Transfer Pricing Documentation
Published in International Tax Review, 2009
Transfer pricing is set to become an increasingly important topic for the Romanian tax authorities and taxpayers.
The Romanian transfer pricing legislation is largely similar to the regulations applied by developed countries, making specific references to the OECD doctrine and following the EU code of conduct on transfer pricing documentation. Although specific provisions in the field of transfer pricing have been present in Romanian tax laws for several years, the legislation on the subject became more rigorous and detailed especially during last year, when an order was issued by the National Agency for Tax Administration regarding the contents of the transfer pricing file.
This mandatory documentation should be made available by taxpayers upon the request of the Romanian tax authorities and should include information such as details on the group (i.e., legal, organisational and operational structure, details on transactions between related parties), as well as information on the taxpayer and functional analysis. Also, the documentation should include details on the method used for the purpose of analysing the related party transactions and details on the results of the benchmarking exercise.
The failure to provide the transfer pricing file within the specified term (generally not exceeding three months) will allow the tax inspectors to adjust the tax position of the Romanian entity based on their own estimation of the applicable transfer prices. Such an adjustment may lead to an increased tax burden at the taxpayer’s level and also to late payment penalties being imposed. Fines can be also imposed.
In the recent months, there was a significant increase in the number of requests addressed by tax authorities for taxpayers to present their transfer pricing documentation, and we expect that this trend will amplify as the authorities become more sophisticated on the topic, with dedicated teams being set up within the tax audit authority.