The package of tax laws introduced in Parliament in support of the 2017 budget shows a proposed change in the law for the Tax on Business Income which is claimed to have an anti-avoidance purpose.
The Ministry of Finance has prepared this amendment to the current law, which states that in the case of loans received from the related parties, the net balance of expenses for interests exceeding 30% of the income before taxes and depreciation (EBITDA) is not recognized as a deductible expense (në rastet e kredive, të huamarrjes ose financimeve nga personat e lidhur, nuk njihen si shpenzime të zbritshme të periudhës tatimore teprica e shpenzimit të interesit neto që tejkalon 30 për qind të fitimit të tatueshëm para interesit, tatimit, zhvlerësimit dhe amortizimit (EBITDA)).
According to the report to the Parliament, this amendment would be included as a remedy against the erosion of the tax base which is being implemented by the international companies that invoice expenses to their Albanian subsidiaries for the capital in circulation loaned from the mother company to the subsidiary, but this is obviously just an excuse.
In reality, this new regulation is a violation of the principles of free market.
If the government had wanted to limit the abuse of the payments on interests, they would have implemented a limitation of the deductibility related to a rate no higher than the tax rate of Albania, instead of connecting the limitation to a part of the fiscal year result (whose “optimal” level cannot be the same for every company and every sector). This has created the premise for a distortion of the credit market.
Based on how it was written, the new regulation seems more intended to force the subsidiaries of multinational corporations, when they are in need of funding, not to loan from their mother company, but to resort to the credit of Albanian banks, which are notoriously much more expensive in terms of interest. This way, the second-level Albanian banks will more easily lend money to large enterprises (guaranteed with guarantees from abroad) rather than lend to the Albanian companies, getting the same but making it seem as it has been an increase in the credit distributed to the Albanian economy.
For large foreign banks operating in Albania, it will be far easier to reach their targets, international companies will pay higher interests to the Albanian banks, and the state will cash “nothing additional,” while other Albanian companies will become a less desirable customer for banks, although statistics will claim that the credit to the economy is being increased.
Once again, the need for propaganda and especially the lobbying ability of large banks wins over the real needs of the economy.
