required cost-plus margin can be compared with the required cost-plus margin in comparable uncontrolled domestic transactions or in comparable uncontrolled external transactions, depending on the availability of information and/or the existence of such transactions.
Example.Company X, a resident of State X, manufactures clothing based on specifications provided by an affiliated party, Company Y, which is a resident of State Y. The designs used by Company X are provided by Company Y on the condition that Company Y may use these designs only to produce a specified number of units, which are then purchased by Company Y provided the quality standard is met. A search for comparable independent manufacturers operating in State X identified five independent manufacturers with cost-plus margins ranging from 20% to 25%. A comparability analysis shows that there are no significant differences that would materially affect the margin. Consequently, assuming that the “cost-plus” method is the most appropriate, if Company X applies a required cost-plus margin of 20% to 25% (on a comparable cost basis) then it can be concluded that the terms of the controlled transaction(s) (e.g., the sale of goods from Company X to Company Y) are in accordance with the arm's-length principle.
Method of the net margin of the transaction
8.4 The appropriate financial indicator for applying the transaction net margin method, as defined in Article 34, paragraph 1(c) of the law, is net profit on an appropriate basis. Financial indicators when applying the transaction net margin method may include, but are not limited to:
a) the net profit ratio (before interest and taxes) to sales;
b) the ratio of net profit (before interest and taxes) to total costs (including direct, indirect, and operating costs);
c) the net income before taxes to equity ratio;
d) the net income ratio before interest and taxes to assets.
The selection of the financial indicator must be consistent with the comparability analysis, including the functional analysis. For example, net profit (before interest and taxes) divided by the financial sales indicator is widely used when the controlled transaction is the purchase of tangible assets by the tested party, which are then sold to independent parties, and net profit (before interest and taxes) to total cost is widely used when the controlled transaction is the provision of services by the tested party to an associated party. In determining net profit, care must be taken to exclude any extraordinary income or expense.
When applying the net transaction margin method, it is important to ensure that the financial measure is defined in a comparable manner for comparable controlled and uncontrolled transactions. Comparison of the net margin to an appropriate basis can be made with the net margin of the appropriate basis in comparable uncontrolled domestic transactions or in comparable uncontrolled external transactions, depending on the availability of information and/or the existence of such transactions.
Example 1. Let's assume that Company X, a resident of State X, provides information technology services to an affiliated party, Company Y, a resident of State Y. A search for comparable independent service providers operating in State X identified nine independent information technology service providers with a margin over total costs (e.g., a net profit ratio (before interest and taxes) to total costs (direct, indirect, and operating), ranging from 61% to 91%. A comparability analysis shows that there are no significant differences that would materially affect the margin on total costs. Consequently, assuming that the transaction net margin method using a cost-based financial indicator is the most appropriate method, if Company X applies a margin on total costs ranging from 6% to 9%, on the costs related to providing information technology services to Company Y, then it can be concluded that the terms of the controlled transaction(s) (e.g., the service billed by Company X to Company Y) are in accordance with the arm's length principle.
Example 2. Company X, a resident of State X, manufactures office supplies using the technology and trademark it has developed itself and sells these products to an affiliated party, Company Y, which is a resident of State Y. Company Y distributes the immovable equipment in the State Y market to independent parties and does not perform any significant value-adding functions. A search for comparable independent distributors operating in State Y identified six independent distributors with net profit (before interest and taxes) margins on sales ranging from 21% to 51%. A comparability analysis shows that there are no material differences that would materially affect net income (before interest and taxes) relative to sales. Consequently, assuming that the net margin method, using a sales-based financial indicator, is the most appropriate method, if Company Y earns a net income (before interest and taxes) relative to the sales rate from 21% to 51%, then it can be concluded that the terms of the controlled transaction(s) (e.g., the sale of products from Company X to Company Y) are in accordance with the arm's-length principle.
Profit-sharing method
8.5 When the profit-splitting method, as defined in Article 34(1)(d) of the law, is applied, where it is possible to determine compliance with the arm's-length principle for certain functions performed by the parties in connection with the transaction(et) controlled that use one of the transfer price methods described in Article 34, paragraph 1, subparagraphs “a”-“d” of the law, the profit-splitting method for transactions will be applied based on the remaining joint profit (or loss) that results when these functions are compensated in this way. In allocating the remaining profit (or loss), the criterion used to achieve an allocation in accordance with the arm's-length principle will depend on the facts and circumstances of the case, taking into account that the criterion (or the allocation factor) should be based on objective data (e.g., sales to unrelated parties or expenses paid to unrelated parties) and not on data related to controlled transactions (e.g., sales to related parties) and should, as far as possible, be based on comparable data, internal data, or both.
8.6 When it is not possible to determine a remuneration that complies with the arm's-length principle for some of the functions performed by the parties in connection with the controlled transaction, the profit-splitting method may be applied based on a contribution analysis.
Other methods
8.7 In accordance with Article 34(2) of the Law, a taxpayer may, under certain circumstances, apply a transfer pricing method other than any of the approved methods, such as, for example, a cash‐flow discounting update or an appraisal technique.
9. Selection of the price transfer method
9.1 For the purposes of Article 34, paragraph 1 of the law, the most appropriate method for transferring the price will be selected by taking into account the following criteria:
a) The respective strengths and weaknesses of the approved transfer pricing methods;
b) The appropriateness of an approved transfer pricing method in light of the nature of the controlled transaction is determined, in particular, through an analysis of the functions performed by each company in the regulated transaction. (taking into account the assets used and the risks assumed);
c) The availability of reliable information necessary for the application of the chosen transfer price method and/or other methods; and
d) The degree of comparability between controlled and uncontrolled transactions, including the reliability of any comparability adjustments, if any, that may be required to eliminate differences between them.
