Worldwide transfer pricing reference guide 2014

Kosovo
Taxing authority and tax law
Tax authority: Tax Administration of Kosovo
Tax laws and ministerial instructions:
• Law no.03/L–162, dated 29 December 2009 on Corporate Income Tax, as amended (CIT law)
• Article 2, paragraph 1.18 — definition of related persons for corporate income tax (CIT) purposes
• Article 27 — transfer pricing definition; transfer pricing methods
• Law no. 03/222, dated 12 July 2010 on Tax Administration and Procedures (tax procedures law)
• Article 1, paragraph 1.27 — definition of related persons
• Article 1, paragraph 1.45 — definition of market value
• ►Article 46 — tax authorities’ right of transfer pricing adjustments
• Double taxation treaties enacted by Kosovo
Relevant regulations and rulings
• Administrative Instruction no. 14/2010, dated 19 November 2010 of the Ministry of Economy and Finance on CIT law
• Section 20, paragraph 1 — transfer pricing application
• Section 20, paragraph 1–8 — transfer pricing methods priority application
• Section 20, paragraph 9 — transfer pricing documentation
OECD Guidelines treatment
The Kosovan legislation on transfer pricing makes reference to the OECD Guidelines. The relevant regulatory framework for transfer
pricing includes provisions of the CIT law and tax procedures law and related instructions.
Priorities/pricing methods
In general, the tax authorities follow the OECD Guidelines in examining related party transactions and transfer prices charged. However,
contrary to the OECD’s best method approach, the three traditional transactional methods are preferred, especially the CUP method.
The tax authorities also allow the use of the profit split method when the activities of the transacting entities are highly integrated and
intangibles are involved. The transactional net margin method is considered the last resort method.
Transfer pricing penalties
The current legislation does not provide for specific penalties in case of transfer pricing adjustments. Therefore, in case of an
adjustment, the general tax penalties would apply. Hence, a penalty of 50% will be applicable on the amount of unpaid tax liability due
to reduced taxable profit declared. If the taxpayer decides to amend the transfer pricing position taken previously, by filing an amended
tax return, before a tax audit is initiated, then the penalty imposed for late filing will be 5% of the unpaid liability for each month of
delay, capped at 25%. Moreover, a penalty for late payment of the tax liability is applicable at 1% thereof for each month of delay
capped at 12%. Both penalties do not apply cumulatively, rather the late payment penalty starts applying to the extent the unpaid liability
has not been paid by the time the late filing penalty reaches its ceiling. In both cases, default interest would apply which should be at
least 0.5% higher than the bank lending rate interest in Kosovo.
Penalty relief
Currently, no penalty relief is available.
Documentation requirements
Taxpayers who carry out transactions with related parties must maintain sufficient supporting documentation to justify their transfer
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