Kosovo: Transfer pricing, documentation rules | KPMG | BE

Kosovo: Transfer pricing requirements, documentation rules

Kosovo: Transfer pricing, documentation rules

Administrative Instruction No. 02/2017 introduces new requirements and procedures for implementing the transfer pricing provisions of Law No. 05/L-029. These rules generally are based on the Transfer Pricing Guidelines of the Organisation for Economic Cooperation and Development (OECD).

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Arm’s length principle

The transfer pricing rules emphasize that the arm’s length principle is the standard to be applied for intra-group transactions or controlled transactions. “Controlled transactions” for transfer pricing purposes are considered to be transactions between parties that have a special relationship that may materially affect the economic results of the transactions between them (e.g., if one entity holds or controls 50% or more of the shares or voting rights in the other entity, or if both entities are directly or indirectly controlled by a third entity). 

Transfer pricing methods

Under the transfer pricing rules, the open market value is determined by the comparable uncontrolled price method. However, in situations when this method is not applicable, the following methods may be applied as the most appropriate method:

  • Resale price method 
  • Cost plus method 
  • Transactional net margin method 
  • Profit split method

Reporting of controlled transactions, transfer pricing documentation

Taxpayers with controlled transactions with a value greater than €300,000 within a calendar year must submit to the tax authorities an annual controlled transactions form (ACTF) by 31 March of the following year. Taxpayers must also prepare and present to the tax authorities within 30 days upon request, the necessary documents and analysis in order to prove that the controlled transactions are in compliance with the arm’s length principle. This documentation must include the following:

  • An overview of the taxpayer’s business operations (history, recent developments and general overview of the relevant markets of reference) and an organizational chart (details of business units/departments and organizational structure) 
  • A description of the corporate organizational structure of the group in which the taxpayer is a member (including details of all group members, their legal form, and their shareholding percentages) and the group’s operational structure (including a general description of the role that each of the group members conducts with respect to the group’s activities, as relevant to the controlled transaction(s)) 
  • A description of the controlled transaction(s), including analysis of the comparability factors  and details of the applicable transfer pricing policy (when relevant) 
  • An explanation of the selection of the most appropriate transfer pricing method(s), and when relevant, the financial indicator 
  • A comparability analysis, including a description of the process undertaken to identify comparable uncontrolled transactions, an explanation of the basis for rejection of any potential internal comparable uncontrolled transactions (when applicable), a description of the comparable uncontrolled transactions, an analysis of comparability of the controlled transaction(s) and the comparable uncontrolled transactions, and details and an explanation of any comparability adjustments made 
  • An explanation of any economic analysis and projections relied upon
  • Details of any advance pricing agreements or similar arrangements in other countries applicable to the controlled transactions 
  • A conclusion as to the consistency of the conditions of the controlled transactions with the market principle, including details of any adjustment made for compliance purposes
  • Any other information that may have a material impact on the determination of the taxpayer’s compliance with the market principle with respect to the controlled transactions

 

Read a July 2017 report prepared by the KPMG member firm in Albania

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