2009 Global Transfer Pricing survey - Romania - Ernst & Young - Romania

2009 Global Transfer Pricing survey - Romania

Resources the taxing authority is devoting to transfer pricing

The National Agency of Fiscal Administration (NAFA) administers taxes in Romania. Transfer pricing examinations are performed by general tax audit inspectors based in the field. However, a central transfer pricing unit has been set up within the NAFA, to work in cooperation with the field-level inspectors.

There are approximately 10 FTE resources at the central transfer pricing unit. Only a few of the resources involved in transfer pricing examinations are transfer pricing specialists. Most of the examiners based in the field are generalists.

Types of transactions under scrutiny

The NAFA has specifically identified that the following transactions (in order of prevalence as per the current case load) are currently the focus of transfer pricing reviews:

Transfer pricing penalties

Failure to present transfer pricing documentation or the presentation of incomplete documentation within the specified time may trigger a fine of up to €3,500 and an estimation of the appropriate transfer prices by the tax authorities in place of those determined by the taxpayer. The adjustments trigger a profits tax liability of 16% on any additional income,and late payment interest of around 36% per annum is also be levied. Romania has put in place legislative provisions to ensure consistent application of the transfer pricing penalty provisions.

Over the last two years, penalties have been applied in approximately 25% of cases where transfer pricing adjustments were issued. Where penalties are imposed, they generally range from 25% to 50% of the additional tax. Penalty assessments are expected to increase over the next two years.

Audit triggers

Transfer pricing audits are instigated by the central transfer pricing unit. Within Romania’s standard audit program, the selection of the taxpayer for further review and the scope of the audit are driven by various considerations such as (ranked in order of importance):

• The profitability of the taxpayer
• VAT, employment, customs or other indirect tax reviews
• The nature and volume of the taxpayer’s related-party transactions

Indirect and customs tax

The work of Romanian transfer pricing enforcement resources is integrated with that of indirect tax specialists, insofar as instigation of a transfer pricing audit is concerned — for instance, VAT reimbursement requests often trigger transfer pricing audits. However, there is no requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes.

Comparable data

Typically, local comparables are preferred. The Romanian transfer pricing documentation legislation specifically mentions that the comparability analysis should consider territorial criteria in the following sequence: Romania, European Union and other International territories. The transfer pricing documentation should detail the criteria based on which potential Romanian comparables, if any, were rejected.

In preparing and presenting comparable data, the inter-quartile range is preferred for calculating the allowable arm’s length range. There are no specific requirements in relation to the number of years of financial information, the use of simple versus weighted averages, the method for determining an appropriate PLI, or the pooling or averaging of financial data.

There is no formal/mandatory guidance provided about adjustments to comparable data. Such adjustments are likely to be supported by the Romanian tax authorities, as long as any adjustments are in line with the OECD Transfer Pricing Guidelines.

Transfer pricing methods

Romanian transfer pricing legislation specifies a hierarchy of transfer pricing methods to determine arm’s length remuneration for controlled transactions, which is line with the hierarchy laid down in the OECD Transfer Pricing Guidelines.

Advance Pricing Agreements (APAs)

Romania has a formal APA program, which is accessible to all taxpayers. Currently, four APA requests are in process. The average duration for processing of APA requests is 12 months for unilateral APAs and 18 months for bilateral or multilateral APAs.

Current influences on transfer pricing

The transfer pricing environment in Romania is responsive to the global economic slowdown and the initiatives at the OECD and the EU levels. It is expected that these factors will result in an increase in the number of transfer pricing audits going forward. Further, with the introduction of specific Romanian transfer pricing documentation requirements in the year 2008, transfer pricing has become one of the key issues in tax audits of multinational enterprises.

Likely trends in transfer pricing activity
Over the next two years, the Romanian tax authority expects to place greater emphasis on compliance measures and yield targets from a transfer pricing perspective.

Ernst & Young contact 

Alexander Milcev
+40 21 402 4000