Advance price agreements07 February 2024
Advance pricing agreements are tools used in transfer pricing to avoid disputes between taxpayers and tax authorities regarding the correct assessment of transfer pricing.
The advance pricing agreement is an administrative document issued by the National Fiscal Administration Authority (ANAF), at the request of companies, against a fee, which sets out in writing the conditions and methods for setting the transfer prices used in an intra-group transaction.
The advance pricing agreement refers exclusively to transactions that will take place after the date of its issuance, thus covering only future events. The advance price agreement cannot refer to past transactions.
As a rule, advance pricing agreements are concluded for a period of 5 years, with the possibility of extension, and during this period the tax authorities cannot request the transfer pricing file for transactions agreed within the framework of the advance pricing agreement.
The taxpayer or payer, beneficiary of an advance pricing agreement, has the responsibility to provide annually to the fiscal body that issued the agreement a detailed report regarding compliance with the terms and conditions stipulated in the agreement. This report must be submitted in accordance with the statutory deadline for the presentation of annual financial statements and annual accounting reports, respectively.
Advance pricing agreements may vary depending on the number of tax authorities involved in the process of obtaining them. Unilateral agreements presuppose the exclusive involvement of the Romanian authorities in approving the conditions and methods by which the transfer prices for intra-group transactions will be established. Bilateral agreements involve the involvement in approving the conditions and methods by which the transfer prices for intra-group transactions will be established both by the tax authorities in Romania and those of another country.
Multilateral agreements involve the involvement of the tax authorities in Romania, as well as in several countries, in approving the conditions and modalities for establishing transfer prices in intra-group transactions.
The purpose of advance pricing agreements is to prevent potential transfer pricing disputes by establishing in advance a set of criteria applicable over a certain period within the respective transaction, thereby ensuring compliance with the market value principle.
Preparing an advance price agreement for certain transactions generates a number of advantages for the company that prepares it. The company can avoid carrying out a tax audit for the transactions included in the agreement, it can eliminate the risk of adjustment of transfer prices, helping to avoid penalties on the transactions that are the subject of the advance pricing agreement. Also, the company can prevent double taxation by ensuring the clarity and correctness of tax payments and can reduce expenses related to the preparation of transfer pricing documentation for the transactions included in the agreement.
The fees charged by the tax authorities for issuing these advance pricing agreements differ depending on the classification of the taxpayers, but also on the value of the intra-group transactions carried out by them.
A fee of EUR 20,000/advance price agreement is charged for large taxpayers with a consolidated transaction value of more than EUR 4,000,000. If taxpayers wish to amend the initial advance pricing agreement they will pay a fee of € 15,000/advance pricing agreement.
For small and medium-sized taxpayers with a consolidated transaction value of less than EUR 4,000,000, a fee of EUR 10,000/advance price agreement is charged. If taxpayers wish to amend the initial advance pricing agreement they will pay a fee of EUR 6,000/advance pricing agreement.
Depending on the difficulty of the case, but also on the number of tax authorities involved in the process of obtaining the advance price agreement, the issuance period can be 12 months for the unilateral advance price agreement (with the possibility of extension) and 18 months for bilateral or multilateral advance price agreements (with the possibility of extension).
According to the most recent data published in the Activity Report of ANAF1, in the first semester of 2023, 12 advance price agreements were issued and 2 requests to initiate the amicable procedure were resolved.
Before submitting the request to issue or modify an agreement and the corresponding documentation, the taxpayer can request in writing to the ANAF a preliminary discussion to establish the need to conclude an agreement or, as the case may be, to discuss the conditions of the modification of the price agreement existing advance. The request for the preliminary discussion will include information regarding the identification data of the taxpayer and the legal representative, as well as information regarding the subject of the discussion.
Therefore, the preparation of advance pricing agreements can generate advantages for the companies that prepare them, however, an extensive analysis of the transactions between related persons for which the consent is requested by specialized tax consultants in the field of transfer pricing is necessary in order to obtain an agreement approved by the tax authorities.
Junior Transfer Pricing Consultant