A company (such as an LLC) cannot sell an asset to the sole partner’s spouse at less than market price. Similarly, the partnership will not be able to purchase an asset from a close relative of a single partner at a higher market level.

Transactions between affiliated persons are not prohibited by the Fiscal Code, but are subject to certain requirements, to prevent situations in which they would seek to obtain property/fiscal advantages to the detriment of the state’s interest in collecting taxes and fees associated with these commercial transactions, or even to the detriment of the entities involved. In addition, the aim is to ensure transparency in economic turnover, as well as to prevent tax evasion practices that may arise in commercial transactions between related (individual) persons or between several companies controlled by the same person/organization.

Short – if two or more persons are related, any transaction between them must be concluded at a price similar to the market price. Market price represents the amount that an independent customer would pay to an independent supplier at the same time and place for the same or a similar good or service under conditions of fair competition.

In fact, the intention of the legislator is that the price of the transaction should not be influenced or determined by the existing connections between the involved parties. For example, two companies owned/controlled by the same partner cannot trade with each other at a lower, possibly ridiculous price (solved this way through an affiliate relationship). This transaction may conceal a partner’s intention to transfer assets from one company to another, perhaps to defraud creditors or to avoid certain tax provisions.

In addition, the concept of “transaction” is not limited to the transfer (sale) of goods, but covers any other transactions that may be concluded between related parties: service contracts, consultations, lease contracts, loans, etc.

Violation of the obligation to trade at the market price can cause unpleasant sanctions for the taxpayer – the tax authority can adjust (change) the transfer price, thus retroactively recalculate the taxes and fees owed by the taxpayers involved in the transaction, with corresponding late penalties.

However, what are the situations in which a person (individual or legal entity) is affiliated with another person within the meaning of the Fiscal Code?

First,in the case of natural persons, relatives are spouses and relatives up to the 3rd degree. We note that there will be no related persons, as they are not relatives in the sense of the Civil Code. At the same time, a concubine (partner) cannot have the status of an affiliated person.

For example, if X (a web designer), as a PFA, contracts with his wife, a lawyer (self-employed), to create a company website for her, the contract must comply the principle of market value. In another version, the kinship between them should not be manifested by the provision of a significantly lower price of the contract for the provision of services.

second, a natural person is affiliated with a legal entity (eg SRL) if the natural person owns, directly or indirectly, taking into account the holdings of affiliated persons, at least 25% of the value/quantity of participation rights or voting rights of the legal entity. At the same time, a natural person will be affiliated with a legal entity if he actually controls the legal entity, regardless of the form of participation.

For example, if an SRL in which X is the sole partner wants to sell goods to X’s wife, the price should be the market price without giving certain “objects”. The scheme is as follows: the wife is a related person of the husband; the husband is an affiliated person of the company (sole partner); the wife will be affiliated with the company, since the social shares of the husband (affiliate) are taken into account.

In the third line a legal entity is affiliated with another legal entity if at least it owns, directly or indirectly, taking into account the share of affiliated entities, at least 25% of the value/number of shares or voting rights of another legal entity or if it effectively controls this legal entity.

For example, if the company AAA SRL owns a quarter of the shares of the company BBB SRL, then the two companies are affiliated.

fourthly, a legal entity is affiliated with another legal entity if the person owns, directly or indirectly, taking into account the share of affiliated entities, at least 25% of the value/quantity of participation rights or voting rights, as in the first legal entity, and also for the second time, if he effectively owns them controls

For example, if X establishes two companies in which he is the sole partner, the two companies will be affiliated with each other.

At the same time, we remind you that certain taxpayers are required to prepare a transfer file to demonstrate/justify compliance with the market value principle, in case of transactions with affiliated persons, in case of exceeding the threshold values ​​provided by the President of ANAF Order number. 442/2016. Example, large taxpayers carrying out transactions with related parties exceeding the total annual value exceeding or equal to EUR 200,000 in the case of interests for financial services, EUR 250,000 in the case of transactions regarding services received/provided, respectively EUR 350,000 in the case of transactions regarding the purchase/ sale of tangible or intangible goods.

Finally, transactions between related parties must be concluded at the market price, as provided by the Fiscal Code. Violation of the obligation to carry out the transaction at the market price can entail unpleasant sanctions for the taxpayer – the tax authority can adjust (change) the transfer price, thus retroactively transfer the taxes and fees due to the taxpayers participating in the transaction, with corresponding delay penalties.

Article signed by Alexander-Laurenziu Mihai, junior lawyer, – [email protected] – STOICA & Associates