On 16 July 2020 the Albanian Parliament passed Law No. 93/2020 "On the ratification of the Multilateral Convention to Implement Tax Treaty related measures for the prevention of base erosion and profit shifting" (Multilateral Instrument or MLI).
This Law has entered into force as at 15 August 2020 and will directly impact the tax treaties of Albania and other partner countries which have ratified the MLI. The application of the MLI becomes effective for Albania as at 01 January 2021.
The measures under the MLI include, inter-alia, anti-treaty abuse rules such as the Principal Purpose Test and limitation of benefit clause, alongside a new preamble reinforcing anti-treaty abuse rules, permanent establishment rules, arbitration rules, modernization of Mutual Agreement Procedures and transfer pricing articles in tax treaties. Such measures are reflected in the Articles of the MLI. At first, not all articles are compulsory to be accepted by MLI signatories, however full adoption is expected in due time.
As part of the ratification process, each country is required to publish its position and reservations on the articles of the MLI. The ratified position of Albania currently includes reservations on certain articles (however, it may be the case some of these Articles may already be included in existing tax treaties) and articles without reservations. The latter are expected to have a direct effect on certain tax treaties. The current position of Albania may change in the future, by removing reservations on certain articles, however it may not reintroduce reservations for previously accepted Articles.
Effectively, the ratification of the MLI allows the amendment of existing Tax Treaties of Albania without the necessity to conduct additional negotiations between two countries. The ratification of the MLI affects currently ratified tax treaties of Albania, provided that the Partner Country of a given tax treaty has also included the said tax treaty as a “Covered Tax Treaty” in its position of the MLI. The tax treaties which are considered as “Covered Tax Treaties”, and that are expected to be affected by the ratification of the MLI as at the publication of this tax alert are the tax treaties between Albania and: Belgium, Bosnia-Herzegovina, Bulgaria, Croatia, Egypt, Estonia, France, Greece, Iceland, India, Ireland, Malaysia, Malta, Netherlands, North Macedonia, Peoples Republic of China, Poland, Qatar, Romania, Russia, Serbia, Singapore, Slovenia, Spain, Sweden, Switzerland, Turkey, UAE and UK.
The ratification of the MLI will bring important changes to the application of these tax treaties. One of the main purposes of the MLI is to simultaneously change all applicable tax treaties as per the articles of the MLI, therefore individual amendment of tax treaties is not expected. Thus, taxpayers should become aware and may assess which aspects of these tax treaties are affected by the MLI.
Entry into force
The Law No. 93/2020 “On the ratification of the Multilateral Convention to Implement Tax Treaty related measures for the prevention of base erosion and profit shifting ” is published in the Official Gazette No. 140 dated 30 July 2020 and has entered into force 15 days after its publication.
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