Transfer Pricing in Kosovo

The legal framework

Kosovo's transfer pricing rule is short in the statute and long in the sub-legal act. Article 28 of Law No. 06/L-105 on Corporate Income Tax requires any taxpayer in a controlled transaction to compute taxable profit by reference to "open market value", and Article 28(2) reproduces the OECD Article 9 formulation almost word for word. The Law was published in the Official Gazette on 19 July 2019 and took effect fifteen days later, on 3 August 2019. The working rules - comparability, methods, services, intangibles, adjustments and documentation - sit in Administrative Instruction MF-No. 02/2017, a trilingual instrument of 31 articles issued in July 2017 and still operative in 2026.

Two structural points come first. The Instruction rests on a repealed enabling provision: it was issued under Article 27 of Law No. 05/L-029, which Article 40 of the 2019 Law repealed in full, and the fresh sub-legal acts required by Article 28(7) of that Law and Article 42(3) of Law No. 08/L-257 have not been issued. ATK applies the 2017 Instruction as live law, citing it in its 2025 guidance and filing notices. The legal footing is thin, the practical position settled.

Then scope. Article 3(1.32) of the Law defines a controlled transaction as any transaction between related persons, with no cross-border qualifier. Articles 2 and 5(1) of the Instruction confine it to parties subject to different tax jurisdictions, and ATK's 2025 guidance follows that narrower reading; Article 5(1.4) additionally sweeps in dealings with residents of 65 listed low-tax jurisdictions. But Article 42 of Law No. 08/L-257 gives ATK a standalone power to reallocate income in any related-party transaction. Advising that purely domestic dealings sit outside the regime would be brave.

Methods, comparables and benchmarking

All five OECD methods are available and no sixth is provided for. Article 28(3) lists CUP, resale price and cost plus and admits TNMM and profit split in specific circumstances; Articles 16 to 21 develop each. Selection runs on the four most-appropriate-method criteria in Article 28(4) - each method's strengths and weaknesses, its fit with the transaction as shown by the functional analysis, data availability and the degree of comparability - but not on a clean slate. Article 22(1) of the Instruction provides that open market value is determined by the comparable uncontrolled price method, the other methods being used where CUP cannot be, so treat CUP as the presumptive starting point and record in the file why it was rejected. Article 22(2) confirms that only one method need be applied, with others as corroboration, and ATK works from the taxpayer's chosen method unless it can show that choice wrong.

The tested-party rules in Article 23 are unusually accommodating. A foreign tested party outside the Kosovo tax net is expressly permitted, provided the method is the most appropriate one and ATK receives enough information about that party to test the outcome.

Comparables are where Kosovo diverges from habit. Article 15(5) prefers domestic comparable uncontrolled transactions; foreign sets are recognised only where domestic ones are absent, and then only if geographical differences and the other drivers of the financial indicator are analysed and adjusted where appropriate. Since Kosovo's market yields few independent comparables, pan-European searches are the norm - but Article 29(6.5.2) requires the file to explain why each potential domestic comparable was rejected, and that explanation is the first thing an inspector looks for. Benchmarks refresh every three years under Article 29(9) while operating conditions hold, with comparable financials updated annually under Article 29(10). Article 27(3) allows ATK to trim to the interquartile range where thin data constrains comparability, and Article 27(2) permits adjustment to the median where the tested result falls outside the range, unless either side proves a different point better reflects open market value.

Documentation: what ATK expects

There is no monetary threshold for the documentation obligation. Article 28(5) of the Law requires every taxpayer with controlled transactions to prepare documentation, and Article 29(1) of the Instruction requires sufficient information and analysis to verify that the terms accord with open market value. The EUR 300,000 figure circulating in commercial summaries is not a documentation threshold: it triggers the annual notification, and separately a relaxed benchmark-refresh rule in Article 29(8). ATK's 2025 guidance settles the point - a taxpayer below EUR 300,000 must still produce a file if ATK asks.

The master file and local file framing comes from ATK practice, not the Instruction, which never uses either term. Article 29(6) prescribes nine content headings, running from a business summary and group structure through the controlled transactions, the chosen method and financial indicator, the search process, rejected comparables and each adjustment, to the arm's length conclusion and any adjustment made. Article 29(7) deems documentation prepared to the EU Code of Conduct standard, Council resolution 2006/C 176/01, to meet Articles 7 to 12 - the comparability-analysis provisions, and only those. It is not a shortcut around Article 29(6): an EU-headquartered group must still work through the nine headings.

The file is not lodged with the return. It must exist before the return is submitted and reach ATK within 30 days of request under Article 29(3), in Albanian or Serbian, with English accepted only by agreement. Preparing a compliant file discharges the taxpayer's initial burden of proof under Article 29(2), though Article 29(5) preserves ATK's power to adjust regardless. The separate disclosure is the Notice on Annual Controlled Transactions, due where controlled transactions including loan balances exceed EUR 300,000 counted gross, filed by 31 March in hard copy at the Central Office in Pristina rather than through EDI. There is no country-by-country reporting obligation in Kosovo.

Audits, penalties and the enforcement climate

Kosovo has no bespoke transfer pricing penalty. Exposure comes from the general regime in Law No. 08/L-257, which replaced the 2010 procedure law in January 2024 and moved every figure in the OECD's 2023 profile. Late, inaccurate or incomplete filing of the notification attracts EUR 150 per statement capped at EUR 3,000 under Article 101(1). The sanction for failing to prepare documentation or produce it within 30 days is genuinely unsettled: Article 29(4) of the Instruction routes it to the information-statement fine - the same EUR 150 capped at EUR 3,000 - while ATK told the OECD that the turnover-banded records fines in Article 101(2) apply, running EUR 150, 250, 500, 1,000 and 2,000 on prior-year turnover. Advise on the higher exposure. Only the EUR 2,000 band above EUR 5 million is new: the EUR 1,000 band existed under the old law, and the change at the bottom was a rise from EUR 125 to EUR 150.

