Albania – Transfer Pricing (2025)

Legal framework and scope

Albania’s transfer pricing framework is grounded primarily in Law no. 8438, dated 28.12.1998 “On Income Tax”, as amended, and in Instruction of Ministry of Finance No. 16, dated 18.06.2014 “On transfer pricing”. Transfer pricing provisions are specifically set out in Articles 36-36/7 of the Income Tax Law. The domestic definition of related parties appears in Article 2 “Definitions”, paragraph 4(a) of the Law, which deems two persons related where i) one participates directly or indirectly in the management, control or capital of the other, or ii) the same person(s) participate directly or indirectly in the management, control or capital of both. The Law clarifies that participation includes ownership of 50 percent or more of share capital (Article 2, paragraph 4(a)(i)) or effective control of business decisions (Article 2, paragraph 4(a)(ii)).

Permanent establishments (PEs) and profit attribution are addressed by Albania’s adoption of the Authorised OECD Approach (AOA); the profile indicates Albania follows the AOA and intends to implement it in its treaties.

Arm’s length principle and the role of the OECD Guidelines

Albanian rules explicitly invoke the arm’s length principle and are founded on the OECD Transfer Pricing Guidelines. Law no. 8438 (Articles 36-36/7) and Instruction No. 16 are based on the principles contained in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. Article 36/2 of the Law states that compliance with the market principle is determined by applying the most appropriate transfer pricing method, with the choice guided by ministerial instruction.

Definition of related parties (thresholds, control, kinship, PEs)

Law no. 8438, Article 2, paragraph 4(a) provides the domestic legal definition of related parties. A relationship arises where there is direct or indirect participation in management, control or capital, and a presumption of relatedness exists where a person owns, directly or indirectly, 50% or more of the other’s share capital, or effectively controls the other’s business decisions. The profile does not provide additional domestic guidance on permanent establishment definitions beyond the stated adoption of the AOA; therefore, “No se proporciona guía doméstica específica en el perfil” regarding PE definitions beyond the AOA reference.

Methods and application criteria (hierarchy if any)

Albanian law recognises the classic transfer pricing methods: Comparable Uncontrolled Price (CUP), Resale Price, Cost Plus, Transactional Net Margin Method (TNMM) and Transactional Profit Split. These are listed in Article 36/2 “Methods of transfer pricing” of Law no. 8438 and in Instruction No. 16. The selection criterion is the “most appropriate method” rather than a strict hierarchy; Article 36/2, paragraph 1 requires selection of the most appropriate method for the circumstances, as determined by the Minister of Finance’s instruction. Article 36/2 also allows taxpayers, in specific circumstances, to apply methods other than the listed ones (for example discounted cash flow or valuation techniques) if it is demonstrated that none of the approved methods can reasonably be applied and that the alternative yields a result consistent with the arm’s length principle. The taxpayer carries the burden of proof for any alternative method.

Comparability and ranges (preference for comparables, adjustments, ranges)

Instruction No. 16 embeds and adapts the OECD comparability guidance (Chapter III) and recommends a nine-step comparability process (adapted from the OECD 9-step process) for assessing comparability, although it notes following the process is not compulsory and outcome matters more than process. The nine steps include determining years to be covered, broad analysis of the taxpayer’s circumstances, functional analysis to select the tested party and method, review of internal comparables, identification of external sources, selection of appropriate method and financial indicator, identification of potential comparables, determination and making of comparability adjustments where appropriate, and interpretation and use of collected data (Instruction, Article 5.7 “Comparability”).

Instruction No. 16 gives preference to internal comparables when available and reliable; step 4 calls for review of existing internal comparable uncontrolled transactions and step 5 for determination of external sources taking into account relative reliability. The tax authority does not use secret comparables.

Law no. 8438 Article 36/4 defines the “market range” as the set of relevant financial indicators (prices, margins or share of profits) derived from application of the most appropriate method to a number of comparable uncontrolled transactions. If the tested financial indicator from the controlled transaction lies within the market range, no adjustment is required. If it lies outside the market range, the tax administration may adjust the controlled transaction and such adjustment will be to the average of the market range, unless the administration or the taxpayer proves that circumstances justify a different point within the market range, in accordance with the Minister of Finance’s instruction. Instruction No. 16, Article 12/3, provides the technical rule for calculating the median (50th percentile) of the market range and how to handle cases where exactly 50% of results are at or below a particular result.

