New APA requirements in Romania. Is this the right time for groups to apply?

Although Romanian legislation has long allowed taxpayers to obtain an APA, they had no protection until the APA was approved and, in some cases, were subject to local tax audits for the same period covered by the APA request.

Since APAs were available only for future transactions, taxpayers had to apply new or updated pricing methodologies to the covered transactions, creating both economic and bureaucratic challenges.

The changes to the APA legislation, driven by Romania’s OECD accession process, create new opportunities for multinational groups operating in Romania to agree on their pricing methodology with the local tax authorities.

What is the APA?

In a nutshell, an APA is a formal arrangement between a taxpayer and one or more tax authorities that establishes appropriate criteria for determining transfer prices for controlled (intra-group) transactions over a defined period. In Romania, taxpayers can apply for both unilateral and bilateral APAs.

APA process and timeline

The process for obtaining an APA begins with a preliminary discussion between the taxpayer and the tax authority, focusing on the case and, in particular, the transactions covered by the APA request.

Subsequently, the APA request submitted by the taxpayer will be reviewed by the tax authorities, who may request additional clarifications and information.

Once the APA is issued, the taxpayer must submit an annual report demonstrating compliance with the agreement’s provisions during the covered period.

In practice, obtaining a bilateral APA usually takes longer, depending on the working relationship between the two tax authorities, whereas a unilateral APA can theoretically be issued by the Romanian authorities within 12 months of the request.

Benefits of obtaining an APA

Taxpayers who apply for APAs choose to voluntarily cooperate with the tax authorities and provide detailed upfront information about the intra-group transactions, in order to transparently negotiate the taxable revenue generated in Romania.

An approved APA ensures that the pricing methodology applied to the covered transactions is accepted by the tax authorities, fully eliminating the risk of transfer pricing adjustments and related disputes. This provides financial and business certainty for both the taxpayer and the group.

In addition, taxpayers are no longer required to prepare the annual transfer pricing report for the transactions and period covered by the APA.

Changes to the Romanian APA legislation

The main change is the introduction of roll-back APAs, which can be applied retroactively for up to five fiscal years. This allows an APA to cover transactions conducted under similar conditions during the period preceding the application.

This allows taxpayers to gain greater certainty regarding their fiscal position for past transactions while mitigating the risk of future transfer pricing adjustments. Once the APA request is approved, companies can agree on their pricing methodology for a period of up to 10 years.

Furthermore, if an APA request has been submitted and is under review when a tax inspection begins, the tax authorities can and should suspend the inspection until a final agreement on the APA is reached. This protective measure ensures that the pricing methodology covered by the APA request cannot be challenged by tax inspection teams.

Which type of companies should apply for APAs

Romanian companies that are part of multinational groups and engage in high-value transactions involving goods, services, royalties, or financing with related parties should consider applying for an APA.

Limited-risk companies, including manufacturers, distributors, and captive entities that perform all their activities for the benefit of the group, are also strong candidates for the APA process, as their profitability is typically determined by the group.

Companies that have previously been audited by the Romanian tax authorities also have the opportunity to benefit from the updated legislation and agree on their pricing methodology.

Given the improved APA legislation and the growing experience of the Romanian competent authorities with the approval process, it is an opportune time for taxpayers to assess the benefits of applying for an APA.