What is the Advance Tax Ruling, who benefits from it, and why are improvements necessary?

According to the Romanian tax legislation, as provided by the Fiscal Procedure Code, taxpayers can obtain from the competent authorities (in this case, the Ministry of Finance) an advance tax ruling for the regulation of a future situation that the taxpayer anticipates will need to be resolved. In other words, the Advance Tax Ruling (ATR) can be requested, for a fee, from the tax authority, and the application for issuing the tax ruling is submitted for a single main tax situation that will occur at a later date.

By Adrian Rus, Partner, Leader of the Transfer Pricing Department, EY Romania

In theory, the Advance Tax Ruling is designed to assist taxpayers; however, in reality, the regulations of Romanian legislation are susceptible to significant improvements compared to the current provisions contained in OMF 1178/2023.

Key points that the business environment considers should be significantly improved relate primarily to the criteria under which the National Agency for Fiscal Administration (ANAF) can consider or reject such a request, as well as the situations in which the Ministry of Finance can decide to reject the Advance Tax Ruling. This creates a significant imbalance between the rights/obligations of the tax authorities and the taxpayer.

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Everything revolves around the purpose/coverage area of the Advance Tax Ruling and the actual obtainment of an advance tax solution. Therefore, it is important not only to have a legislative framework, which is currently less attractive, but also a more accessible applicability for companies.

Among the aspects that could be significantly improved are substantive and procedural aspects of the mentioned order. Examples include issues related to the non-inclusion of local taxes in the scope of the Advance Tax Ruling, various procedural aspects, including the conditions under which the request for the Advance Tax Ruling is accepted or rejected, as well as the enforceability and revocation of the Advance Tax Ruling by the tax authorities.

What is the mechanism of the Advance Tax Ruling?

The individual advance tax ruling is an administrative act issued by the central tax authority (Ministry of Finance) to resolve a taxpayer’s request regarding the regulation of a future tax situation.

According to the provisions of the Fiscal Code, the individual advance tax ruling is enforceable and obligatory for the tax authority only if the terms and conditions have been respected by the taxpayer. The deadline for resolving the request for issuing the individual advance tax ruling is up to six months, and obtaining an individual advance tax ruling is subject to a fee, as follows: equivalent of 5,000 euros for large taxpayers and non-resident taxpayers, and the equivalent in Romanian Lei of 3,000 euros for other categories of taxpayers.

The request must include: • a detailed description of the specific tax situation for which the advance ruling is requested • arguments and references to the application of tax legislation and international tax conventions • relevant documents supporting the request • references to applicable tax legislation and administrative interpretations supporting the request • the conclusions requested by the taxpayer.

OMF 1178/2023 reiterates the provisions regarding the Advance Tax Ruling, but there are still several aspects that could be greatly improved to effectively support taxpayers, both in form and substance.

Fiscal predictability – mandatory for a stable business environment

To ensure the usefulness of the Advance Tax Ruling, it would be necessary to expand the scope of covered taxes, for example, to make obtaining the Advance Tax Ruling a common practice for taxpayers. On the other hand, although the legislation in this regard has existed in Romania for some time, obtaining an advance tax ruling is still a challenging and bureaucratic project.

Although all spheres – business, academia, and even ANAF – speak about fiscal predictability as an absolute requirement for a functional economy, which could be ensured by the ATR procedures, obtaining it is still very difficult for a taxpayer. The fact that obtaining an individual advance tax ruling incurs a relatively significant issuance fee is not the most important aspect compared to others mentioned in the order.

Fiscal predictability, along with legislative predictability, takes precedence by ensuring fair tax treatment for a taxpayer. If a taxpayer desires to obtain a solution to resolve a future tax situation (anticipated through the business plan), it is much more important than the amount paid to ANAF to ensure the smooth operation of their business in a stable fiscal environment.

The signals and proposals from the Romanian business environment are extensive and support the clarification, clarity, and modification of certain points in the current provisions of OMF 1178, as well as the expansion of the scope of applicability for the Advance Tax Ruling. Equally important are the situations in which the Ministry of Finance can decide to reject the Advance Tax Ruling, which creates a significant imbalance between the rights/obligations of the tax authorities and the taxpayer.

If the current regulations regarding the Advance Tax Ruling are not improved regarding the aspects mentioned above, entrepreneurs and companies, discouraged by the current criteria for obtaining an advance tax ruling, may give up on this instrument designed to support their business decisions. Thus, the Advance Tax Ruling remains only on paper, without practical applicability in terms of ensuring the fiscal predictability needed in Romania.