Short answer
Transfer pricing rules apply to controlled transactions, that is, transactions between related parties. Their terms must comply with the arm's-length principle, and when the price falls outside the market range, the tax administration may adjust it to the midpoint of that range.
Verified on from Andi Haxhillari, Certified Accountant. Compared with Articles 34 and 36 of Law No. 29/2023.
When a business trades with a related party, the price between them is not simply a private agreement. The law requires that it be the price that two independent parties would have agreed upon under comparable conditions. If it is not, the tax administration has the legal authority to adjust the income or expenses and recalculate the tax.
This page explains who a related party is, how market price is measured, the five methods recognized by law, how the range and adjustment to the median work, what the file contains, how to proceed when the administration requests it, and which sanctions apply.
Read also: How is taxable income calculated?.
This topic isn't just for large groups. It affects any Albanian company that buys or sells with its parent company, borrows from a partner, pays management fees to a group company, or has two companies under the same owner and trades between them.
Read also: Global minimum tax and who is affected in 2026.
A relationship exists when one party controls the other, or when both are controlled by the same entity, directly or indirectly, through equity participation, voting rights, or the actual exercise of control over decision-making.
Please note. The precise definition of a related party, including participation thresholds and instances of indirect control, must be confirmed for the specific case before a decision is made. If you are not sure whether your two companies are related parties, please send us the ownership structure.
In daily practice, the most common cases of controlled transactions are the purchase of goods from the parent company abroad, management and brand fees paid within the group, loans between related companies, accounting or IT services provided by a sister company, and the lease of premises belonging to the partner.
Read also: Tax residency, non-residents and double taxation.
The market principle requires that the terms of the controlled transaction be compared with the terms of transactions between unrelated parties. It is not only the price that is compared. They compare the characteristics of the goods or services, the functions each party performs, the risks each assumes, the assets each uses, the contractual terms, and the economic market conditions.
This analysis is called comparability and is the heart of the file. A file that states a margin without explaining the functions and risks of the parties does not protect the business, because it is precisely those functions and risks that determine how much profit belongs to each side.
The law recognizes five methods for proving compliance with the arm's-length principle. The choice is not free. The most appropriate method is selected based on the nature of the transaction and the data available, and the selection is justified in writing.
| Method | When is it usually used? |
|---|---|
| Uncontrolled comparable price | When there is an identical or very similar transaction between independent parties. |
| Resale price | When the distributor resells the goods without significant transformation. |
| Cost plus | When the producer or service provider works under contract for a related party. |
| Net transaction margin | When there are no price-level comparisons available, but profit indicators are available. |
| Profit sharing | When both parties contribute significantly and inseparably to the creation of value. |
Nomenclatures may vary from one source to another, while the content remains the same. When you choose a method, also record the reasons why the other three methods were not used.
The result of the analysis is rarely a single number. It is usually a range, constructed from the results of the accepted comparators. When your business indicator falls within the range, no adjustment is made. When it falls outside it, the adjustment is made at the range's median, not at the nearest boundary.
This discrepancy carries real costs, because the adjustment at the median is usually higher than the adjustment at the range boundary. It's a good reason to check your position within the year, when prices and invoices can still be corrected.
A manufacturing subsidiary that operates under contract exclusively for its foreign parent company. The chosen method is cost-plus, measured as a margin on total costs.
Step 1. The total annual costs are 80,000,000 lek.
Step 2. The revenues invoiced by the parent company are 81,600,000 lek, giving a 2.01% margin over costs and a profit of 1,600,000 lek.
Step 3. The comparability analysis yields four independent producers with margins of 3.5%, 4.5%, 5.5%, and 6.5%. The range goes from 3.5% to 6.5%, and the median is (4.5% + 5.5%) / 2 = 5.0%.
Step 4. The declared margin, 2.01 TP3T, falls within the range. The adjustment is made at the midpoint, i.e., 5.01 TP3T.
Step 5. The profit to be declared is 80,000,000 × 5.0% = 4,000,000 lekë. The declared profit is 1,600,000 lek. The adjustment is 4,000,000 – 1,600,000 = 2,400,000 lek.
