Recommendations for the Ministry of Finance on the impact of appeals of the decisions of Directorate of Tax Appeal (DAT) in court and modalities to improve the business climate in this respect.

13 November 2015

 The Association “Albanian Commercial Union”, as representative of the interests of the business activity of distributors and retailers in Albania, is representing the following concerns and suggestions:

  1. Concerns:

Currently, in accordance with the Law on Tax Procedures and by-laws issued for its implementation, is provisioned that in the moment when a Notice of Assessment is issued by the RTD (Regional Tax Directory) (“local unit”) to a taxpayer, it is reflecetd in the RTD computer system the tax liability issued by the RTD. This obligation remains such until it is paid or until a final decision is given by Courts and RTD decides to reflect it in its computer system.

In order that an appeal of a taxpayer to be considered and examined, the taxpayer must prepay or provide a bank guarantee of the principal amount in favor of RTD same amount as reflected in its system. The Bank guarantee and/or the prepayment remains in favor of RTD until the moment when decide to remove this tax liability form the local unit system.

Although it should be noted that the possibility to provide a bank guarantee, as an alternative to prepayment, was a very important step forward in support of businesses, it should also be noted that the costs (direct and indirect) carried by the businesses in the case the bank guarantee remains extremely high and has a direct consequence on its development (business).

Just to mention that the bank guarantee will be issued by banks only against its cost and only if the taxpayer (i) freeze a cash amount equal to the value of the bank guarantee, or (ii) use a financial instrument from the bank, which at the end is the equivalent of a bank loan regarding its costs (interest, etc.) and the collateral that should be pledged in favor of the banks. In both cases, the business must ensure besides the direct costs for this type of instrument, also freeze of liquidities (in the amount reflected by the RTD local unit) and/or to create a new exposure in the banking in favor of RTD, which limits the possibilities to the taxpayer that such an instrument o be used for its investments or it growth, up to the moment that RTD will decide to remove this liability from its computer system.

While the minimum and maximum period, until a final decision for an appeal is issued, varies in an average of 3 up to 6 years.

In addition to the above, the taxpayer needs to pay continuously the monthly tax obligations arising as a result of its business activity.

The situation described above creates a great pressure on the business community, by placing it in a really unequal position comparing with the tax administration. So, during the whole time that is performed the appealing process, from the appeal in DAT until the end of the trial in the High Court, the taxpayer has prepaid the obligation/principal or froze and/or take loans in that amount in the bank in order to provide the bank guarantee, RTD has no such pressure and therefore in many cases the process is artificially extended, hoping for a withdraw from the side of the taxpayer.

We could say that in the past, this mechanism fueled corruption by the tax administration, because taxpayers were forced to find ways extralegal to agree with the tax administration, precisely because of the high costs and too long duration period of the appeal process, even when they were right.

The improvement that came (in time) by the review of administrative cases in the administrative court of first instance and the appellate, is nearly depreciated by the very long time of waiting the case to be reviewed in the High Court. (Without mentioning all the costs of the legal representation in court born by the taxpayer, which in any case are proportional to the judiciary degree where this representation occurs).

Although not as important, we believe that such a system has created problematic even for tax administration where the debt of this administration to taxpayers is increased artificially during the completion of the judicial review of the case. Not to mention the financial costs that must pay in the event that the administration loses the case in the court.

The situation becomes even more complicated for both sides (RTD and the taxpayer), especially taking into consideration the obligation set forth for RTD to pursue at all levels of the judiciary system for a legal conflict where it is a party, in accordance with the Instruction of the Ministry of Finance.

Although the Constitutional Court in its decision no. 39 dated 30/06/2014, has found not in contradiction with the Constitution the right of RTD to appeal in court against a decision of DAT, we believe that has come the time to consider the possibility to find alternatives to address the concerns of businesses without questioning the DRT’s right to collect taxes. This can be done by placing the obligation to RTD to return /release the bank guarantee at the moment that DAT has decided against the decision of RTD, or by specifying more clearly the appropriate guidelines when RTD may not recourse to the High Court after a final decision is issued.

