On August 22nd 2019, Romania transposed the EU directive 1852/2017, which establishes a system that promises the elimination of misunderstandings between EU Member States regarding the application of the provisions of bilateral treaties and other international agreements of conventions.
Thus, the companies will have through these new provisions an instrument that will give them a high degree of confidence that there will be no such misunderstandings and finally that they will not have to pay taxes for the same income or profit in two different EU Member States. The provisions of the new system will force EU Member States to reach a compromise in maximum 3 years.
The previous procedures provided by the bilateral treaties and the conventions to avoid double taxation did not ensure the effective resolution of such conflicts or misunderstandings in a timely manner in all cases, as they had deficiencies in taxpayers’ access to procedures, homogeneity in approaches, duration and conclusion. their effectiveness.
Steps to be considered:
After a formal request is submitted, EU Member States will have the right to reach an agreement in an amicable settlement procedure, and if they fail to reach such an agreement, taxpayers will be able to request additional initiation of an alternative procedure to resolve double taxation disputes.
The initial complaint may be filed within 3 years from the first notification of the action that had or will result in double taxation.
The competent authorities of each of the Member States concerned shall take a decision on accepting or rejecting the complaint within six months of receiving it.
If the competent authorities of the Member States concerned accept a complaint, they shall endeavor to reach a consensus and eliminate double taxation through the amicable settlement procedure within a maximum of 2 years from the acceptance of the complaint, which may be extended. at most another year.
If the tax authorities of the Member States involved do not reach an agreement within the maximum 3 years, the taxpayer will have the right to request the initiation of an alternative procedure for the resolution of double taxation disputes that will guarantee the resolution of double taxation problems.
The benefits brought by the new norms to the Romanian companies:
Any dispute arises in cases where the taxpayer considers that from the measures taken by one or two EU Member States, double taxation in one of the Member States of the European Union can or will be definitively resolved, in practice, in maximum term of 3 years within the amicable procedure to which can be added maximum 270 days for the alternative dispute resolution process.
Until the transposition of this directive, if the tax authorities made adjustments of transfer prices for the transactions carried out with another EU entity, in most cases the taxpayers paid the tax on additional profit in Romania but due to the cumbersome and unclear procedures the reimbursement of the surplus is not required of income tax paid in the other EU Member State.
Taxpayers should keep in mind that when transposing this directive, when making significant transfer pricing adjustments in relation to another EU entity, they have a clear and unitary procedure at hand which they can subsequently ask Member States to understand. between them on the amount acceptable to both sides of these adjustments and depending on the negotiations between the states to request the reimbursement of the additional tax paid in the other EU Member State.
Thus, the new system offers a much higher degree of fiscal security for those companies and individuals facing double taxation issues and which calls for the administrative procedure of amicable agreement to be initiated so as to force EU member states to reach a compromise.
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