Kosovo – Transfer Pricing (2025)

Legal framework and scope

Kosovo’s transfer pricing framework is established in Law No. 06/L-105 and implemented through Administrative Instruction MF-No. 02/2017 on Transfer Pricing. Article 28 of Law No. 06/L-105 addresses transfer pricing and its paragraph 2 is a primary statutory reference. Administrative Instruction MF-No. 02/2017 provides substantive rules and, in Article 30, explicitly states reliance on the OECD Transfer Pricing Guidelines: “This Administrative Instruction is based on the OECD guidelines in the area of transfer pricing and any other guideline that may be issued in the future, as long as it is not regulated by local legislation.”

The rules apply to transactions between related parties and controlled transactions as defined by the Tax Administration of Kosovo (TAK) and detailed in the Administrative Instruction. The profile does not indicate sector-specific domestic guidance outside the Administrative Instruction. Kosovo is preparing a new Administrative Instruction that will include guidance on financial transactions.

Arm’s Length Principle and the role of the OECD Guidelines

Domestic application of Kosovo’s transfer pricing provisions is consistent with the OECD Transfer Pricing Guidelines (TPG). The national regulation incorporates OECD guidance for method selection, comparability analysis, and technical rules. Article 30 of Administrative Instruction MF-No. 02/2017 encapsulates the role of the OECD Guidelines by stating that the instruction is based on those guidelines and future relevant guidance, unless locally regulated.

Definition of related parties

The legal definition of related parties is contained in Article 3, paragraph 1.18, of Law No. 06/L-105 and is reproduced in Administrative Instruction MF-No. 02/2017 (paragraph 1.5 of Article 3). “Related persons” are defined as persons having a special relationship that may materially influence the economic outcomes of transactions between them. The rule lists the circumstances constituting a special relationship: officers or directors of each other’s businesses; legal business partners; employer-employee relationship; one person holding or controlling fifty percent (50%) or more of the shares or voting rights in the other legal entity; one person directly or indirectly controlling the other; both persons being directly or indirectly controlled by a third person; when persons are relatives of the first, second or third line as specified by the Law on Inheritance of Kosovo; and when persons are members of the same multinational group, meaning each parent company, branch and sub-branch are related. These conditions determine the scope of persons to which the transfer pricing rules apply.

Methods and application criteria

Kosovo explicitly recognises the traditional transfer pricing methods. Administrative Instruction MF-No. 02/2017 (Article 16) includes and describes Comparable Uncontrolled Price (CUP), Resale Price, Cost Plus, Transactional Net Margin Method (TNMM) and Profit Split, with further detail in Articles 17-21 aligning each method with the OECD TPG. Kosovo does not prescribe a rigid legal hierarchy of methods; instead, selection is based on the “most appropriate method” standard pursuant to paragraph 4 of Article 28 of Law No. 06/L-105 and Article 22 of the Administrative Instruction. Paragraph 4 of Article 28 specifies that open market value is determined based on the most suitable comparable method, considering: 4.1) respective strengths and weaknesses of recognised transfer pricing methods; 4.2) adequacy of a known method given the nature of the controlled transaction through a functions, assets and risks analysis; 4.3) availability of reliable information needed to implement the chosen method; and 4.4) degree of comparability between controlled and uncontrolled transactions, including the reliability of comparability adjustments.

Comparability and ranges

Kosovo follows the comparability analysis guidance in Chapter III of the OECD TPG per Articles 7–15 of Administrative Instruction MF-No. 02/2017. Article 15 gives preference to domestic comparables; paragraph 5 provides that in the absence of domestic comparable uncontrolled transactions, TAK recognises foreign comparables if geographic influences and other factors are analysed and comparability adjustments are made where appropriate.

TAK does not use secret comparables in transfer pricing assessments. The jurisdiction allows and uses arm’s length ranges and statistical measures to determine arm’s length remuneration. Article 27 (Transfer Pricing Adjustment) describes the use of statistical tools such as the interquartile range and median. If the financial indicator from the controlled transaction is outside the market range, TAK may adjust taxable profit to equate the indicator to the median of the market range, unless circumstances justify a different point in the range. When comparability is limited by a lack of data, TAK may narrow the quartile range by excluding the lowest 25% and highest 25% of available values.

