Transfer pricing is one of the most debated topics in the relationship between businesses and tax authorities. How do companies handle this issue, and what are the legal implications in Albania?
In the modern global economy, multinational companies engage in internal transactions, often transferring goods, services, or intellectual property between their subsidiaries. The challenge arises when these transactions do not reflect real market values, allowing companies to shift profits to jurisdictions with lower taxes. This practice, known as transfer pricing, is closely monitored by tax authorities worldwide, including Albania.
Why Is Transfer Pricing a Concern?
In Albania, businesses are increasingly facing scrutiny from the tax administration regarding transfer pricing practices. Consider this scenario: A subsidiary of a multinational company purchases raw materials from its parent company at 50 usd per unit, while the actual market price is 35 usd. The tax authorities may view this as an attempt to shift profits abroad and reduce tax obligations in Albania.
This is where the “arm’s length principle” comes into play. According to international tax regulations, related-party transactions must be priced as if they were between independent companies. Failure to comply can lead to financial penalties and adjustments in tax obligations.
The Legal Framework in Albania
Albania has established clear guidelines to regulate transfer pricing. Law No. 29/2023, “On Income Tax,” along with instructions from the Ministry of Finance, provides mechanisms to reassess corporate earnings when discrepancies in transfer pricing are detected. The law aligns with OECD (Organization for Economic Co-operation and Development) standards, offering various methods to determine fair pricing, including:
- Comparable Uncontrolled Price Method – comparing internal transactions with similar deals in the open market.
- Cost-Plus Method – ensuring prices include a reasonable profit margin.
- Profit-Split Method – distributing profits fairly between related entities based on their contribution.
How Can Businesses Avoid Tax Disputes?
To stay compliant and avoid penalties, businesses in Albania should take proactive steps:
✅ Maintain Proper Documentation: Companies should keep detailed records proving that their internal transactions align with market standards.
✅ Advance Pricing Agreements (APA): Businesses can reach agreements with tax authorities to establish fair transfer prices in advance, minimizing the risk of disputes.
✅ Conduct Regular Audits: Internal reviews of pricing policies help identify potential risks and ensure compliance with tax laws.
✅ Use Legal Channels if Necessary: If a company disagrees with the tax authority’s reassessment, it has the right to file an appeal or take legal action.
Final Thoughts
As tax administrations worldwide tighten regulations, businesses in Albania must adapt to ensure transparency in their financial dealings. The growing awareness and enforcement of transfer pricing rules signal a shift toward stricter compliance. By implementing best practices, companies can safeguard their financial stability and maintain a positive relationship with tax authorities. With tax audits becoming more frequent, are businesses ready to navigate the complexities of transfer pricing? The answer lies in preparation, compliance, and strategic planning.
Meri Muçelli
Chief Financial Officer
Herba Fructus Natyrore L.t.d
Member of Tax&Customs Committee of AmCham
