In the context of globalisation and an increase in cross-border transactions, double taxation has become a major problem for multinational groups operating in Romania. Transfer pricing audits carried out by the Romanian tax authorities result in significant transfer pricing adjustments at the level of Romanian taxpayers, leading to the taxation of the same income in two states.
Faced with this, Romanian taxpayers have several legal instruments available to tackle and solve the problem of double taxation.
Options to address double taxation
The simplest and easiest option for Romanian taxpayers is to challenge the results of the tax audit. The process involves filing an appeal, and as these are often settled in favour of the tax authority, this is frequently followed by a court action that will end with a final decision settling the dispute with the Romanian authorities.
However, a court decision does not guarantee the elimination of double taxation, unless the taxpayer is successful in challenging the results of the tax inspection before the court.
Thus, another option is to file a complaint based on a mutual agreement procedure (MAP) to eliminate double taxation, such as the following:
Double tax treaties concluded by Romania with other states. However, this has certain disadvantages, the main one being the difficulty of forcing the authorities to reach a solution that eliminates double taxation at group level.
The Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises, 90/436/EEC (EUAC). This procedure should ensure the elimination of double taxation, as it also provides for arbitration, but it has the disadvantage of uncertainty about the terms of the procedure and may lead to dilemmas for the taxpayer, which has to choose between the national court and the EUAC procedure, and such actions cannot proceed simultaneously (except up to a certain point).
Council Directive (EU) 2017/1852 on tax dispute resolution, transposed by national law. This extends the subject matter and regulations compared with the EUAC and allows the Court of Justice of the EU to intervene in the interpretation of the provisions.
According to the latest statistics published by the OECD on MAPs in Romania, the number of requests on transfer pricing rose from 16 in 2021 to 46 in 2022. This significant increase may reflect greater awareness of tax rights or legislative changes that facilitate the use of this procedure (which otherwise reflects the global trend, where, according to a 2024 EY global study, 46% of respondents consider MAPs a very useful mechanism in eliminating double taxation).
Outcome statistics reveal the challenge for taxpayers
Although 37 cases were closed during 2022, it is worrying that four of them were withdrawn by the taxpayer and the Romanian tax authorities considered that "the objection is not justified" in 33 cases. Thus, it seems that an agreement fully or partially eliminating double taxation was reached in none of these cases.
Given that in recent years the Romanian tax authorities have intensified transfer pricing audits and, according to the performance reports published, assessed an additional tax base of €173 million for 2022 and €188 million for 2023, there is a question over to what extent Romanian taxpayers have real access to these international procedures that should eliminate double taxation.
Recent experience in Romania has shown us the necessity of intervention by the courts, which seem to be alone in having the capability of facilitating the access to MAPs that is blocked by the Romanian tax authorities and allowing the case to be resolved by an arbitration commission, where a consensus was not reached. It is of fundamental importance for Romanian taxpayers to be well informed about their rights and options, developing an appropriate strategy and solid arguments to increase the chances of success in eliminating double taxation.
The future of tax disputes
In Romania, as well as internationally, tax disputes are expected to intensify. Companies investing now in reforming their transfer pricing policies will be better equipped to effectively address potential disputes with the tax authorities and justify their current tax position.
The impact of technology and digitalisation is a significant topic, especially in an increasingly interconnected economic landscape. By introducing digital systems, the Romanian tax authorities could simplify and speed up MAPs, and facilitate better collaboration with taxpayers, while also increasing confidence in the tax system. For example, the use of online platforms through which taxpayers can submit the necessary documents and track the status of their complaint in real time could increase transparency and lead to predictability regarding the settlement of requests.
Thus, technology can facilitate a more open and dynamic dialogue between taxpayers and the tax authorities. The integration of technology into the tax process could not only simplify the process but also contribute to greater predictability and efficiency of the Romanian tax system.
