Transfer pricing in Romania – all you need to know in 2022 [eBook]
Transfer pricing in Romania – all you need to know in 2022 [eBook]
The transfer pricing topic has become a top priority on the agenda of Tax Authorities worldwide, and Romania is not an exception.
If you are responsible for the transfer pricing of a Romanian company or even an external tax consultant / lawyer wishing to find out more on transfer pricing Romania regulations, we prepared the following pitstop guides to answer all your questions.
For comprehensive guidance regarding the transfer pricing Romania regulations, view our eBook below:
For comprehensive guidance on the most common transfer pricing issues that you may encounter when dealing with transfer pricing in Romania, check out our free guide / eBook below:
Can existing global transfer pricing documentation be utilized at the level of the Romanian entity?
Yes, parts of the existing transfer pricing documentation can be utilized, as Romania largely follows OECD standards. Although not a member of OECD, Romania has adopted parts of the OECD Transfer Pricing Guidelines into local legislation.
Moreover, as Romania is part of the European Union, all transfer pricing related directives will also apply here.
Be careful though, Romanian transfer pricing regulations have many particularities so it is rather recommended to present to the Romanian Tax Authorities a transfer pricing file prepared / reviewed by a person with intimate knowledge of the Romanian regulations or face with potential transfer pricing adjustments.
Can existing benchmarking studies be utilized at the level of the Romanian entity?
Most probably not.
The Romanian Tax Authorities place great importance on the criteria used in the benchmarking strategy (e.g. independence thresholds, search territory), some of which may not be included in the existing benchmarking studies.
To find out more on how to prepare a benchmarking study compliant with Romanian Tax Authorities expectations, consider reading the section 9 of our Transfer pricing regulations in Romania [eBook].
What should be the content of the transfer pricing file in Romania?
If you’re familiar with the three-tiered BEPS Action 13 documentation requirements, the local file’s contents mostly match the transfer pricing Romania expectations: information on the group and on the entity, the functional analysis and the economic analysis of the transactions.
Please note that all transfer pricing documentation must be presented to the Romanian Tax Authorities in Romanian language only.
To find out more, consider reading the full detailed requirements extracted from the Romanian transfer pricing regulations with regard to the content that the transfer pricing file should contain.
When will a newly incorporated entity need to prepare the transfer pricing file in Romania?
The obligation to prepare the transfer pricing file is triggered when exceeding certain annual materiality thresholds in terms of intercompany transactions or at the request of the Romanian Tax Authorities.
For a newly incorporated entity (which is not a large taxpayer by local rules) / medium sized company, the thresholds are as follows:
- EUR 50,000 – services received or offered to group companies;
- EUR 50,000 – interest received or paid to group companies;
- EUR 100,000 – acquisitions from / sales of goods to group companies.
To find out more on what are the scenarios when you will need to prepare a transfer pricing file for the Romanian Tax Authorities, consider reading the section 3 of our Transfer pricing regulations in Romania [eBook].
What is the impact if the transfer pricing file is not prepared in Romania? Can transfer pricing adjustments be performed?
Yes, and considering the aggressive tax audit environment in Romania, transfer pricing adjustments are very common if the transfer pricing regulations have not been followed.
Fines will apply (between EUR 2,900 – EUR 5,000) if the entity did not prepare a transfer pricing file. If the transfer prices are deemed non-compliant, adjustments, additional income tax and penalties may be due. Even more important, double-taxation will arise as a result resulting in same amount being taxed both in Romania and in the foreign jurisdiction.
To find out more on what are the exact penalties and penalty rates in case the Romanian Tax Authorities will perform transfer pricing adjustments, consider reading the section 5 of our Transfer pricing regulations in Romania [eBook].
What are the common reasons that trigger a transfer pricing audit in Romania?
Posting accounting losses in the last 5 years, delays in the submission of tax returns or profit margins below the average margins reported by other companies with the same NACE code are very common reasons that will bring the tax audit team to your door.
To find out more on what you may do to avoid triggering the initiation of a transfer pricing audit in Romania, consider reading an article we have compiled based on our extensive local practice: 11 situations that can trigger a transfer pricing Romania audit.
What are the relevant transfer pricing regulations in Romania – the basis of all answers above?
The following list covers the transfer pricing legislation in Romania on:
- The Romanian Tax Code – Law 227/2015;
- The Tax Procedure Code – Law 207/2015;
- Content of the transfer pricing documentation file – Romanian Tax Authority Presidents’ Order 442/2016;
- Approval on the content of the decision issued by the tax authority in application of the procedure for elimination of double taxation between Romanian related parties – Romanian Tax Authority Order 3737/2015;
- Procedure for the issuance / amendment and the content of the Advance Pricing Agreement – Romanian Tax Authority Order 3735/2015;
- Template and content of the Country by Country Report (CbCR) – Romanian Tax Authority Order 3049/2017.
Please note the links above redirect to the official documents in Romanian language published by the Romanian Tax Authority.
What are the common transfer pricing issues that one should consider when doing business in Romania?
After incorporation of an entity in Romania, many operational and strategic actions, such as the intra-group sales / purchase of assets, loans, remuneration of the administrator may bring about issues in practice, especially in the context of a tax audit.
As the complexity of this subject grew tenfold in the last years, we have gathered in a thorough manual some considerations with regard to how to tackle these common issues. Please click the button below to access our manual.
What can be seen looking into the future of transfer pricing in Romania?
From 2011 onward, the transfer pricing audits occurrence has increased significantly, as the Romanian Tax Authorities’ experience and performance in this field has gotten better and better.
In addition, during the past couple of years the Romanian Tax Authorities did their best efforts to align themselves with latest trends e.g. remote transfer pricing risk assessments, information sharing between EU states, CbCR documentation analyses.
As a direct consequence we are seeing more often that the duration of the tax audits gets shorter over time will at the same time the aggressiveness of the Romanian Tax Authorities is increasing year by year.
Therefore, not preparing for a transfer pricing investigation is a poor strategy that may result in significant tax liabilities for the local subsidiary operating in Romania.
Preparation in advance can bring a strategic advantage and it would allow the identification and mitigation of the main risk areas – before the tax authorities show up at the doorstep.