Transfer pricing requirements in Romania

Documentation of prices for both

cross border and domestic related party transactions
 Definitions

• Transfer prices - Prices at which goods are transferred or services

are performed to related parties (OECD)

• Related parties (article 7, Romanian Fiscal Code)

 one entity holds directly or indirectly, including the shareholding
of related entities, minimum 25% of the number/value of shares
or voting rights in that other entity or it effectively controls the
other entity, or

 one entity holds directly or indirectly, including the shareholding

of related entities, a minimum of 25% of the number/value of
shares or voting rights in the two entities.
 Transfer Pricing Legislation

Romanian:
 Fiscal Code – articles 7 and 11
 Fiscal Procedure Code – article 42 and article 79
 Decision no. 529/2007 – Advance Pricing Agreements and advance
tax ruling
 Order no. 222/2008 – Transfer Pricing File

EU:
 OECD guidelines on transfer pricing
 EU Code of Conduct regarding transfer pricing
 Penalties
 Failure to present transfer pricing documentation in due time or incomplete
transfer pricing documentation leads to adjustments made by the tax
authorities and fines of up RON 14,000 (the equivalent of EUR 3,300)

 Adjustments carry a 16% income tax on additional income established by

tax authorities

 Furthermore, the income tax liability is subject to late payment interest of

nearly 36% per year for the period extending from 2006 to the first half of
2010

 For the second half of 2010, the most recent amendments to the Tax
Procedure Code set late payment interest to approximately 14,4% per year
and late payment charges of 15% if more than 90 days passed since the
recognition of the unpaid liability
 Types of transactions under scrutiny

 Acquisitions / deliveries of goods

 Lohn or contract manufacturing
 Provision of services:
• Management
• Marketing
• IT
• Technical assistance
 Research and development
 Royalties
 Intra-group financing
 Swap/hedging agreements
 From our experience:

 Any delay in preparing the transfer pricing documentation may

cause a series of inconveniences for your company such as a
deferal of the VAT reimbursement process

 If your company incurs losses as a direct result of the intra-group

transactions, there is a high risk of income tax adjustments

 If your company receives management or other services from group

companies it is likely that these transactions will be audited

 The Romanian tax authorities may request for the transfer pricing
file in relation to transactions concluded with related entities within
the past 5 years
 Our advice

 Prepare your transfer pricing documentation file today!

 Learn about your risks and take appropriate measures!

 Ask for the service providers in the group to prepare justifying

documents in order to support the deductibility of service expenses
at the level of the Romanian entity!

 Gather supporting documentation in order to prove the benefit of

receiving services from group entities!
 The transfer pricing documentation file

 According to the Romanian legislation, the transfer pricing file

should include the following information:
1. Group information
• History, clients, competitors, financials, intra-group transactions concluded at the
level of the EU, transfer pricing policy set at group level

2. Taxpayer specific information:

• History, clients, competitors, financials
• Detailed presentation of the transactions performed with the related parties;
• Presentation of the comparative analysis
• Presentation of the related parties and of the permanent establishments
• Description of the method used for transfer pricing and arguments for
choosing the respective criteria
• Description of other conditions considered relevant for the taxpayer
 The transfer pricing documentation file

 At the request of the tax authorities, the taxpayers performing

transactions with related parties have the obligation to submit the
transfer pricing (article 79, Fiscal Procedure Code)

 The time limit for submission of the transfer pricing file is of

maximum 3 months. An extension equal to the time period initially
granted may be requested.

 The fine for non-submission of the transfer pricing file in time is

between RON 12,000 and 14,000

 Even if the file is submitted still income tax adjustments may be

perfomed if the price established between related entities is not
arm’s length
 The transfer pricing documentation file

 The stages in preparing the transfer pricing documentation file are:

• Company and industry analysis

• Functional analysis

• Economic analysis
 The transfer pricing documentation file
 Company and industry analysis includes:

1. Group general information

• Group history, group legal and operational structure, products offered/services
provided, main clients and competitors, business strategy, intra-group
transactions at the level of the EU, description of the transfer pricing policy at
the group level.
2. Company general information
• History, legal and operational structure, products offered/services provided,
main clients and competitors, business strategy.
3. Industry analysis
• An analysis of the industry in which the group/the Romanian entity operate,
main players in the industry, main statistics and results.
 The transfer pricing documentation file
 Functional analysis includes:

1. Description of transactions
• Description of transactions concluded by the Romanian entity with related
parties, identification of functions and risks based on contractual provisions and
economic substance

2. Analysis of:
• Functions performed by each of the entity involved in the transaction
• The risks resulting from the performance of these functions
• Assets used by each of the entities involved in the transaction
 The transfer pricing documentation file
 Economic analysis includes:

1. Benchmark study
• Database screening - electronic identification (Orbis)
• Quantitative screening - financial screening
• Qualitative screening - manual selection

2. Interpretation of results
• Analyse whether the results obtained by our company are within the
comparability range obtained for independent comparable entities
• Present the reasons for which the results are outside the inter-quartile range (if
the case may be)

3. Documentation of the losses incurred (if the case may be)

 Contact details

Viboal Consulting SRL,

No. 6, Mitropolit Veniamin Costache Street,
District 4, Bucharest
Telephone: +40 373 367 828
E-mail: office@viboal.ro