Comparability adjustments are permitted and required when they are expected to increase the reliability of results. Article 14 details the factors to consider before making such adjustments (materiality, quality of data, purpose, reliability of the approach) and examples of adjustments include ensuring accounting consistency, adjustments for differences in capital, functions, assets and risks, current term differences, and differences between geographic markets (Article 14.1 and 14.2; subitems 2.1–2.4).

Documentation and reporting

Kosovo requires transfer pricing documentation. The Administrative Instruction obliges taxpayers to prepare Master file and Local file consistent with Annex I and Annex II of Chapter V of the OECD TPG (Article 29). The Country-by-Country report (Annex III) is not indicated as required in the country profile. There are also specific transfer pricing returns (notification forms) required under the instruction.

A controlled transactions notice must be filed where controlled transactions, including loan surpluses, exceed EUR 300,000 in the reporting period. Article 28 (Controlled Transactions Notice) requires taxpayers meeting that threshold to complete and submit the annual controlled transactions notification form (Annex 2 of the Administrative Instruction). The deadline for submitting the notice is the date set for the annual tax return (31 March) and submission is annual.

Article 29 sets further documentation rules and timelines: taxpayers involved in controlled transactions must prepare sufficient information and analysis to show that terms are aligned with the arm’s length principle. Transfer pricing documentation must be made available to TAK upon request within thirty (30) days (Article 29.3). Article 29.8 states that taxpayers with controlled transactions under EUR 300,000 are considered to meet documentation requirements, even when using foreign comparables, and Article 29 also requires database searches for external comparables to be updated every three reporting periods when business operating conditions remain the same. Documentation must be submitted in one of Kosovo’s official languages (Albanian, Serbian), except in special cases and with TAK agreement, where submission in English is permitted, either electronically or physically (Article 29.11).

Regarding penalties, Kosovo does not have transfer pricing-specific penalties. General tax penalties under Law No. 03/L-222 on Tax Administration and Procedures apply. Article 53 of that law covers failure to submit/create/provide records. Specifically, the “Notice of controlled transactions” is treated as an information statement and a penalty of EUR 125 may apply if it is not submitted on time or is submitted with errors.

Safe harbours, de minimis and other simplifications

The profile indicates that Kosovo does not have general safe harbours for industries, taxpayer types or transaction types. There are no other simplification measures except the specific approach for low value-adding intra-group services: paragraph 6 of Article 24 adopts the OECD TPG approach and allows a 7% mark-up for low value-adding intra-group services.

APAs and MAP; procedures and timing

Kosovo did not indicate availability of rulings or Advance Pricing Agreements (APAs) in the profile. However, Mutual Agreement Procedures (MAP) are available under Kosovo’s Double Tax Agreements (DTAs). Article 25 of DTAs allows taxpayers to request MAP for issues or disputes arising from taxation contrary to the DTA provisions, and the MAP is harmonized with OECD standards. The profile does not provide specific procedural timelines for MAP or details on unilateral, bilateral or multilateral APAs.

Penalties and other considerations

Apart from general penalties under Law No. 03/L-222 and the specific EUR 125 penalty for the controlled transactions notice, there are no transfer pricing-specific sanctions described. Kosovo does not implement secondary adjustments according to the profile. Taxpayers are allowed to make year-end adjustments if, after comparability analysis, results fall outside the market range; such adjustments should be reported to the tax authority.

Attribution of profits to Permanent Establishments (PEs)

Kosovo follows the Authorised OECD Approach (AOA) for the attribution of profits to permanent establishments. Kosovo has 20 DTAs in total, of which 8 contain the updated Article 7 of the OECD Model Tax Convention. For treaties that still contain the old version of Article 7, the provisions of that treaty article or its equivalent continue to apply.

Conclusion

Kosovo’s transfer pricing framework is aligned with the OECD Guidelines and is implemented through Administrative Instruction MF-No. 02/2017. Recognised methods follow OECD practice and method selection is based on the most appropriate method standard with a preference for domestic comparables while permitting foreign comparables with adjustments. Documentation requirements include Master and Local files; a controlled transactions notice is required where transactions exceed EUR 300,000, with submission by 31 March and documentation availability within 30 days. There are no general safe harbours, though a 7% mark-up is allowed for low value-adding intra-group services. The jurisdiction allows statistical adjustments (interquartile range, median) and year-end adjustments. No special rules on HTVIs or specific rules on financial transactions are in force in the current Administrative Instruction, but a revision is being prepared to address financial transactions.

References

The OECD country profile for Kosovo and additional materials are available at: https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html