Advance pricing agreement is the understanding between the tax authorities and the company regarding transfer pricing. In the new context of the transfer pricing in Romania – Ministry of Finance announced substantial changes both in legislation and in controlling more strictly that area – advance pricing agreement can be very useful.
Contexpert has presented the proposed changes in this matter, in the previous newsletter on transfer pricing . In this newsletter, we bring new information on changes concerning the advance pricing agreement, an instrument that might eliminate risks involving transfer pricing.
What is the advance pricing agreement? Why is it useful?
The advance pricing agreement is the document issued by NAFA for a fee, upon request, which sets out the terms and conditions to be determined in a given period, for the transfer pricing in the transactions between related parties. The agreement has effect only in the future.
Thus, companies can avoid the risks of practicing transfer pricing that NAFA may believe that are inconsistent with market prices.
Once given consent, NAFA will no longer check the transactions with related parties. The transfer pricing problem is, in this way, resolved before the authorities initiate controls.
The agreement may be unilateral, bilateral or multilateral: it can be concluded with one or more tax administrations in different countries where the company has transactions.
The agreement includes a transfer pricing study and provides support for pre-approval of transfer pricing methodology.
Agreement is issued by authorities in 12 months if unilateral and in 18 months if bi / multilateral.
The agreement entails certain costs. On the one hand, there are costs for preparing the file for agreement, and on the other hand there are fees payable to NAFA. These are 20,000 euro for large taxpayers in case of the consolidated value of the transaction are over 4 million. For other taxpayers, the price is 10,000 euros.
Each year, companies that have an agreement with NAFA must submit a report on implementation the terms and conditions agreed.
The agreement may be terminated only for transactions that take place in countries with which Romania has double taxation agreements.
Agreements are issued for a period of five years but that may be extended / expanded. The draft amendment to the Fiscal Procedure Code gives more details – than the current legislation – regarding the requirements for advance pricing agreement extension.
Proposals for improving the advance pricing agreement
The draft amendment to the Fiscal Procedure Code proposes that:
The advance pricing agreement may be extended, expanded or revised upon request, but in the same terms and conditions.
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