The real cost sits in Article 100: an adjustment increasing tax carries 15% of the understatement, rising to 25% where the understatement exceeds 10% of the correct tax, plus interest under Article 24 accruing monthly for up to ten years. Article 110 offers real relief - voluntary disclosure before notification of an investigation cuts the fine to 25%, disclosure after notification but before commencement to 50%, and payment within 15 days halves it. Assessments must be made within six years under Article 16(2), with no limit where no return was filed or a return was filed with intent to evade.

The posture is tightening. ATK has a dedicated Department for Transfer Pricing and Digital Economy; the notification form makes taxpayers state, transaction by transaction, whether documentation exists, which is a risk-selection instrument as much as a disclosure; and ATK's 2025 guidance closes by telling taxpayers to expect an audit. One control matters: Article 27(1) requires the Director General's written approval before any adjustment, and Article 27(7) confines ATK to the transaction as structured save in narrow substance-over-form cases.

Dispute resolution and advance certainty

Kosovo offers no advance pricing agreements - not unilateral, not bilateral, not multilateral. The Instruction mentions APAs only in Article 29(6.7), where the file must disclose foreign APAs covering the same transactions. The nearest domestic substitute is the individual ruling under Article 64 of Law No. 08/L-257, which binds ATK where the taxpayer has made full disclosure and the transaction proceeds as described. The by-law setting its requirements and fees was due by about January 2025; confirm it has issued before relying on the route.

A corresponding adjustment is available under Article 28(6) of the Law where a treaty partner has adjusted the same transaction. It runs on a written request evidencing that the foreign adjustment is arm's length, and ATK may refuse where it concludes otherwise. Kosovo makes no secondary adjustments, and taxpayers may make year-end adjustments where a comparability analysis shows a result outside the range.

MAP exists only through the treaty network, under the Article 25 equivalent in each double tax agreement - 21 in force on ATK's own list as updated in March 2026, Italy's having entered into force on 21 December 2025 and applying from 1 January 2026, with a further agreement signed with Czechia. Eight treaties carried the post-2010 Article 7, and so the Authorised OECD Approach, as at the 2023 OECD profile. ATK does publish MAP material: a short English and Albanian guide to Article 25 procedures and a schedule of the information a request must carry, both posted in December 2023, naming transfer pricing adjustments as a trigger and giving competent-authority contacts in the International Relations Department. What is missing is peer review and data - Kosovo is not an Inclusive Framework member, so the Action 14 minimum standard does not apply and no MAP statistics are published. The domestic route was rebuilt in 2024: a claim goes to the ATK Appeals Unit within 30 days, then to a new nine-member Appeals Board in the Ministry within a further 30 days, then to court. Filing does not suspend payment, though security can postpone collection, and Article 116 now allows a written tax agreement settling the dispute before the Board hearing.

Pillar Two and what changes in 2026

Nothing in Pillar Two applies in Kosovo. There is no income inclusion rule, no undertaxed profits rule and no qualified domestic minimum top-up tax in Kosovo's legislation, with no draft announced. The structural reason is that Kosovo is not a member of the OECD/G20 Inclusive Framework on BEPS, so it carries no GloBE commitment, no Action 13 country-by-country minimum standard and no Amount B covered-jurisdiction status. Kosovo has taken no Amount B position; the only fixed-return simplification in its law is the 7% low value-adding services mark-up.

That does not make Kosovo irrelevant to Pillar Two planning. With a 10% headline corporate rate, a Kosovo subsidiary of an in-scope group will often sit below a 15% effective rate, and the top-up is collected elsewhere. The transfer pricing consequence is that Kosovo margins are now visible to foreign administrations through GloBE computations Kosovo itself neither requires nor sees.

The live domestic development is the replacement Administrative Instruction ATK reported it was drafting, expected to add the financial-transactions guidance the current instrument lacks. Until it issues, intra-group loans, guarantees and cash pooling are tested under the general rules read with the OECD Guidelines through Article 30 - workable, but with no domestic anchor on rates or implicit support.

How practitioners should respond

Treat the file as the primary defence, because in Kosovo it literally is: Article 29(2) shifts the initial burden of proof once compliant documentation exists. Build it before the 31 March return: 30 days will not accommodate a benchmarking study started from scratch.

Five priorities. Start from CUP and record why it was set aside, because Article 22(1) makes it the default method rather than one option among five. Close the language question early: a file in English is not compliant unless ATK has agreed, and that agreement is exceptional, so budget for Albanian translation rather than discovering the requirement mid-audit. Document the search for domestic comparables even when it fails: Article 29(6.5.2) requires reasons for rejecting each candidate, and a pan-European set without them invites challenge. Reconcile the notification to the file - the form asks whether documentation exists for each transaction, and a "yes" that cannot be produced within 30 days converts a disclosure into an admission. And model the median, since ATK's default adjustment point is the median rather than the nearest edge of the range.

On scope, take the conservative reading: the statute covers domestic related-party transactions and Article 42 of Law No. 08/L-257 arms ATK independently of the Instruction. On certainty, remember there is no APA to fall back on - the choices are a robust contemporaneous file, an individual ruling if the by-law has issued, and treaty MAP after the event, for which ATK does publish a short procedural guide. Check the operative Instruction before each filing season; the replacement may land without notice.