9.2 According to Article 34(3) of the law, a taxpayer is not required to determine the compliance of the terms of a controlled transaction with the arm's-length principle by applying more than one method. The requirement under Article 34 is that conformity with the arm's-length principle must be achieved by applying the most appropriate method. However, the taxpayer is entitled to cross-reference or support the application of the most appropriate method by applying one or more of the additional transfer pricing methods.
9.3 When a taxpayer has applied one of the transfer pricing methods specified in Article 34, paragraph 1, pursuant to Article 34, paragraph 4 of the law, the tax authorities' review of whether the terms of the controlled transaction comply with the arm's-length principle shall be based on the transfer pricing method applied by the taxpayer, unless the tax authority proves that the method applied by the taxpayer is not the most appropriate method.
10. Selection of the tested party
10.1 In applying the cost-plus method, the resale price method, or the net transaction margin method, it is important to select a tested party. The tested party must be a party to the controlled transaction for which the financial indicator is being tested.
10.2 The selection of the tested party must be in accordance with the functional analysis of the controlled transaction(s). As a general rule, the tested party is the party to the controlled transaction for which one of the transfer pricing methods under Article 34, paragraph 1 of the law, can be applied most reliably and for which the most reliable comparable uncontrolled transactions can be identified; for example, it will most often be the party that has the least complex functions with respect to the controlled transactions and does not contribute any valuable intangible asset.
10.3 The use of a tested foreign party, for example a tested party that is not an Albanian taxpayer, will be accepted by the tax authorities, provided that the following requirements are met:
a) the transfer pricing method applied is one of the approved transfer pricing methods that is the most appropriate transfer pricing method;
b) the tested party has been selected in accordance with this point; and
c) the taxpayer makes available to the tax authorities sufficient information regarding the tested party to enable an assessment that the terms of the controlled transactions comply with the arm's-length principle.
11. Specific types of transactions
Service transactions
11.1 A payment for a controlled transaction, which is the provision or receipt of a service, will be considered to be in accordance with the arm's-length principle when:
a) has been paid for a service that was actually provided;
b) the service offers, or was expected to offer, the recipient economic or commercial value to improve his commercial position;
c) has been paid for a service that an independent party in comparable circumstances would have been willing to pay for if it had been performed by an independent party, or would have performed for itself; and
d) its value corresponds to the value that would have been agreed upon between independent parties for comparable services under comparable circumstances.
11.2 When it is possible to identify the specific services provided by one party to the other, the determination of whether the paid service complies with the market principle will be made for each specific service.
11.3 When separate services are provided by one party to different related parties and not to any independent party, and it is not possible to identify the specific services provided to each, the total service paid for will be allocated, among the related parties that benefit or expect to benefit from the services, according to reasonable allocation criteria. For purposes of this provision, allocation criteria will be considered reasonable when they are based on a variable or variables that:
a) take into account the nature of the services, the circumstances in which they are provided, and the benefits received or expected to be received by the parties for whom the service was intended;
b) relate exclusively to uncontrolled transactions, rather than to controlled transactions; and
c) are reasonably and reliably measurable.
Transactions involving intangible assets
11.4 The application of the market principle to controlled transactions involving licenses, sales, or other transfers of real estate will take into account both the perspective of the transferor of the property, as well as the recipient's perspective, including in particular the price at which comparable independent parties would be willing to transfer the property and the value and usefulness of the recipient's intangible assets in its business.
11.5 In assessing comparability in accordance with Article 33 of the law, for a transaction involving licensing, sale or other transfers of real estate, attention must be paid to any particular factor important for the comparability of controlled and uncontrolled transactions, including:
a) expected benefits from intangible assets;
b) any geographical restriction on the exercise of intellectual property rights;
c) the exclusive or non-exclusive nature of the transferred rights; and
d) whether the recipient is entitled to participate in any further development of the intangible property by the transferor.
12. Adjustment of price transfer
12.1 An adjustment under Article 32, paragraph 1 of the law shall be carried out by the tax authorities only with the written approval of the Director of the Regional Tax Directorate.
12.2 According to Article 32, paragraph 1 and Article 36 of the law, when the financial indicator derived from the controlled transaction(s) is outside the market range, the tax authority may make an adjustment to the taxpayer's taxable income to align the financial indicator with the median of the market range, unless the tax authority or the taxpayer proves that the circumstances of the case warrant an adjustment at a different point within the market range.
12.3 The median of the market range is the 50th percentile of the results derived from comparable uncontrolled transactions that constitute the market range.
For this purpose, the 50th percentile is the lowest such score that 50 percent of the scores are below it. However, if exactly 50 percent of the results are at or below a given result, then the 50th percentile is equal to the arithmetic mean of that result and the next higher result derived from comparable uncontrolled transactions.
Example 1
If the market range consists of 7 results, the median will be the fourth result when these results are arranged in ascending order. If these results are, for example, 2.8%, 2.9%, 2.9%, 3.0%, 3.1%, 3.6%, and 3.7%, the median will be 3.0%.
Example 2
If the market range consists of 8 results, the median will be the average of the fourth and fifth results when these results are arranged in ascending order. If these results are, for example, 5.8%, 5.9%, 5.9%, 6.0%, 7.1%, 7.6%, 7.7%, and 7.7%, the median will be 6.55% ((6.0% + 7.1%)/2).
12.4 In order to prove that the circumstances of the case warrant adjustment to a point in the market range other than the median, the taxpayer or the tax authority, depending on which is seeking the adjustment to a different point in the market range, bears the burden of proof to demonstrate why, based on the specific facts and circumstances of the case, adjustment at that other point would better reflect the application of the arm's-length principle.
