Accelerating the settlement of amicable settlement procedures (MAP): priority for improving the Romanian tax system in the context of OECD accession efforts

Authors: Adrian Rus, Partner, Transfer Pricing Leader, EY Romania, and Emanuel Băncilă, Partner, Tax Litigation Practice Leader, Băncilă, Diaconu și Asociații SPRL

Romania faces significant challenges in managing and resolving international tax disputes on transfer pricing, against the backdrop of globalization and international economic integration, alongside European countries, but also globally. Advance Pricing Agreements (APAs) are essential tools in managing tax risks related to transfer pricing. They are concluded between taxpayers and tax authorities and establish in advance the methodology for determining transfer prices for cross-border transactions between affiliated entities. APA procedures provide tax certainty and help avoid subsequent tax disputes. Apart from the use of Advance Pricing Agreements (APAs) as a means of preventing tax disputes, when it comes to resolving these disputes, one of the most effective ways is to accelerate the settlement through Mutual Agreement Procedures (MAP). This aspect becomes even more important in the context of Romania’s efforts to join the Organization for Economic Cooperation and Development (OECD).

OECD MAP and APA statistics for 2023, published on the organization’s official website, show several major trends, as follows: • MAP “inventories” (cases remaining unresolved from one year to the next, existing at the end of 2023), per total reporting jurisdictions, decreased by 3.8% compared to 2022.

New MAP cases on transfer pricing decreased by 16%, while other cases increased slightly, by 2.8%.

• The number of MAP cases closed reached a record high, with a 7.4% increase in transfer pricing cases and an increase of almost 16% in other cases.
• The average time to resolve MAP cases increased to 27.3 months, with an average of 32 months for transfer pricing cases and 23.4 months for other cases. Prioritization of older cases could explain this increase.
• Approximately 74% of MAP cases in 2023 were fully resolved, compared to 2022, and 4% of cases were closed without agreement, possibly due to the closure of long-standing unresolved cases.
• Over 52% of open MAP cases are less than two years old, while 24% are more than four years old, hence the need to prioritize resolving old cases. For the first time, 46 jurisdictions with bilateral APA programs reported APA statistics, indicating a total of over 4,000 cases in inventory, an average closure rate of approximately 25%, and an average of 36.8 months to reach an APA agreement.

The Importance of MAPs in International Taxation and the Situation in Romania

The Mutual Agreement Procedure (MAP) is an essential mechanism for resolving international tax disputes, which mainly arise from the application of double taxation treaties. MAPs offer tax authorities the opportunity to initiate a procedure through which to reach an agreement on the correct taxation of profits between jurisdictions, from cross-border transactions carried out between affiliated parties of a multinational group, thus avoiding double taxation and ensuring a correct application of tax treaties by correctly allocating profits between various jurisdictions.

Managing transfer pricing disputes means, first of all, not only in Romania, proactive planning and risk assessment, good transfer pricing documentation and alignment with business operations. We are also talking about testing the actual profitability of transactions, access to more information from more sources, proactively concluding APA agreements (unilateral or bilateral), as well as establishing clear and transparent mechanisms for resolving potential disputes.

Romania, like other countries, faces challenges in terms of the duration and efficiency of resolving MAPs. Procedures can often be lengthy and complex, which can lead to fiscal uncertainty and double taxation for taxpayers, but also to potential losses of tax revenues for the state. On the other hand, the lack of resources and specialized expertise within the tax authorities can further complicate the process. In Romania, in 2023, 50 cases were registered with ANAF, three times more than in 2021, with only seven requests being resolved, four of which were by taxpayers withdrawing them. Also, of the three resolved requests, we do not know how many of them were resolved by completing the entire procedure (including the arbitration phase) or how many of them were closed due to the absence of a double taxation case.

The legitimate question of the business environment is to what extent Romanian taxpayers have real access to the amicable procedure, because this is not short-term, but the goal is noble and must be followed. However, we know that ANAF is making efforts to reduce bureaucracy and the large number of procedures, which would be in line with OECD practices. However, there are a significant number of cases pending in the courts requesting that ANAF be required to complete the MAP procedure, some solutions being definitive in this regard. We draw attention to the fact that starting with the 2018 fiscal period, taxpayers can even address the Court of Justice of the European Union regarding the interpretation of the application of this procedure.

The background on which this fiscal segment is being developed is that of the efforts to join the OECD, which represents a strategic objective for Romania, given the economic and political benefits it can bring. In tax matters, the organization promotes high standards of transparency and fiscal efficiency, and accelerating the resolution of MAPs is a crucial aspect in this context.

According to its standards, member countries must ensure an efficient and rapid mechanism for resolving tax disputes regarding transfer pricing, in order to maintain the trust of taxpayers and international partners. Last but not least, the increase in the number of amicable procedures leads to the relief of courts from complex disputes regarding double taxation, such as the transfer pricing issue with which the national court is not familiar.

Possible measures to improve the resolution of MAPs in Romania Without claiming to be exhaustive, the following can constitute a good starting point in this regard.

• Increasing institutional capacity, through training and specialization of personnel involved in resolving MAPs, participation in international courses and collaboration with experts from other jurisdictions.
• Implementing digital solutions for the management and monitoring of MAPs, which will significantly reduce the time required for their resolution. Digital platforms will facilitate the exchange of information between tax authorities and taxpayers, ensuring transparency and efficiency.
• Collaboration with other EU countries and globally, through which Romania can benefit from partnerships and exchanges of good practices with other OECD member countries.
• Permanent adaptation of the national legislative framework, in line with international best practices and OECD recommendations.
• Processing the acceptance of this procedure with celerity, so that the taxpayer has the opportunity to address the national court in the event that the MAP procedure is refused by one of the states involved.

The complicated economic context that the world’s economies have been going through in the last five years, since when there has been talk of “superimposed crises” or “crisis within crises”, requires the application of the best tools to streamline the activities of companies, but also the involvement of tax authorities to support this approach. Thus, in Romania too, ANAF believes that advance pricing agreements not only provide predictability to economic operators, but can significantly reduce the number of tax inspections on transfer pricing. In fact, ANAF representatives recently reiterated that they will prioritize the development of the internal structure dealing with APA and the adaptation of Romanian legislation to OECD requirements, amid Romania’s intensified accession efforts.

Accelerating the resolution of MAPs should be a strategic priority for improving the Romanian tax system, being a sine qua non in the context of OECD accession efforts. By increasing institutional capacity, digitizing processes, international collaboration and reviewing legislation, Romania can ensure a predictable and fair tax environment regarding the application of transfer pricing rules for the business environment.