APA and MAP Procedures Assistance
What options do we have if we do not receive a favorable response to our appeal?
How can we avoid disputes with tax authorities in the future?
Apart from the action in court that can be accessed by taxpayers who have received a negative decision to resolve the appeal, the amicable procedure (MAP or Mutual Agreement Procedure) is another tool available to companies that have received transfer pricing adjustments in the case of cross-border transactions to avoid double taxation.
For example, what was additionally imposed in Romania as a result of a tax inspection can be deducted from the calculation of the taxable base in the tax jurisdiction with which the local taxpayer at the level of which the adjustment was made concluded cross-border transactions. So, at group level, the impact of the adjustment made by the local authorities will be zero (except for penalties and late interest and considering the minimum 2-3 year time period during which the correspondence adjustment will be made).
Currently, domestic legislation mentions two forms for conducting the amicable procedure:
- The amicable procedure initiated on the basis of the double taxation avoidance conventions concluded by Romania with other states and
- The amicable procedure carried out on the basis of the Convention on the elimination of double taxation in relation to the adjustment of the profits of associated enterprises (90/436/CEE) – the Arbitration Convention applicable only to the Member States of the European Union.
A taxpayer may request the initiation of an amicable procedure under the double taxation convention, if the respective treaty contains provisions to this effect. In accordance with the OECD Model Convention and the Arbitration Convention, the affected person can initiate the amicable procedure within 3 years from the first notification of the action resulting in double taxation.
If the bilateral double taxation conventions contain different provisions regarding the 3-year deadline, those provisions will be applied.
The request to initiate the amicable procedure can be submitted regardless of whether the person affected or to be affected by double taxation has resorted to the remedies available under domestic law, through an administrative and judicial procedure!
In the event that the taxpayer at the level of which the adjustment was made, simultaneously resorted to the remedies available under domestic law, the term for the amicable procedure may be suspended during the administrative or judicial procedure until a final and irrevocable decision is issued.
In situations of double taxation where the affected person has requested the initiation of the amicable procedure based on the Arbitration Convention, in the situation where the tax administrations involved do not reach an amicable agreement within 2 years from the initiation of the case, the person affected by double taxation may request initiation of arbitration proceedings.
More details about the application for the initiation of the amicable procedure and what it must include here.
Another tool available to taxpayers to avoid tax audits and adjustments associated with transfer pricing is the advance pricing agreement.
APA (Advance Pricing Agreement) represents the fiscal administrative document issued by ANAF in order to resolve a taxpayer’s request, regarding the establishment of the conditions and methods in which transfer prices are to be determined, during a fixed period, in the case of future related party transactions.
Information on the request procedure and the necessary documentation is contained in the ANAF President’s Order no. 3735/2015 for the approval of the procedure for issuing and amending the advance price agreement, as well as the content of the request for issuing and amending the advance price agreement.
The procedure for the APA is initiated by the taxpayer, by submitting an application for the issuance of the APA, which can be preceded by a preliminary discussion with the tax authority, at the request of the taxpayer.
The agreement (APA) can be unilateral, bilateral or multilateral and can be issued for a period of up to 5 years. It is enforceable and binding on the tax authorities, as long as the terms and conditions in which it was issued are respected. To assess compliance with the conditions, the taxpayer must submit an annual report to the tax authority.
The deadline for issuing an advance price agreement is 12 months in the case of a unilateral agreement and 18 months in the case of a bilateral or multilateral agreement. In the case of large taxpayers and for a consolidated value of annual transactions of over 4 million EURO, the fee for issuing an APA is 20,000 Euro, and the fee for its modification is 15,000 Euro. For the rest of the taxpayers, the fee for issuing it is 10,000 Euros, respectively 6,000 Euros for its modification.
More data about APA – here.
The most recent projects in which Cabot Transfer Pricing has provided or provides MAP and APA assistance services are presented here.