  1. Suggestions
  2. i) In our view, the unequal positions of the parties during the judiciary process is an impulse to RTD to appeal on court the decisions of DAT. While the taxpayer (as stated above) bear very high costs to make an appeal and to complete all judiciary levels, there are no such costs for RTD and its pressure is minimal.

If the legislation will compel that after the completion of the appeal by DAT and the decision is given in favor of the taxpayer, should be returned the latter the amount prepaid and/or the bank guarantee, then, we believe that RTD would treat more carefully its choice to appealed in court DAT’s decisions or not. Likewise, this mechanism would have no cost for RTD even in the event it will lose the court process, because the taxpayer would have withdrawn the money and would not require interests on delays for the period being blocked.

Of course, this will also bring to businesses release form numerous costs associated to the blocking of a bank guarantee during the prolonged judicial processes. Apart from this, it will also reduce the costs to businesses to cope with these processes, as RTD will be more careful and selective in decision-making to bring or not a case to court.

  1. ii) In addition to the above it is the more logical and entirely possible, even based on current legislation, the RTD to have the discretion to assess whether or not to have a recourse to the High Court in cases where there is a final decision from the Administrative Court of Appeal in favor of the taxpayer.

Despite its independence in decision making, DAT still remains an executive entity of the government. If, after RTD has appeal the DAT decision in the court and the matter has been processed in the court of the first instance and appellate court (administrative), and again the latter has given the right taxpayer, going into the High Court even when RTD itself is convinced about the inefficiency of this process, would be high costs for both sides.

Therefore, in accordance with the Instruction of the MF and in line with the provisions of paragraph 109.7, 109.10, the Ministry of Finance may provide procedures under which, in cases where (i) DAT has decided to abrogate, wholly or partly, a tax liability reflected in the local unit of the RTD and (ii) the latter has appealed judicially the decision given by DAT, (iii) RTD has the right, only by the approval of the General Directorate of Taxation, to decide whether or not to make recourse to the High Court against a decision given by the Administrative Court of Appeal which has decided for the appeal filed (by RTD).

We think that such a solution will (i) ensure the protection of interests of RTD, (ii) realizes a qualified judicial review of the decision of DAT, (iii) reduces costs for RTD as well as for the taxpayer.

In addition to the above, we believe that with this intervention the Ministry of Finance may determine standards and procedures under which the RTD may decide not to make recourse to the High Court on an issue which according to the Law of Procedure the taxpayer is entitled to appeal it directly to the court without going through the administrative appeal process. Thus, there are cases in which the Court of Appeal with the final decision has resolved a conflict between the taxpayer and RTD. In these cases, given the very high costs not only for the taxpayer but also for the RTD because of the prolongation of the process, we think that RTD should have the right to decide to recourse or not the final decision to the High Court if it considers the case without opportunity to be won, after having received the relevant approvals from the General Directorate of Taxation.

3.      Conclusion

In conclusion we can say that although there is a significant improvement in the costs and opportunities for taxpayers to appeal against decisions of the RTD, the current system and in particular the request to (i) have a bank guarantee or prepay the principal of the tax liability reflected by the local tax unit until we have a final judicial decision (after the High Court has given its decision) and (ii) the practice of RTD to appeal any decision of DAT that does not let in force RTD’s decisions at all levels of the judicial process, including the High Court, resulting in an apparent inequality of the parties as well as high costs both for RTD and the taxpayer.

Return of prepayment or bank guarantee to the taxpayer in the event of appeal in court of the DAT’s decision by DRT, as well as the procedures and standards when RTD has the right not to make recourse to the High Court, then when RTD deems the recourse is unnecessary, would be initiatives which would bring improvements to the current situation.


Legal basis:                 (i) Law on Tax Procedures; (ii) Directive No. 4, date 27.01.2011 “On the implementation of the Budget for 2011” (herein “MF Directive”; (iii) Decision No. 39 date 30/06/2014 of the Constitutional Court (ne herein “CC Decision”), Directive No. 24 date 02/09/2008 “On tax procedures” amended (herein “Directive on Procedures”), Constitutional Court Decision No. 16 date 25.07.2008;




The Association “Albanian Commercial Union”



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