12.5 The tax authorities' control of a controlled transaction should ordinarily be based on the transaction actually carried out by the parties and as structured by them. In making adjustments under Article 36(3) of the law, the tax authorities should not bypass the actual transaction undertaken or substitute other transactions, except in exceptional cases, when:
a) the economic substance of the controlled transaction differs from its form;
b) the adjustments made in connection with the controlled transaction, taken as a whole, differ from those that would have been accepted by independent parties acting in a commercially rational manner, and the actual structure practically prevents the tax authority from determining compliance with the arm's-length principle.
13. Corresponding adjustments
13.1. A request by a taxpayer for a corresponding adjustment in accordance with Article 38 must be made in writing to the Regional Tax Directorate and must include the information necessary for the tax authority to review the conformity of the adjustment carried out by the tax administration of the other country. with the arm's-length principle, including:
a) the name, registered address and, where applicable, the trading name(s) of the related party and registration details;
b) the year(s) in which the regulated transactions occurred;
c) the amount of the respective adjustment required and the amounts of adjustments made by the tax administrations of the partners in the tax agreement;
d) proof of the tax residency of the related party, for example a letter or certificate of residence issued by the tax administration of the country of the partner under the tax agreement;
e) verification of the adjustment made by the tax administration of the partner in the tax agreement and the basis for the adjustment, for example a copy of the assessment and supporting analysis and details of any administrative appeal or judicial proceeding undertaken, where applicable;
f) details of the comparability factors, the transfer pricing method applied, etc.;
g) confirmation that the linked party will not pursue, or is not able to pursue, any further recourse under the law of the partner jurisdiction of the tax treaty that could result in the adjustment made by the tax administration of the partner jurisdiction being reduced or annulled;
h) any other information that may be relevant to examining the regulation's compliance with the market principle.
13.2 The request must be carried out in accordance with the provisions of the relevant double taxation agreement and the procedures and time limits agreed upon between the competent authorities for the implementation of the agreement.
13.3. The Director of the Regional Tax Directorate, within three months from the date of receipt of the request that meets the above conditions, shall notify the taxpayer whether the requested adjustments will or will not be made, in whole or in part, in accordance with Article 38 of the law.
13.4 When the director of the Regional Tax Directorate, in accordance with the deadline set out in section 13.3, has refused the taxpayer's request for a corresponding adjustment, in whole or in part, the reason for this decision must be sent to the taxpayer in writing. These reasons may include, but are not limited to:
a) the request made did not meet the conditions of point 13;
b) the taxpayer has failed to provide the tax authorities with the information necessary for them to examine the compliance of the arrangement with the market principle;
c) the tax authority, based on its assessment of the information made available to it, is of the opinion that the adjustment carried out by the other country's tax administration does not comply with the arm's-length principle, and provides an explanation for this effect.
13.5 The taxpayer's request for a corresponding adjustment under Article 38 of the law does not limit the taxpayer's rights to seek relief from double taxation in accordance with the provisions of the applicable tax treaty (e.g. through mutual agreement procedures).
14. Notification of Controlled Transactions
14.1 According to Article 37, paragraph 2 of the law, taxpayers involved in controlled transactions (including loan surpluses), which in total, within the reporting period, exceed 50,000,000 (fifty million) lekë, must complete and submit to the regional tax directorate in which they are registered an “Annual Notification of Controlled Transactions.” In determining the total transactions, revenues and expenses cannot be excluded.
14.2 The form and content of the “Annual Notification of Controlled Transactions” are specified in Annex 2 attached to this guidance. It may be submitted in hard copy along with the balance sheet and financial statements, or electronically, as required by the tax authority.
14.3 The deadline for submitting the “Annual Notification of Controlled Transactions” is the date set for submitting the “Profit Tax Declaration and Payment Form.”.
15. Documentation for the transfer of the price
15.1 Section 37 of the law requires taxpayers to prepare and submit sufficient information and analysis to verify that the terms of their controlled transactions are in accordance with the arm's-length principle, that is, they bear the initial burden of proof to demonstrate that the terms of their controlled transactions are in line with the taxpayer's arm's length principle. This burden will be deemed fulfilled once the taxpayer has prepared transfer pricing documentation in accordance with this guidance.
15.2 When a taxpayer has prepared the documentation in accordance with this guidance and submitted it to the tax authority within 45 days from the date of the request, that taxpayer will be exempt from the penalty imposed under Article 115/1, paragraph 3 of Law No. 9920, dated May 19, 2008, “On Tax Procedures in the Republic of Albania,” as amended. The preparation and submission of transfer pricing documentation shall not prevent the tax authority from making an adjustment for transfer pricing purposes in accordance with Article 32, paragraph 1 of the law, when the tax authority can prove that the terms of the controlled transaction(s) are not in accordance with the arm's-length principle.
15.3 The documentation for the transfer of the price must include the following:
a) Summary of the taxpayer's business operations (history, recent developments, and a general description of the relevant reference markets) and the organizational structure (details of the group to which the taxpayer belongs (including details of all group members, their legal form and their participation percentages) and the group's operational structure (including a general description of the role each group member plays in relation to the group's activities, as related to the controlled transaction(s);
b) Description of the controlled transaction(s), including an analysis of the comparability factors specified in Article 33, paragraph 2 of the law, and details of the transfer pricing policies applied (where necessary);
c) An explanation of the selection of the most appropriate transfer pricing method(s), and, where necessary, of the financial indicator.;
d) The comparability analysis, including: a description of the process undertaken to identify uncontrolled comparable transactions; an explanation of the basis for rejecting any potential uncontrolled internal comparable transaction (where applicable); description of the uncontrolled comparable transactions; the analysis of the comparability of the controlled transaction(s) and the uncontrolled comparable transactions (taking into account Article 33 of the law); and a breakdown and explanations of any adjustments made to comparability;
e) The explanation of any economic analysis and supporting project;
f) Details of any advance pricing agreement, or similar agreement in other jurisdictions, applicable to the controlled transactions;
g) The conclusion on the conformity of the terms of the controlled transactions with the arm's-length principle, including details of any adjustments made to achieve conformity;
h) Any other information that may have a material impact on determining the taxpayer's compliance with the arm's-length principle with respect to controlled transactions.