Comparability adjustments are permitted and should be considered only if they are expected to increase reliability; Instruction No. 16, Article 6 lists factors such as materiality, data quality, purpose of the adjustment and reliability of the adjustment approach. Adjustments may include accounting consistency adjustments, differences in capital, functions, assets and risks, contractual terms, and geographic market differences (Instruction, Article 6.1 and 6.2).

Documentation and reporting (Master, Local, CbC, thresholds, language, deadlines, forms)

Article 36/5 of Law no. 8438 requires taxpayers to maintain sufficient documented information and analysis to verify that controlled transactions comply with the market principle. Transfer pricing documentation must be provided to the tax administration within 30 days of receiving a request. Instruction No. 16 allows documentation to be submitted in Albanian or English; if submitted in English, the Tax Authority may require translation into Albanian at the taxpayer’s cost, and such translation must be provided within 30 days of the translation request. Documentation may be submitted electronically or in paper form. A taxpayer will not be considered to have satisfied the requirement if the documentation is incomplete, factually inaccurate, or omits pertinent facts.

The profile indicates that taxpayers are required to prepare a Master file and a Local file consistent with Annexes I and II to Chapter V of the OECD TPG. The profile indicates that a Country-by-Country report (CbC) consistent with Annex III is not required (the checkbox is not marked). Taxpayers engaging in controlled transactions above a specified threshold must submit an annual controlled transactions notice/form; the Minister of Finance will define that specified threshold, the format and the deadline by instruction. The profile does not provide the numeric value of that threshold or the exact format and timeline; therefore, “No se proporciona guía doméstica específica en el perfil” regarding the exact threshold and form details.

There is a material exemption: taxpayers are not obliged to provide the Annual Form of Controlled Transaction or transfer pricing documentation if their aggregate amount of annual controlled transactions does not exceed ALL 50 000 000 (approximately EUR 410 000).

Penalties and compliance incentives related to documentation are set out in Law no. 9920, dated 19.5.2008, “On tax procedures in the Republic of Albania”. Article 115/1 “Penalties related to price transfer” provides that late submission of the “Notification of controlled annual transactions” attracts a fixed fine of ALL 10 000 (approximately EUR 82) for each month late. In case of adjustments of tax liabilities for transfer pricing under Article 36 of Law no. 8438, taxpayers are fined under Article 114 (“Failure to pay the tax liability or contribution on time”) of Law no. 9920. However, if taxpayers have completed and submitted transfer pricing documentation as required by Article 36/5 and the Ministerial Instruction, in case of adjustments for transfer pricing these taxpayers are required to pay only the additional tax and interest, but not fines (Law no. 9920, Article 115/1, paragraph 3).

Safe harbours / exemptions / materiality

Albania does not have general safe harbours for particular industries, taxpayer types or transaction types according to the profile. The administration does not provide special simplification measures beyond the exemptions and procedures described; specifically, the profile indicates there is no simplified approach for low value-adding intra-group services.

APAs and MAP; procedures and timing where provided

Article 36/7 of Law no. 8438 permits taxpayers to request Advance Pricing Agreements (APAs) with the tax administration to determine in advance an appropriate set of criteria for future controlled transactions over a defined time period. The Minister of Finance issued Instruction no.9, dated 27.02.2015 “On Advance Pricing Agreements”, which specifies APA regulations and procedures. Instruction no.9 provides that the commencement date for the APA must be the tax year following the date on which the APA application was signed, that the maximum covered period for APAs is five (5) years except where the APA arises from a reciprocal government agreement ratified by law, and that taxpayers may not apply for an APA covering prior (rollback) years, although if the APA is signed after the first tax year proposed, that proposed tax year will nonetheless be covered. Albania allows unilateral, bilateral and multilateral APAs, and MAP can be used where APAs are concluded bilaterally or multilaterally and rely on the MAP article of the relevant tax convention.

The profile does not provide exhaustive timelines for APA or MAP processing beyond the commencement and maximum coverage rules in Instruction no.9; therefore, “No se proporciona guía doméstica específica en el perfil” for any additional administrative timelines for MAP or APA resolution.

