Transfer pricing in the context of tax inspections: updates and recommendations
In the context of an increased interest from the Romanian tax authorities in intra-group transactions, transfer pricing tax inspections have become increasingly common.
According to data published by NAFA, in 2023, there were 15,610 inspections conducted on legal entities, resulting in additional amounts totaling RON 2.53 billion being established. Additionally, for the purpose of identifying and quantifying potential tax risks, 13,117 unannounced on-site inspections were carried out in 2023.
Regarding tax inspections conducted on taxpayers engaged in transactions with related parties, during which transfer pricing practices were scrutinised, a difference in the taxable base amounting to RON 939.66 million was established, equivalent to approximately €187.93 million. Consequently, the additional difference in the taxable base led to an additional corporate income tax liability of RON 83.85 million, approximately €16.77 million.
Considering the emphasis placed by NAFA on verifying intra-group transactions and the fiscal risk category in which a taxpayer falls, it is essential for companies to have supporting documents regarding transactions conducted with affiliates. Moreover, they need to identify and monitor potential risks to avoid adjustments that could arise from a transfer pricing tax inspection.
Reclassification of taxpayers into size categories
At the beginning of 2024, the lists of large and medium-sized taxpayers were updated by NAFA. Therefore, companies need to consider whether there are any changes regarding their classification, especially for those previously classified as small taxpayers.
The obligation to prepare transfer pricing reports
Taxpayers who conduct transactions with affiliated companies, with an annual total value greater than or equal to any of the specified materiality thresholds detailed below, are required to prepare and submit the transfer pricing documentation upon request by tax inspectors.
Below, we present the specific deadlines and conditions for each category of taxpayer:
| Taxpayer category | Deadline for submitting the transfer pricing documentation |
Large taxpayers are required to prepare the transfer pricing documentation annually. The documentation may be requested by the tax authorities even outside a tax inspection and must be submitted upon request by the tax inspection authority. The annual materiality thresholds for analysing intra-group transactions are:
| In the case of a tax inspection focusing on transfer pricing, the deadline for submitting the report is a maximum of 10 calendar days from the date of the request, but not earlier than 10 days after the deadline for its preparation (i.e., the legal deadline for filing annual corporate income tax returns for each fiscal year). (!) Large taxpayers are required to prepare their transfer pricing documentation annually, even before receiving an official request to do so. Given the number and complexity of transactions conducted by this category of taxpayers with their affiliated companies, the 10-day deadline for submitting the report is insufficient for its preparation in the event of a transfer pricing tax inspection. |
Large taxpayers, as well as taxpayers/payers from the small and medium taxpayer categories, are required to prepare and submit the transfer pricing documentation only upon request by the tax authority during a tax inspection. The annual materiality thresholds for analysing intra-group transactions are:
| In the event of a tax inspection, the deadline for submitting the report will be determined by the tax authorities through the transfer pricing report request form. Therefore, the deadline will be between 30 and 60 calendar days, with the possibility of extension once, upon the taxpayer's written request, for a maximum period of 30 calendar days. (!) It is advisable for companies in this category to annually prepare the transfer pricing report to document whether transactions with affiliated parties comply with the arm's length principle and to make corrections if necessary. |
The advantages of preparing the transfer pricing documentation
First and foremost, the annual preparation of the transfer pricing report is an advantage for any category of taxpayer, as it allows for the identification of risks and the detection of potential deficiencies that can be corrected before the commencement of an inspection. Considering that such adjustments also affect affiliated companies, coordination with the group is necessary, especially in the case of transactions conducted with non-resident affiliated companies.
Furthermore, in the event that a company does not have the transfer pricing report prepared, tax authorities can impose fines or adjust transactions based on comparability studies prepared by inspectors. Any adjustment to transfer prices thus increases the taxable base in Romania, to which interest and penalties are added. In this case as well, collaboration with group representatives is important, considering the risk of double taxation in transactions conducted with non-resident affiliated companies.
Another important aspect could be the review and justification of the transfer pricing policy at the local level, as well as providing a clear picture to the group regarding documentation obligations in Romania and the level of risk.
Additionally, we reiterate that the deadline provided by the authorities for the preparation and submission of the transfer pricing documentation may be insufficient considering the number and complexity of intra-group transactions that need to be analysed, especially in the context of time pressure and other requests from tax authorities during the tax inspection.
Resolution of appeals against tax assessment decisions
Taxpayers should consider challenging the tax assessment decisions issued by NAFA following tax inspections when they disagree with the conclusions of the tax inspection report, considering that the majority of appeals have been successful for the taxpayer.
*The activity report issued by NAFA for 2023