15.4 Transfer pricing documentation prepared in accordance with the detailed requirements of the European Union (EU) Code of Conduct and its relevant annexes on transfer pricing documentation for related companies, adopted by resolution 2006/c176/01, dated June 27, 2006, by the Council of the EU and the representatives of the governments of the Member States, shall be deemed to satisfy the requirements of Article 37 of the law set out in the “Masterfile” and in the “Country-Specific Documentation” for Albania (where the information described in the aforementioned Code of Conduct is addressed) is prepared and submitted to the tax authority within 45 days of the date of the request.
15.5 Taxpayers with controlled transactions below a total amount of 50,000,000 (fifty million) lek will be considered to meet the requirements for transfer pricing documentation, even when using comparable external transactions, the series of uncontrolled comparable external transactions is updated only once every three reporting periods, provided there have been no material changes in the controlled transactions, the uncontrolled comparable external transactions, or the relevant economic circumstances.
15.6 Transfer pricing documentation must be submitted in Albanian or English. However, when the documentation is submitted in English, upon the tax administration's request for translation, it must be accompanied by a legalized translation into Albanian. The cost of the translation is borne by the Albanian taxpayer and must be submitted within 45 days of the request for translation.
15.7 The documentation for the transfer of the price may be submitted in both electronic and paper formats.
15.8 The taxpayer is not considered to have met the requirements of Article 37 of the law if the transfer pricing documentation made available is incomplete, contains false information or inaccurate facts, or omits facts or information relevant to the matter.
– ADVANCE PRICE AGREEMENTS (APA)
16. Advance Pricing Agreements (APAs) and their types
16.1 A “Pre-pricing Agreement” (PPA) is a procedural agreement between one or more taxpayers and one or more tax administrations, with the aim of resolving potential transfer pricing disputes in advance by establishing, before the performance of controlled transactions, a set of appropriate criteria for determining the compliance of those transactions with the arm's-length principle.
16.2 The types of agreements covered by this guidance include:
a) Unilateral Advance Pricing Agreements – through which an agreement is made between a taxpayer and the General Directorate of Taxes (GDT) regarding the application of Article 3, paragraph 13, Articles 32–39, and Article 44 of the Law “On Income Tax,” as amended, for specified controlled transactions.
b) Bilateral Advance Pricing Agreements –through which a taxpayer requests that the General Directorate of Taxes enter into an agreement with a partner under a double taxation avoidance treaty (the tax authority of the other contracting state) regarding the application of the related enterprises article of the relevant double tax avoidance convention to specified controlled transactions.
c) Multilateral Advance Pricing Agreements –through which a taxpayer requests that Directorate The General Tax Administration to reach an agreement with two or more partners under the double taxation avoidance convention regarding the application of the provisions on related enterprises to specified controlled transactions.
16.3 When a bilateral or multilateral advance pricing agreement signed between the General Directorate of Taxes and one or more partners under double taxation treaties enters into force, this Mutual agreement (based on the article on the mutual agreement procedure of the relevant tax convention) shall serve as the basis for the Advance Pricing Agreement in Albania and in accordance with this agreement.
16.4 Subsections (b) and (c) of section 16.2 apply only in cases where one or more tax conventions, or similar conventions, are applicable, and those conventions contain provisions regarding related enterprises.
17. Guarantee provided by Advance Pricing Agreements
17.1 In implementation of Article 39, paragraph 2, of Law No. 29/2023, dated March 30, 2023, “On Income Tax,” as amended, when a taxpayer has entered into an Advance Pricing Agreement, no adjustment shall be made in accordance with Article 32, paragraph 1, of the Law “On Income Tax” to the specified controlled transactions, provided that the deadlines and conditions of the Advance Pricing Agreement have been met.
17.2 Except in special circumstances, Advance Pricing Agreements are not intended to determine taxable profits or income to be taxed in Albania. Advance Pricing Agreements will specify and define a set of appropriate criteria (e.g. transfer pricing method, comparability or comparability factors and appropriate adjustments thereto, critical assumptions regarding future events) in accordance with the arm's-length principle for those controlled transactions over a specified period of time.
18. The taxpayer's and the Directorate General of Taxation's mutual expectations
18.1 The joint expectations of the taxpayer and the General Directorate of Taxes, when necessary, are set out in Annex 3 attached to this guidance.
Failure to meet mutual expectations, whether by the DPT or the taxpayer, may result in the termination or revocation of the MCA process, either by the DPT or by the taxpayer.
19. Acceptability
19.1 Advance pricing requests will be taken into consideration if the controlled transactions for the entire period covered by the agreement exceed in total value the amount of €30,000,000 (thirty million) euros. Therefore, if we have a three-year agreement, the total amount of transactions with related parties must exceed €30,000,000 (thirty million euros) over the three years combined. If we have an agreement for a five-year period, the total amount of transactions with related parties must exceed €30,000,000 (thirty million euros) over the five years combined.
19.2 When the controlled transactions expected to be covered by the agreement do not exceed the amount specified in paragraph 19.1, requests may be accepted by the DPT, provided that the case is sufficiently complex or is of significant commercial or economic importance to Albania.
20. Application fee payment
20.1 The application for an advance pricing agreement submitted under point 25 of these guidelines is accompanied by a non-refundable fee of 50,000 lek.