Penalties and other considerations (secondary adjustments, recharacterisation, year-end adjustments, PEs)

Albania recognises corresponding adjustments and secondary adjustments. Article 36/5 provides that where an adjustment is made by the tax administration of another country that results in taxation of profits already taxed in Albania and the countries have a treaty that contemplates relief, the Albanian tax administration shall, on a request from the Albanian taxpayer, examine the consistency of that adjustment with the market principle and, if it is consistent, make an appropriate adjustment to the amount of tax charged to the Albanian taxpayer. The procedure for requesting a corresponding adjustment is to be specified by Minister of Finance instruction. Instruction No. 16, point 13, explains that a taxpayer’s request for a corresponding adjustment must be made in writing to the General Tax Directorate and include the necessary information for examination.

Secondary adjustments are addressed in practice by the Instruction. Year-end adjustments are allowed to the extent that corresponding adjustments from other jurisdictions trigger Albania to consider an appropriate correction. The profile does not provide detailed domestic rules on re-characterisation beyond the general audit and adjustment powers set out in law and instruction; therefore, “No se proporciona guía doméstica específica en el perfil” on detailed re-characterisation procedures beyond general adjustment rules.

With respect to financial transactions, while Instruction No. 16 does not lay out full specific guidance for financial transactions, Law no. 8438 includes a notable specific rule: point 4 of Article 21 “Non-deductible expenses” states that for loans, borrowing or financing by related parties, the excess of net interest expense over 30% of taxable profit before interest, tax, depreciation and amortization (EBITDA) is not deductible for tax purposes. Net interest expense means interest expense less interest income. Any non-deductible interest expense may be carried forward to future tax periods unless 50 percent of the shares or voting rights in the entity are transferred. The paragraph excepts banks, non-bank financial lending institutions, insurance companies and leasing companies. Implementation rules are to be determined by Ministerial instruction.

Other transactional types: intangibles and intra-group services

Instruction No. 16 contains specific guidance for transactions involving intangibles (paragraphs 11.4 and 11.5). Application of the market principle to transactions involving licences, sales or other transfers of intangible property must consider both the transferor’s and transferee’s perspectives, including the price at which independent parties would be willing to transfer the intangible and the value and usefulness to the transferee. Factors to consider in comparability for intangible transactions include expected benefits from the intangible, geographic limitations on rights, exclusivity or non-exclusivity of rights transferred, and whether the transferee has rights to participate in further developments of the intangible by the transferor. The profile indicates there are no specific domestic rules for hard-to-value intangibles (HTVI).

For intra-group services, Instruction No. 16 (paragraphs 11.1–11.3) states that a service charge is consistent with the market principle where the service is actually rendered, provides or is expected to provide economic or commercial value to the recipient, is a service that an independent party would have paid for under comparable circumstances (or would have performed in-house), and the amount corresponds to what would have been agreed between independent parties for comparable services. Where specific services can be identified, determination should be made for each specific service. Where services are provided to various associated parties and not to any independent parties, and it is not possible to identify specific services for each, the total service charge should be allocated among associated parties according to reasonable allocation criteria that relate to uncontrolled transactions and are reasonably measurable. No simplified approach for low value-adding intra-group services is provided.

Conclusion

Albania’s transfer pricing regime is clearly aligned with OECD Guidelines. It sets out a domestic definition of related parties (50% ownership or effective control), recognises the standard set of transfer pricing methods while requiring use of the “most appropriate method”, and adopts OECD-style comparability analysis with a preference for domestic comparables where reliable. Documentation obligations include Master and Local files, with short response times (30 days) and permitted submission in Albanian or English subject to translation on request. APAs (uni-/bi-/multilateral) and MAP are available, and corresponding and secondary adjustments are recognised. A notable domestic-specific rule is the interest limitation for related-party financing (net interest expense in excess of 30% of EBITDA is non-deductible). Where the Law delegates detail to ministerial instruction (for example, thresholds and formats of the annual controlled transactions notice), the profile does not provide those specifics; therefore, “No se proporciona guía doméstica específica en el perfil” for those particulars. Overall, Albania provides a modern transfer pricing framework consistent with OECD standards.

References

More information and the country profile page can be found on the OECD transfer pricing country profiles site: https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html