The use of debt as a tax avoidance form in Albania - Economicus

by. Prof. Assoc. Dr. Elvin MEKA & Ilva ISA, PhD(c) & Krisela NGJELA

ABSTRACT

Under Albanian law, entrepreneurship may be organized in any of the following forms: the sole entrepreneur, general partnerships, Limited Liability Companies (Shpk), Joint Stock Companies (SH.A). Limited Liability Companies, otherwise known in Albanian law as “sh.p.k”, are companies founded by natural or legal persons whose liability for obligations undertaken by the company are limited to their contribution and the share is divided in proportion of the contribution. The basic capital of a “sh.p.k” (or LLC) is fixed to ALL 100 and cannot offer its shares in public. Our research interest will be focused on Limited Liability Companies and their financing activities. These activities include financing in forms of debts or loans and owner’s contribution. Otherwise, the owner may grant funds to the business, the loan is formal with a contract including interest; interest on the loan is taxable to the owner personally when it is repaid. The repayment of the principal is not taxable, since one has already paid the taxes on it and this is the first reason why we often find “Owners Liabilities/loans” in the liability section of the balance sheet. As this item, found in the balance sheet can be included, funds are withdrawn by the owner for “an illegal” purpose, such as bribery. Many companies face bribery and other non-declared transactions. There appears to be no unified definitions of bribery that specifically states what is considered bribery. However, it is globally recognized as giving a reward or ‘knockback’ to a person, in an attempt to sway opinions or behaviors for personal advantages. In this paper, we look through a descriptive and comparative analysis at how companies use debt to avoid tax, actions and policies government is expected to take and what is the current approach to combating this form of tax avoidance, and what more needs to be done. The focus of this paper is to consider debt as a deductible cost, but many of the same issues arise for other deductible costs, such as management fees, insurance contracts or intellectual property fees. The aim will be to have a look at how companies account for bribes paid to third parties in their financial statements and what should be done to detect and prevent this phenomenon.

How to cite: Meka, E., Isa, I., & Ngjela, K. (2021). The use of debt as a tax avoidance form in Albania. Economicus, 20(2), 71–80.

https://doi.org/10.58944/pvzj6511