Transfer pricing legislation in the Republic of Moldova

Mon 06 Nov 2023

For the first time, the Republic of Moldova has introduced the Tax Code provisions on transfer pricing and the arm’s length principle. These measures are expected to apply from 1 January 2024, with an aim to bring local legislation closer to both the EU law and the recommendations of the Organisation for Economic Co-operation and Development (OECD).

Taxpayers of the Republic of Moldova must respect the arm’s length principle in transactions with related parties. The legislation applies to transactions with both non-resident and resident affiliates.

The definition of related parties is in line with OECD principles. Moreover, for individuals, affiliation is determined based on personal ties, including spouses and relatives up to the second degree. For companies, affiliation is established based on direct or indirect ownership of at least 25% of the voting rights,as well as direct or indirect economic control.

Taxpayers are required to prepare and submit a transfer pricing file depending on the cumulative annual value of all transactions with related parties.

If the annual value of transactions is between MDL 20,000,000 and MDL 50,000,000 (approx. EUR 979,000 – EUR 2,447,000), the file shall be submitted at the request of the State Tax Service, within a maximum of 60 days from the date of the request. Taxpayers who carry out transactions with a value greater than MDL 50,000,000 (approx. EUR 2,447,000) are required to prepare and submit the file no later than the 25th day of the third month after the end of the reporting period.

The content of the transfer pricing file will be determined by secondary legislation. It is expected that the file will contain sections and information in line with OECD recommendations.

The transfer pricing analysis methods provided by the legislation are as follows: the comparable uncontrolled price method, cost plus, resale price method, transactional net margin method, profit split method, and any other method that is accepted by the OECD Guidelines.

The legislation stipulates penalties for non-compliance. These range from MDL 30,000 – MDL 50,000 (approx. EUR 1,470 – EUR 2,450) for late presentation of the file, and MDL 150,000 – MDL 200,000 (approx. EUR 7,340 – EUR 9,790) for inclusion of non-authentic information in the file. Failing to submit the file will result in a penalty ranging from MLD 300,000 – MLD 500,000 (approx. EUR 14,700 – EUR 24,500)

Taxpayers have the right to make compensatory (voluntary) price adjustments to meet the arm’s length principle only if these adjustments do not lead to a reduction in income tax.

The legislation outlines principles of the procedure for the elimination of double taxation caused by price adjustments in transactions with residents and non-residents.

Multinational groups operating in the Republic of Moldova need to analyse the new legislation, and how it affects the pricing methodology and transfer pricing documentation obligations. It is expected thatlocal tax authorities will review compliance with the new principles starting in 2025.