Success Story – Legal Success in Tax Appeal: Repeal of Tax Fine for Withholding Tax on Exempt Purchases from Non-Resident Legal Entities

Lawyer Kastriot Frashëri successfully defended his client against the Regional Directorate of Taxes Durrës in a landmark tax case concerning the misapplication of withholding tax on services provided by non-resident legal entities.

In an important case for tax practice in Albania, lawyer Kastriot Frashëri protected the interests of entity D... sh.p.k., opposing with strong legal arguments a Notice of Assessment for Tax Liabilities issued by the Regional Directorate of Taxes Durrës (prot. no. 0000, dated 26.02.2024).

This administrative act constituted an arbitrary imposition of unfair double taxation on services performed by non-resident companies and was issued in clear misinterpretation of material and procedural law.

Entity D... sh.p.k., a company offering specialized services for the fashion industry in Albania, faced a tax assessment of 5.5 million ALL for withholding tax applied to payments made to non-resident partners.

The penalty was considered legally unjustified, incorrectly calculated, and contrary to bilateral agreements for the avoidance of double taxation that Albania has concluded with the countries of residence of the foreign service providers.

Lawyer Kastriot Frashëri built a structured and well-argued appeal on several legal levels, relying on:

• Law No. 8438, dated 28.12.1998 “On Income Tax”;
• Instruction No. 5, dated 30.01.2006;
• Law No. 9920, dated 19.05.2008 “On Tax Procedures”;
• Bilateral Agreements for the Avoidance of Double Taxation signed by the Republic of Albania.

The appeal emphasized that the invoiced services were duly documented, the non-resident entities had fulfilled their tax obligations in their country of residence, and the application of withholding tax in Albania would constitute prohibited double taxation.

• Withholding tax cannot be applied to services provided by non-resident legal entities where a valid double taxation avoidance agreement exists;
• The law prevails over administrative instructions, and an instruction cannot create obligations not foreseen by law;
• Double punishment for the same procedural issue violates the principle of proportionality and tax justice;
• Previous court decisions, including Supreme Court and Administrative Court precedents, recognize such expenses as lawful and deductible;
• The tax authority misapplied article 115 of Law No. 9920 by charging fiscal obligations instead of applying the appropriate procedural fine.

Thanks to accurate legal argumentation and full documentation, the Directorate of Tax Appeal was compelled to fully review the administrative act. The lawyer proved that the claimed tax obligation did not legally exist, as the services were taxable exclusively in the country of residence of the supplier.

This success not only protected the client from serious financial consequences, but also created an important precedent for fair interpretation of withholding tax rules in line with international agreements and European standards.

Case D... sh.p.k. against the Regional Directorate of Taxes Durrës is a concrete example of the professionalism and determination of lawyer Kastriot Frashëri in protecting businesses against unjust administrative acts.

This case marks a significant victory not only for the client, but also for tax justice practice in Albania, setting a new standard in the application of the principle of avoidance of double taxation.