An APA is an arrangement that determines, in advance of related party transactions, an appropriate set of criteria (e.g. method, comparables and appropriate adjustments thereto, as well as critical assumptions as to future events) for the determination of the transfer prices for those transactions, over a fixed period of time. APAs are formally initiated by a taxpayer and require negotiations between the taxpayer, one or more related parties, and one or more tax administrations. APAs are intended to supplement the traditional administrative, judicial and treaty mechanisms for resolving transfer pricing issues. An APA may cover all a taxpayer’s transfer pricing issues or may provide flexibility to the taxpayer to limit the APA request to specified affiliates and intercompany transactions.
According to the JTPF, 390 EU and non-EU APAs were in force in 2012. In the same year, 680 APA requests were made, out of which 561 came from EU countries. The numbers show increased interest from taxpayers in APA programs, especially in countries with experience in advance tax rulings, such as the Netherlands, Luxembourg, the UK, Germany, France, Italy and Spain.
Turning to Central and Eastern Europe, the Czech Republic, Slovakia and Hungary had a significant number of APAs in force at the end of 2012 and this can be interpreted as evidence that the local APA programs are easy to access by taxpayers. On the other hand, in Bulgaria, Cyprus, Greece, Latvia, Malta and Slovenia, there is not yet any legislation to allow APA programs.
The table below shows the number of APA requests received by EU countries in 2012.
Liviu Gheorghiu, Tax Assistant Manager, KPMG Romania, comments that “in Romania the APA procedure is regulated by Art. 42 of the Fiscal Procedure Code which states that taxpayers which carry out transactions with related parties can obtain an APA detailing the conditions and methods to determine their transfer prices within a given period of time”. The APA can be either unilateral (concluded directly with the Romanian tax authorities) or bilateral (involving at least two or more tax authorities).
The APA program is developing slowly in Romania, with only 3 APA requests received by the tax authorities in 2012 and a total of 4 APAs in force at the end of that year. There are several reasons for this situation, including the lack of experience of the Romanian authorities in these procedures.
According to Teodora Alecu, Tax Director, KPMG Romania; “Romanian taxpayers are reluctant to apply for an APA because the process can prove to be very long and I have seen that the authorities frequently request a significant volume of information and documents from the taxpayer, presenting a major disincentive.”