20.2 Upon completion of Phase 1 of the MCA procedure, in accordance with point 23.1, at the start of Phase 2, the official application, the taxpayer must have paid the administrative fee as follows:
a) in the case of a unilateral agreement for an advance payment, 300,000 lek;
b) in the case of a bilateral agreement on an advance price, 1,200,000 lek; and
c) in the case of a multilateral advance pricing agreement, 1,200,000 lekë.
20.3. In cases where the DPT, after preliminary review of the documentation and upon completion of phases 2 and 3 in accordance with section 23.1 of this guidance, officially rejects the application, the DPT shall refund the taxpayer 90% of the fee paid pursuant to section 20.2 above, within 30 days from the date of refusal.
20.4 Payment of the fee does not remove the taxpayer's right to withdraw from the advance pricing agreement process, nor the DPT's right to withdraw from negotiations, in accordance with paragraph 30 of this guidance.
20.5 Upon acceptance of the taxpayer's request for an advance pricing agreement and the commencement of negotiations under section 23.1, phase 4, “Negotiation,” the application fee is non-refundable to the taxpayer under any circumstances.
20.6 The fees specified in this provision are paid by taxpayers on behalf of the DPT, into the Treasury revenue account of the Treasury Branch Tirana, under class 46655, “Temporary Deposits for Relations with the Tax Administration,” in economic account 4665501, “Temporary Deposits from Application Fees for Advance Pricing Agreements.” For this, the taxpayer will complete the payment slip, using the existing format, which they present at the bank at the time of payment. The Treasury Branch accounts for the transaction by recording it for each taxpayer (in the technical sub-account specifically opened in SIFQ for each taxpayer).
The DPT reconciles regularly, at the close of the accounting period or before if necessary, with the Treasury Branch in Tirana, and the amounts from fees that are not returned to taxpayers, will be transferred to the appropriate revenue account via internal transfers within the institution. These amounts are used by the DPT solely for the administration of the negotiation and implementation of Advance Pricing Agreements.
21. Maximum coverage period
21.1 The start date of the MCA must be the fiscal year following the date of signing the agreement.
21.2 The maximum coverage period for Advance Pricing Agreements is 5 (five) years, except in cases where the Advance Pricing Agreement pertains to the implementation of a reciprocal government agreement ratified by law.
21.3 Taxpayers may not request an MCA for a covered period of several prior years (referred to as “look-back years”). However, insofar as the MCA is signed and completed after the first fiscal year of the proposed MCA, the fiscal year during which the MCA was proposed will be covered by the agreement.
22. Scope of the request and handling of collateral issues
22.1 The scope of the request is limited to agreements concerning the application of the arm's-length principle in controlled transactions.
22.2 When the controlled transactions to be covered by the DAC are already covered by an applicable tax convention, applications must be made for the bilateral or multilateral DAC. Applications for unilateral DTA in such cases will be accepted only in exceptional circumstances (e.g., when the partner under the tax convention does not wish to enter into negotiations).
22.3 In cases where indirect issues (such as the deductibility of expenses, the applicability of withholding tax, the existence of a permanent establishment, the attribution of profit to the permanent establishment, etc.) are identified in the pre-submission phase, the application or assessment phase, these issues may be submitted to the DPT for consideration in drafting an advance pricing agreement, in accordance with Article 39 of the law. Indirect issues will not be addressed in the Advance Pricing Agreement itself, and the agreement will be negotiated or enter into force regardless of such issues.
22.4 The DPT has the right to include, at the taxpayer's request, other transactions to be covered by the Advance Pricing Agreement, in cases where the transactions are so interrelated that they must be analyzed together.
23. The Advance Pricing Agreement (APA) procedure
23.1 The Advance Pricing Agreement procedure in Albania includes six phases:
Phase 1 – Pre-submission meeting of the request;
Phase 2 – Official Application;
Phase 3 – Assessment;
Phase 4 – Negotiation;
Phase 5 – Drafting and agreement;
Phase 6 – Annual Compliance Report.
23.2 Each of the six phases is treated in detail in points 24–29 of this guide.
24. Pre-submission meeting (phase 1)
24.1 The MCA procedure begins with the conduct of pre-delivery meetings. The purpose of these meetings is to allow all parties to assess the success of the proposed advance pricing agreement in advance. It enables the DPT to make a preliminary judgment on whether the application will be acceptable, as well as to clarify the expectations of both parties.
24.2 To enable the assessment of the success of the proposed advance pricing agreement, meetings are held prior to the submission of the dossier in accordance with the pre-submission questionnaire form specified in Annex 4.
24.3 Pre-submission meetings are held on a confidential basis if sufficient information is provided by the taxpayer or their representative as part of Annex 4's pre-submission questionnaire.
24.4 Upon receipt of the pre-filing questionnaire, the DPT will contact the taxpayer or their representative to discuss the time and place of the meeting. Meetings must be held within 60 days of the request for the pre-filing meeting, unless the parties agree otherwise.
24.5 Additional materials or the dossier for presentation at the pre-submission meeting shall be sent to the DPT at least one week before the meeting. Otherwise, the meeting may be rescheduled.
24.6 Any statement or representation made during the pre-submission meeting by the DPT constitutes unofficial advice regarding the proposed application and is not binding on the DPT.
24.7 If, during the pre-submission meetings, it is determined that the taxpayer's application for the MCA, which will be subject to paragraph 25 of this guidance, is acceptable to the DPT, the taxpayer must be informed in writing within 60 days of the pre-submission meeting.
24.8 If, during the pre-filing meetings, it is determined that the taxpayer's application for the MCA will not be accepted by the DPT, the taxpayer is notified in writing within 30 days of the pre-filing meeting, providing the reasons for the application's rejection as determined at the pre-filing meeting. The possible reasons for the ineligibility of the MCA application are as follows:
24.8.1 transactions proposed to be covered by the Advance Pricing Agreement are not considered suitable for an Advance Pricing Agreement;
24.8.2 the taxpayer presents a risk of non-compliance with obligations; or
24.8.3 There are other complex issues that require preliminary resolution before considering the Advance Pricing Agreement (e.g., the existence of a permanent establishment and other material considerations).