Step 6. The additional tax is 2,400,000 × 151 TP3T = 360,000 lek, excluding any possible penalties.
| Element | Value |
|---|---|
| Total costs | 80,000,000 lek |
| Declared margin | 2.0% |
| Declared profit | 1,600,000 lek |
| Market range | 3.51 TP3T to 6.51 TP3T |
| Median | 5.0% |
| Profit by median | 4,000,000 lek |
| Base adjustment | 2,400,000 lek |
| Additional tax 15% | 360,000 lek |
Note that the company had no intention of hiding profit. It simply invoiced at the margin specified by the group, and that is enough for a tax adjustment of 360,000 lek.
Read also: Profit tax rates and thresholds.
The file is the documentation that proves controlled transactions comply with the arm's-length principle. It is not automatically submitted with the return, but is prepared and kept ready, because when the tax administration requests it, the deadline for submission is 45 days.
Twenty-five days seems like a long time only from a distance. If the file starts to be built on the day the request is made, you have to find comparables, reconstruct past years' functions and risks, and gather contracts that are sometimes not even written down. For this reason, the file is prepared together with year-end closing.
✔ Description of the group, the ownership structure, and decision-making
✔ Description of the activities of the Albanian company, including its functions, risks, and assets.
✔ List of controlled transactions, with values and parties
✔ Contracts or agreements that govern each transaction
✔ Comparability analysis, accepted and rejected comparators, with reasons
✔ Selected method, rationale for the selection, and range calculation
✔ Financial statements and segment data used
In addition to the dossier, there is also an annual report of controlled transactions, which is filed by taxpayers who exceed the specified thresholds.
The obligation arises when controlled transactions, including loan surpluses, exceed a total of 50,000,000 lek per year. The notification is submitted within the same deadline as the profit tax return, in accordance with points 14.1 and 14.3 of Instruction No. 29/2023. Delays are subject to a fixed fine of 10,000 lekë per month.
When the administration adjusts the price on one side of a transaction, the system's logic requires that the other side not be taxed twice on the same profit. The law provides for corresponding adjustments precisely for this purpose, and when the other party is in a country with which Albania has a double taxation avoidance agreement, the agreement's mechanisms also apply.
Read also: Double taxation treaties and certificate of residence.
For recurring transactions of significant value, the law provides for a prior agreement with the tax administration, under which the method and terms are approved in advance, and the business operates with the assurance that no adjustment will follow.
It's a tool for major cases, because the process requires time and preparation. When transactions with the group are the core of your business model, it's worth evaluating.
Read also: Albania ratifies the OECD STTR Convention.
| Violation | The sanction |
|---|---|
| Annual Notice of Out-of-Term Controlled Transactions | 10,000 lekë for each month of delay. |
| Base adjustment after inspection | Additional obligation and interest. Penalties are not applied when the file is submitted within 45 days of the request. |
| Failure to notify a change of ownership in the cases provided for | Special sanctions under procedural law |
The monthly sanction of 10,000 lekë isn't the figure that hurts. The damage lies in the adjustment of the base, because it's multiplied by the years under audit. A wrong margin maintained for four years is corrected all at once over those four years.
Read also: Tax audit, fines, and appeal.
When a business conducts transactions with related parties. The condition is the relationship, not the size of the business and not the presence of an international element.
Parties that control one another, or that are controlled by the same entity, directly or indirectly. The exact participation thresholds are confirmed for the specific case.
The affiliation does not depend on the place of registration. Transactions between two companies under the same control are controlled transactions.
When the tax administration requests it, the file is submitted within 45 days. For this reason, it is prepared at year-end, not after the request.
The fixed monthly fine of 10,000 lek applies to the late annual notification, not the file. For the file, the risk lies in the adjustment of the base. When the file is submitted within 45 days of the request, only the additional liability with interest is paid, without penalties. Without the file, the adjustment is also penalized with fines under the Tax Procedure Law.
The one most appropriate for the nature of the transaction and the data available, argued in writing, along with the reasons why other methods were not chosen.
The adjustment is made at the midpoint of the range, not at the nearest boundary. In the example on the page, the shift from 2.0% to 5.0% added 2,400,000 base lek and 360,000 lek in tax.
Yes, when controlled transactions exceed 50,000,000 lekë during the year. The notification is submitted with the profit tax return. Below this threshold, notification is not required, but the transactions must still be at market prices.
Yes, as a controlled transaction. Interest is controlled for the market price, together with the rate cap and the 30% EBITDA limitation.
Read also: Which expenses are recognized and which are not..
Read also: Instruction No. 29, dated 16.11.2023 On the transfer of price and advance pricing agreements
