The Romanian authorities carried out tax audits on transfer pricing for companies operating in the financial industry, as well as in transport, agriculture, production (e.g. spare parts, car components, detergents, lighting products, clothing), distribution, or services.
The annual update of the transfer pricing file is a first-hand advantage for all taxpayers, regardless of the category they belong to, as they can reduce potential adjustment risks, review or substantiate the TP policy at the local level, or perform internal adjustments to reduce the impact of a tax audit.
Taxpayers required to prepare the transfer pricing file during the current period
Preparation of comparability studies
The Romanian transfer pricing legislation stipulates that comparability studies must be prepared in the first instance on the Romanian market. If local comparable companies cannot be identified, the geographical criterion should be extended in the following order: European Union, pan-European, international.
In general, the comparability study should be updated yearly to reassess the impact of prevailing market conditions on the tested transaction.
What happens if a company does not prepare and present the transfer pricing file in case of a tax audit?
Companies may be subject to a fine between RON 12,000 – RON 14,000 for large and medium taxpayers, or between RON 2,000 – RON 3,500 for small taxpayers. More importantly, in the event of a transfer pricing audit, the tax authorities will prepare their own assessment based on a simplified procedure which might result in transfer pricing adjustments, together with additional corporate income tax and late payment penalties.
The authorities’ decision to begin a transfer pricing audit is based on a risk analysis. Companies that register profit margins outside the range obtained for independent companies operating in the same industry and especially companies which registered operating losses over several tax years are prone to be the subject of a transfer pricing audit.
To estimate the transfer pricing risks, we have developed a risk assessment procedure that can offer a clear image of the actions to be taken to mitigate risks and can evaluate the potential tax exposure. The assessment is based on the following steps:
- Identification of intra-group flows;
- Reviewing the transfer pricing report prepared at the local or group level;
- Reviewing the intra-group agreements (if the case);
- Preparing or reviewing the benchmark studies or comparability analysis;
- Estimation of adjustment risks in case of a tax audit;
- Conclusions and recommendations.
The main advantages of performing a risk assessment are:
- Evaluation of information and documents available at the local level;
- Identification of risks before the start of a transfer pricing inspection;
- Risk limitation recommendations;
- A clear image for the group on the documentation obligations in Romania, and on the level of risk incurred by the local entities.