24.9 If during the pre-submission meetings it is determined that additional information is required before the taxpayer's application for the MCA can be accepted by the DPT, the taxpayer will be notified in writing of the additional information required and will be given reasonable opportunities to submit the requested information within 30 days before notice is given under paragraph 24.7 or 24.8.
25. Official application (phase 2)
25.1 If the taxpayer intends to proceed with a formal application for a Advance Pricing Agreement, as provided at the pre-filing meeting, the application for an Advance Pricing Agreement is made in accordance with the information presented in Annex 5, taking into account the eligibility criteria set out in paragraph 19 of this guidance.
25.2 If the request is made for a bilateral or multilateral MCAA, the taxpayer must submit the application simultaneously to the competent authorities of all foreign tax jurisdictions, in all cases.
25.3 The DPT will acknowledge receipt of the MCA's official written application by means of an informational letter within 60 days of confirming receipt of the application at the DPT office. The informational letter must notify whether the application has been accepted or not.
25.4 If the application is accepted, the notification letter will contain the following information:
1) whether the application for the MCA reflects the DPT's understanding at the pre-submission meeting;
2) if the application for the MCA is essentially complete, based on the information requested in Annex 5;
3) the applicable application fee for the MCA has been paid and accepted; and
4) The contact details of the DPT personnel assigned to evaluate the application.
25.5 If the application is refused, the notification letter will contain the reasons for refusal.
25.6 In cases where the application does not meet the requirements of Annex 5, the notification letter specifies the required changes for proceeding with the application's assessment under the MCA.
25.7 Acceptance of an application for an MCA does not imply or guarantee that the DPT and the taxpayer will finalize the MCA, nor does it ensure that the proposed methods will be used. However, an accepted MCAA application implies that the DPT will undertake the procedures as provided in paragraphs 25 and 26 of this guidance, depending on the completeness of the information submitted, as determined in Annex 5.
25.8 For bilateral DTA applications, as soon as administratively possible, but no later than 60 days after receipt and acceptance of the official DTA application, the Directorate General of Taxation will contact the partner/the treaty partner(s) and will ask whether he/they wish to proceed with the application within the context of the tax convention.
25.9 If the taxpayer has not previously had a pre-filing meeting with the DPT, in accordance with paragraph 24 of this guidance, the DPT may, on its own initiative, request a meeting with the taxpayer.
26. Assessment (phase 3)
26.1 Once the application for the MCA has been accepted and is essentially complete, the DPT, within 60 working days, conducts a critical review of the MCA application before undertaking preliminary work to determine the final independent price. However, the DPT may undertake preliminary work, including fieldwork, when conditions permit.
26.2 As part of the analysis during the MCA assessment, the DPT may undertake the following activities:
26.2.1 requires the taxpayer to provide additional information, including information regarding related parties;
26.2.2 requires meetings with the taxpayer for the purpose of discussing specific issues;
26.2.3 conducts field investigations and site visits to inspect the taxpayer's activities;
26.2.4 interview the taxpayer's personnel;
26.2.5 requires relevant information from partners under a tax convention in the exchange of information, in accordance with the relevant provisions of an applicable tax convention; and/or
26.2.6 exercises any relevant authority under the fiscal legislation for the assessment of the agreement.
26.3 When the DPT makes an assessment different from that contained in the taxpayer's application, it will discuss its assessment with the taxpayer. The DPT will ask the taxpayer to state his position regarding this assessment, with the aim of reaching a mutual agreement with the taxpayer.
26.4 During the assessment of the MCA, the taxpayer is required to:
26.4.1 to make available the personnel and facilities necessary, respectively, for the interview and inspection; and
26.4.2 To receive and provide information regarding affiliated parties.
26.5 If the application is bilateral or multilateral under the terms of a tax convention, the following procedure shall apply:
26.5.1 The taxpayer must notify the General Directorate of Taxes of the information/documentation requested by the partners of the tax convention in relation to the application and must ensure that the General Directorate of Taxes has been provided with copies of any information/documentation submitted to the tax convention partner(s), whether by itself or by an associated party.
27. Negotiation (phase 4)
The unilateral MCA
27.1 As soon as the DPT completes its analyses, it notifies the taxpayer in writing within 10 days by letter, setting forth the DPT's position and providing an explanation to the extent that its position differs from the taxpayer's proposal in the application.
27.2 If there are any changes between the taxpayer's position and the DPT's position regarding the MCAA, the taxpayer must submit to the DPT in writing his rationale concerning the transfer pricing method or other proposed terms of the MCAA before the start of the individual meetings.
27.3 After receiving the taxpayer's response, as provided in section 27.2, if there are still discrepancies between the positions, the DPT will arrange a meeting with the taxpayer within 15 days to discuss the issues, with the aim of reaching an agreement.
