Are you considering doing business in Romania and wondering about the complexities of the tax system? An advance pricing agreement (APA) could be the solution to your worries.
An APA is a tax ruling issued by the Romanian tax authorities that sets out a pricing method for transactions between related parties. This agreement is meant to provide certainty and avoid disputes between the taxpayer and the tax authorities over transfer pricing.
Transfer pricing refers to the prices at which services, goods or intellectual property are sold between related entities, such as subsidiaries of the same parent company. This can be a tricky area for tax compliance, and without clear guidance, it can lead to tax disputes and penalties.
An APA can be a bilateral or unilateral agreement, meaning it can be between the taxpayer and the Romanian tax authorities or between Romania and another country`s tax authorities. The agreement sets out a period of time, usually between 3-5 years, during which the agreed-upon pricing method is used.
One of the benefits of an APA is that it provides certainty for both the taxpayer and the tax authorities. The taxpayer knows that they are complying with the tax regulations and won`t face disputes or audits related to transfer pricing, and the tax authorities have the assurance that the taxpayer is paying the appropriate amount of tax.
To obtain an APA, the taxpayer must submit an application to the Romanian tax authorities, along with supporting documentation and evidence of compliance with the transfer pricing rules.
It`s important to note that an APA is not a tax exemption but rather a tax ruling that sets out the pricing method for transactions between related parties. This means that the taxpayer is still required to pay taxes on the transactions, but the APA provides clarity on how those taxes are calculated.
In conclusion, if you`re considering doing business in Romania and have related party transactions, an APA can provide certainty and avoid disputes over transfer pricing. Contact a tax expert to see if an APA is right for your business.