Moldova’s transfer pricing laws align with the Guidelines set by the Organization for Economic Co-operation and Development (OECD). They are incorporated within the Tax Code of the Republic of Moldova.
Arm’s Length Principle
The Moldovan Tax Code has included formal transfer pricing rules effective January 1, 2024, which incorporate the use of the arm’s-length principle under the OECD Transfer Pricing Guidelines. This principle provisions that related party transactions (controlled transactions), are to be executed as if they were carried out between independent parties at market prices. Based on regulations, the arm’s length principle applies to transactions between related parties if the total value of such transactions exceeds 1 million Moldovan lei in a fiscal year (excluding VAT).
Related Party Definition
In Moldova, for transfer pricing purposes, related parties encompass not only immediate family members, such as spouses and relatives up to the second degree, but also parents, children, siblings, and grandparents. And, a person is also regarded as related to a company if such a person holds 25% of the voting rights or more with respect to the company’s shares or exercises effective control over the company. Equally, two companies are regarded as related if one of them holds at least 25% of shares with voting rights in the other or if each of them holds 25% or more and all are controlled by one person.
Transfer Pricing Methods
The methods that can be used to determine the arm’s length price in Moldova are based on the transfer pricing methods recommended by the OECD TP Guidelines:
- Comparable Uncontrolled Price Method
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method
- Profit Split Method
The selection of the method is based on the most appropriate principle. Certain factors are assessed, including the nature and functions of the controlled transaction, usage of reliable data (like transactions between independent parties), taxpayer’s documents, the similarity of the controlled and independent transactions, and the specific circumstances of the case.
Comparability Analysis
An important part of the transfer pricing compliance is the comparability analysis. Comparability analysis helps make sure prices between related companies are fair and like prices between independent companies. In Moldova, this analysis is based on several key factors: the characteristics of the goods or services involved, the functions performed, risks taken, and assets used by the parties in the transaction (called a functional analysis), the contractual terms, the economic conditions, and the business strategies of the parties. The analysis also finds a price range using data, like the lowest 25%, highest 25%, and middle price, to see if the prices are fair. Based on this, the best method to set transfer prices is chosen.
Documentation Requirements
Effective January 1, 2024, Moldovan taxpayers conducting business with related parties may be required to prepare a local file per OECD requirements. This file contains specific data about the taxpayer’s business, related entities, transactions, pricing, the rationale for the selected methodology, and evidence substantiating compliance with arm’s length pricing. If the aggregate value exceeds 50 million lei annually, the local file is due within six months after year-end. For transactions valued between 20 to 50 million lei, the file is only compulsory if there is a specific request from the tax authority, in which case it must be provided within two months. The local file is to be prepared in Romanian, or if prepared in other languages (except English or Russian), must be accompanied by a Romanian translation.
Alongside the local file, Moldova mandates taxpayers to fill out TP information forms if their related-party transactions reach or exceed 20 million lei within a fiscal year. This form is to be submitted by the 25th of the third month following the close of the fiscal year. It serves the purpose of summarizing transfer pricing activities and must be retained for six years. Not submitting the necessary documents (TP forms or local files) may attract penalties starting from 30.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
Moldova’s Tax Code allows businesses and individuals to ask the tax authority (State Tax Service) for an advance tax ruling. This means they can request a written answer about how tax laws will apply to a specific situation or future transaction before it happens, so they can be sure they’re following the rules.
Approach to Transfer Pricing Audits
Taxpayers who have related-party transactions above certain thresholds must prepare and provide transfer pricing documentation if requested by the tax authorities. During audits, if prices do not follow the arm’s length principle (market prices), tax authorities can adjust the prices, which may increase taxable income and lead to extra taxes and penalties.
Penalties
The Moldavian Tax Code does not provide specific penalties for improper pricing practices. Instead, penalties under the declaration of taxable income are applicable.
A taxpayer who submits information regarding related-party transactions after the stipulated deadline incurs a penalty of 30,000 to 50,000 lei. It has been proposed that fines of up to 90,000 lei for incorrect information leading to reduced tax obligations will come into effect in 2028, with an initial outlay of 60,000. Not providing this information incurs an even greater penalty of 100,000 to 150,000 lei. Similar fines apply for late, incorrect, or missing transfer pricing files. Beginning January 1, 2025, Moldova will introduce advance price agreements (APAs), where the tax authorities will agree in advance on the methods and conditions for setting transfer prices in certain related-party transactions.
Taxation at a Glance
Moldova’s tax system is mainly governed by the Tax Code and the annual State Budget, along with regulations issued by the government, Ministry of Finance, Customs Service, and other authorities.
The currency of Moldova is the leu. The official name of the Moldova tax authority is the State Tax Service (STS).
The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 12% |
VAT | 20% |
Withholding tax on dividends to non-residents | 6/15% |
Withholding tax on interest to non-residents | 12% |
Withholding tax on royalties to non-residents | 12% |
Our firm provides our clients with comprehensive assistance in their transfer pricing needs globally. To contact a team member, please click here.
