In Romania, the obligation to present transfer pricing (TP) files varies depending on the size of the taxpayers and on the values of the related-party transactions that are carried out.
More specifically, large taxpayers that carry out transactions whose values exceed the annual thresholds established by law have to prepare the TP files annually, up to the deadline for submitting the yearly tax return (these thresholds are: Euro 200k for interest, Euro 250k for services and Euro 350k for goods).
Medium and small-sized taxpayers, on the other hand, are only required to present the TP files upon the tax authorities’ request, during a tax audit, in case the related-party transactions exceed the following annual thresholds: Euro 50k for interest/services and Euro 100k for goods. A period of 30-60 days is typically allowed by the tax audit team for the preparation of the TP files. There are however inherent advantages for these taxpayers in taking a pro-active approach and preparing the TP files prior to the commencement of a tax audit, for example on an annual basis. Some of these advantages include:
- Opportunity to anticipate and mitigate TP risks: in case TP analysis indicates that the intra-group transactions do not comply with the arm’s length requirements, the taxpayer would be well positioned to take appropriate corrective measures so as to seek to mitigate the risk of the tax authorities imposing significant TP adjustments. Such corrections may include voluntary adjustments at the level of the taxpayer (and, if needed, at the level of the group entities involved in the identified transactions) and these may significantly reduce the amount of late payment interest and penalties arising in a tax audit. Another positive impact would be that, once deviations from the market practice are assessed for past periods, these can also be corrected by the taxpayer.
- Reasonable allocation of the workload: preparing the TP file ahead of time, before being subject to a tax audit, allows the taxpayer the necessary amount of time for collecting all the information needed in this process, without putting too much pressure on the local team. Given that, generally, the preparation of a TP file is a burdensome project and requires substantial information from both the local company and the group entities, especially if it covers several years, this task can be very difficult to accommodate within the period of 30-60 days allowed during a tax audit.
- Another benefit that should not be disregarded is that regular preparation of TP files (e.g. annually) is quite an efficient process, given that relevant data related to the transactions may be easily available – as opposed to a scenario where a TP file aims to cover a past period as long as 5-6 fiscal years, for which data may prove difficult to retrieve and present.
In view of the above, we, at TPA, highly recommend companies to prepare the TP files annually. Should you be interested in initiating a discussion on this topic, please feel free to contact us.