Changes to cross – border arrangements

Law no.123/2021 regarding the approval of the Government Ordinance no. 5/2020 for the amendment and completion of Law no. 207/2015 on the Fiscal Procedure Code was published in the Official Gazette no. 476 of May 7, 2021, with applicability of May 10, 2021.

According to the recently approved normative act, in case there are several intermediaries, the obligation to report the information regarding the cross-border arrangement that is the subject of the reporting belongs to all the intermediaries involved in the same cross-border arrangement that is the object of the reporting.

Any of the intermediaries involved in the same cross-border arrangement that is the subject of reporting may be exempted from the reporting obligation to ANAF if it has conclusive evidence, beyond any doubt, that the information has already been reported to ANAF or to the competent authority of another Member State by another intermediary.

Relevant taxpayers who have conclusive evidence that any information has already been reported to ANAF or to the competent authority of another Member State by another relevant taxpayer are exempted from fulfilling the reporting obligation.

We recall that, according to the Code of Fiscal Procedure (CPF), the cross-border arrangement is an arrangement involving either more than one Member State or a Member State and a third country, if at least one of the following conditions is met.:

  1. not all participants in the arrangement are resident for tax purposes in the same jurisdiction;
  2. one or more participants in the arrangement have at the same time the fiscal residence in more than one jurisdiction;
  3. one or more participants in the arrangement carry out an economic activity in another jurisdiction through a permanent establishment located in that jurisdiction, and the arrangement constitutes all or part of the activity of that permanent establishment;
  4. one or more participants in the arrangement carry out an economic activity in another jurisdiction without having fiscal residence or without establishing a permanent establishment in that jurisdiction;
  5. such an arrangement has a possible impact on the automatic exchange of information or on the identification of the actual beneficiaries.

A cross-border arrangement that is the subject of the report refers to any cross-border arrangement that includes at least one of the distinctive signs established in Annex no. 4 of the Fiscal Procedure Code.

A distinctive sign represents a characteristic or property of a cross-border arrangement that presents an indication of a potential risk of avoidance of fiscal obligations, as provided in annex no. 4 of the CPF.

 

Categories of distinctive signs of cross-border arrangements – amendments:

 

a. Specific marks related to the main benefit test

A cross-border arrangement whereby a participant in that arrangement takes artificial measures consisting of the acquisition of a loss-making company, the interruption of the company’s main activity and the use of the company’s losses to reduce tax liabilities, including by transferring such losses to another jurisdiction or by accelerating the use of these losses

The old provision, “a cross-border arrangement by which a participant in that arrangement takes artificial measures, thereby including artificial cross-border transactions defined according to Article 11 paragraph (3) of Law no. 227/2015 on the Fiscal Code, with amendments and completions subsequent losses, which consist in the acquisition of a loss-making company, the interruption of the company’s main activity and the use of the company’s losses to reduce tax liabilities, including by transferring such losses to another jurisdiction or by accelerating the use of those losses.

A cross-border arrangement that includes circular transactions that result in a round-tripping of funds, namely through the involvement of intermediaries without any other primary business purpose or through transactions that are offset or canceled or have other similar characteristics .

The old provision: “A cross-border arrangement that includes circular transactions that result in money laundering, namely by involving entities brought without any other primary commercial purpose or by transactions that are offset or canceled or have other similar characteristics.”

b. Specific distinctive signs associated with cross-border transactions

A cross-border arrangement involving deductible cross-border payments made between two or more associated undertakings, if at least one of the following conditions is present:

  1. a) the recipient is not a tax resident in any jurisdiction;
  2. b) although the recipient is a tax resident in a jurisdiction, that jurisdiction:

  • does not impose a profit tax or imposes a profit tax at a rate equal to zero or less than 1%;or
  • is included in a list of jurisdictions of third countries which have been assessed by the Member States, collectively or within the Organization for Economic Co-operation and Development, and have been classified as non-cooperating; a) the payment benefits from a full tax exemption in the jurisdiction in which the recipient is a tax resident; b) the payment benefits from a preferential fiscal regime in the jurisdiction in which the recipient is a fiscal resident.

 

Old provision: A cross-border arrangement involving deductible cross-border payments made between two or more associated undertakings, if at least one of the following conditions is present:

  1. the recipient is not a tax resident in any jurisdiction;
  2. although the recipient is a tax resident in a jurisdiction, that jurisdiction does not impose a profit tax, imposes a profit tax at a rate equal to zero or less than 1% or is included in a list of jurisdictions ofthird countries which have been evaluated by the Member States, collectively or within the Organization for Economic Co-operation and Development, and have been classified as non-cooperating;
  3. c) the payment benefits from a full tax exemption in the jurisdiction in which the recipient is a tax resident;
  4. d) the payment benefits from a preferential fiscal regime in the jurisdiction in which the recipient is fiscal resident.

 

 c. Specific distinctive signs regarding transfer prices.

 

A cross-border arrangement involving the transfer of intangible assets difficult to assess, according to the meaning given to this notion by the Transfer Pricing Guidelines issued by the Organization for Economic Cooperation and Development for multinational companies and tax administrations, as subsequently amended and supplemented.

A cross-border arrangement involving a cross-border transfer of functions and / or risks and / or assets within a group, if the expected annual profits, determined before calculating the impact of interest and taxes on them (EBIT), for the period of 3 years subsequent to the transfer, by the transferring entity […] are less than 50% of the annual EBIT expected by that transferring entity  if the transfer had not taken place.

Old provision: “A cross-border arrangement involving a cross-border transfer of functions and / or risks and / or assets within a group, if the expected annual income, determined before calculating the impact of interest and taxes on them (EBIT), in the period of 3 years following the transfer, by the entity / entities between which the transfer is made, are less than 50% of the annual EBIT expected by this entity / entities that perform the transfer […] if the transfer had not taken place ”.

 

Legal basis:

Fiscal Procedure Code of 2015 (Law no. 207/2015), with subsequent amendments and completions;

OG 5/2020 for the amendment and completion of Law no. 207/2015 on the Fiscal Procedure Code;

Law 123/2021 on the approval of Government Ordinance no. 5/2020 for amending and supplementing Law no. 207/2015 regarding the Fiscal Procedure Code.