Bilateral or multilateral MCA
27.4 In the case of a bilateral or multilateral MCA, the DPT will exchange letters regarding its position with the competent foreign authority/ies party to the MCA, and will follow the procedures below:
27.4.1 The General Directorate of Taxation may hold individual meetings with the foreign competent authority's delegation in the MCA;
27.4.2 The taxpayer does not have the right to see the expressed position or other written materials exchanged between the competent authorities as parties in the negotiation process. Such documents are provided pursuant to the mutual agreement procedure of the applicable tax convention, which restricts their use and disclosure.;
27.4.3 The taxpayer does not have the right to be present at the negotiations of the Competent Authority, except in cases where approval to attend meetings of the Competent Authorities has been obtained from all interested Competent Authorities; and
27.4.4 The General Directorate of Taxation will keep the taxpayer informed of the status of the bilateral negotiations and will communicate any agreed deadlines with the other competent authority as needed.;
27.4.5 In the case of bilateral agreements, the competent authorities of the contracting states may agree on a joint written arrangement that specifies the accepted method of transfer pricing, its application, and the critical assumptions. The joint agreement may be in any written form, exchanged between the Competent Authorities of the two parties;
27.4.6 The taxpayer may accept or reject the joint agreement on the MCA. The taxpayer must notify the General Directorate of Taxes in writing, whether the joint agreement has been accepted or not, within 30 calendar days.;
27.4.7 Once the joint agreement has been accepted, the DPT drafts a final MCA based on the joint agreement and presents it to the taxpayer for signature. The taxpayer is required to sign the final MCA and return it to the DPT.
27.5 In cases where the General Directorate of Taxes is unable to reach an agreement with the partner (or partners) of the tax convention within 90 days, a unilateral MCAA may be entered into with the taxpayer. In such cases, the General Directorate of Taxes notifies the taxpayer in writing.
27.6 In the case of all APA agreements, the content of the agreement reached (covered transactions, covered entities, period, applied transfer pricing method, results and corresponding considerations) agreed in the APA, may differ from that proposed in the taxpayer's application.
28. Drafting and Agreement (Phase 5)
28.1 In accordance with what has been agreed in negotiations, the DPT will prepare the final version of the MCA and send it to the taxpayer for signature and implementation. A signed copy shall be returned to the DPT within 10 days.
28.2 Form and content of the completed MCA.
A completed MCA must contain at least the following information:
28.2.1 The name and addresses of the parties to the MCA;
28.2.2 Controlled transactions covered by the MCA;
28.2.3 The period and fiscal years covered by the MCA;
28.2.4 The agreed transfer pricing methodology and its application to covered controlled transactions;
28.2.5 If applicable, the range of prices received from independent parties under the MCA;
28.2.6 A determination of the relevant conditions that form the basis for calculating the transfer pricing methodology;
28.2.7 Standards for the calculations made on which the financial statement is based;
28.2.8 Critical judgments on which the price transfer methodology is based;
28.2.9 Procedures to be followed if it is necessary to make compensatory adjustments; and
28.2.10 Obligations arising for the taxpayer as a result of the MCA (e.g., the taxpayer's obligation to submit Annual Compliance Reports and the taxpayer's records that meet the requirements).
Critical assumptions
28.3 A MCA will identify in advance the critical assumptions, including those beyond the control of the taxpayer or the DPT. These assumptions include any fact concerning the taxpayer, a subsidiary, a third party, an industry, or general economic conditions.
An assumption is critical if its breach could significantly affect the implementation of the essential terms of the MCA or the basis on which it was agreed. Critical assumptions, by their nature, are essential to the MCA and must be drafted carefully to ensure that the MCA reflects the market principle and safeguards the security of the MCA.
28.4 The DPT will assess whether the independent parties anticipated events or circumstances at the time the MCA came into effect and whether the accepted transfer pricing methodology was given due consideration. The DPT will use the independent-party test to determine whether they would have renegotiated such an agreement due to a change in critical assumptions.
28.5 The taxpayer must notify the DPT in writing that a critical assumption has been breached and submit supporting documentation with a proposed course of action (e.g., a revision of the MCA) within 30 days.
28.6 The DPT will assess whether the independent parties anticipated events or circumstances at the time the MCA came into effect and whether the accepted transfer pricing methodology was duly taken into account. The DPT will use the independent-party test to determine whether independent parties would have renegotiated such an agreement due to a change in critical assumptions.
If the MCA is revised, the effective date of the MCA revision will be stated in the revised MCA. The revised MCA must also indicate the date on which the original MCA is no longer effective.
If a revised MCA cannot be negotiated, it will be canceled or suspended. The MCA will be canceled or suspended as of the beginning of the year in which the event giving rise to the change in circumstances occurred. In general, an MCA is intended to be either applicable for the entire year or inapplicable for the entire year.
29. Annual Compliance Report (Phase 6)
29.1 The DPT may audit a taxpayer who is a party to an MCA as part of its regular tax audit; however, with respect to the transaction covered by the MCA, the audit's scope will be limited to ensuring compliance with the MCA's provisions.
29.2 For each tax period covered by the MCA, the taxpayer is required to submit to the DPT the completed Annual MCA Compliance Report. The form and content of the Annual MCA Compliance Report are specified in Annex 6 of this guidance.
29.3 The deadline for submitting the MCA's Annual Compliance Report is the mandatory deadline for submitting the “Profit Tax Return” and the “Payment Form.” It may be submitted in printed form with the balance sheet and financial statements or electronically, as required by the DPT.
29.4 If the taxpayer fails to submit the Annual Compliance Report, or submits an inaccurate or incomplete Annual Compliance Report, this will be considered non-compliance with one of the provisions of the MCA, for the purpose of paragraph 31 of this guidance.
30. The right of withdrawal and refusal
30.1 In the case of Unilateral Advance Pricing Agreements, the taxpayer or the DPT may, at any time during the process, withdraw from the process if they clearly determine that it will be impossible to successfully complete an UAPA. The withdrawal must be notified in writing, and the reasons for withdrawal must be clearly specified. It is deemed that the withdrawal is the result of conduct in breach of Annex 3.
30.2 In the event of withdrawal by the DPT, the taxpayer has the right to file a written appeal with the Director General against the withdrawal within 30 days. Upon receipt of the written appeal, the DPT may reconsider its previous withdrawal and re-engage in negotiations.
30.3 In the case of tax conventions, whether bilateral or multilateral, the taxpayer may at any time communicate in writing his intention to refuse to accept the outcome of the negotiations and not enter into a tax convention. However, this applies regardless of whether the General Directorate of Taxation withdraws or not from negotiations with the partner(s) of the tax convention.
30.4 In the event that a mutual agreement has been reached between the General Directorate of Taxes and its treaty partner(s), the taxpayer may reject the agreement by refusing to enter into the MCA. In such cases, the taxpayer loses the right to apply for the mutual agreement procedure with respect to the controlled transactions covered by this agreement. In addition, the taxpayer also loses the right to any unilateral advance pricing agreement relating to those controlled transactions.
31. Failure to fulfill the requirements of the agreement
31.1 If one or more provisions of the MCA have been violated, the DPT may, in accordance with paragraphs 32–34 of this guidance, amend, cancel, or revoke the MCA.
31.2 Sections 32–34 of this guidance are applicable in all cases and cannot be precluded by the provisions of any specific Advance Pricing Agreement.
32. Review
32.1 The DPT, in consultation with the taxpayer, may revise the provisions of the Unilateral Advance Pricing Agreement if one of the following conditions is met:
32.1.1 there is a material change in the application of the Albanian Tax Legislation; or
32.1.2 Both parties, the DPT and the taxpayer, have expressed in writing their desire to review the provisions resulting from changes in the economy or other relevant considerations.
32.2 The effective date of each revision must be agreed upon between the DPT and the taxpayer.
32.3 In the event of a review of the reciprocal agreement, the MCA implementing that reciprocal agreement shall, to the extent required, be reviewed in accordance with the circumstances.
33. Cancellation
33.1 The General Directorate of Taxation may cancel a unilateral advance pricing agreement when one of the following conditions is met:
33.1.1 there has been a misrepresentation, error, or omission that is not the result of negligence or carelessness, or a deliberate omission by the taxpayer when completing the application, during negotiations of the agreement, or in complying with reporting and other requirements;
33.1.2 the taxpayer fails to comply with one or more provisions of the MCA;
33.1.3 there is a material breach of one or more of the critical assumptions; and/or
33.1.4 where point 32 is applicable, but no agreement can be reached between the DPT and the taxpayer within a period of 60 days.
33.2 The MCA shall cease to be applicable as of the date of cancellation.
33.3 The cancellation date shall be determined by the date of the event that gave rise to the cancellation. If such a date cannot be determined, e.g., when a material change occurs in one of the critical assumptions, the cancellation shall be effective as of the fiscal year in which the event occurred. The effect of the cancellation is that the DPT and the taxpayer will no longer be bound by the agreement as of the cancellation date.
33.4 The DPT may waive the cancellation if the taxpayer can show reasonable cause, and the parties agree to a review of the agreement in accordance with paragraph 32 of the guidance.
33.5 In the case of a bilateral or multilateral MCAA, the agreement is annulled only in accordance with the provisions of the agreement reached between the competent authorities.
34. Revocation
34.1 The DPT may revoke a One-Sided Advance Pricing Agreement when there has been a misrepresentation, error or omission resulting from negligence or carelessness, or willful nonpayment by the taxpayer when completing the application, during negotiations of the agreement, or in complying with reporting and requirements.
34.2 The effect of revocation brings about consequences as if the agreement had never existed.
34.3 In the case of a bilateral or multilateral MCAA, the agreement is revoked only in accordance with the provisions of the agreement reached between the competent authorities.
35. Renewal
35.1 The submission of an application to request the renewal of an MCA must follow the same procedures set out in sections 23–29 of this guidance.
35.2 While in practice the terms and conditions of the prior Advance Pricing Agreement will be influential in negotiating the renewal, the terms and conditions accepted in the prior Advance Pricing Agreement are without prejudice to the renewal.
36. Confidentiality
36.1 In accordance with Article 25, “Confidentiality,” of Law No. 9920, dated 19.5.2008, “On Tax Procedures in the Republic of Albania,” as amended, the information submitted by the taxpayer during the pre-submission meeting, in the application, during negotiations and in the final agreement is confidential and must be treated as a tax secret. However, the DPT reserves the right to provide statistical information on a public, anonymous basis, as required to complete the “Annual Report of the MCA Program” (see point 37).
36.2 With respect to a bilateral or multilateral MCA, the information exchange provision of the relevant tax convention applies to the exchange of information for the purposes of the MCA provisions. Thus, the confidentiality of information exchanged for the purposes of the MCA is preserved.
37. Annual Report of the MCA Program
37.1 The DPT is required to prepare and submit an annual report on the Advance Pricing Agreement Program.
37.2 The Annual Report must specify for the implementation year:
– the number and type of MCA applications received, recorded by agreement type and renewals;
– the number of accepted and rejected applications, recorded by type of agreement and renewal;
– total application fees collected and refunded;
– the number of MCA agreements that have entered into force and the number of MCA agreements pending (under negotiation), broken down by type of agreement and renewal;
– the average time period from application receipt to agreement conclusion, recorded by agreement type;
– the number of MCA's repaired, revoked, or canceled, recorded by type of agreement and renewals;
– the number of MCA agreements that have entered into force, or been renewed, according to the taxpayer's industry classification;
– the number of MCA agreements that have entered into force, or been renewed, according to the type of transaction(s) covered;
– the number of MCA agreements that have entered into force, or been renewed, according to the accepted method of price transfer;
– the number of MCA agreements that entered into force during the year, with each partner under the tax convention.
38. Repeal
This directive repeals Directive No. 16 of June 18, 2014, “On the Transfer of Price,” and Directive No. 9 of February 27, 2015, “On Advance Pricing Agreements.”
39. Entry into force
This instruction is published in the Official Gazette and takes effect upon the commencement of the law no. 29/2023 of March 30, 2023, “On Income Tax,” as amended.
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