The companies that carry out transactions with related parties in Romania must comply with the transfer pricing legislation. Thus, these companies have to prepare transfer pricing documentation in order to demonstrate that the transactions with related parties comply with the local regulations.
Submission of an incorrect transfer pricing documentation can generate risks such as double taxation and transfer pricing adjustments performed by the Romanian transfer pricing authorities.
This article aims to provide three best practices in order to meet the transfer pricing compliance requirements and also minimize the transfer pricing risks in case of a tax audit.
• Quality before quantity
The transfer pricing documentation it’s the only tool that a taxpayer can use in order to reduce the potential disputes with tax authorities within a transfer pricing file in Romania.
Thus, the taxpayer don’t have to consume their resources to document immaterial transactions or low transfer pricing risks transactions.
The taxpayers don’t have to prepare much transfer pricing documentation but enought to sustain the compliance with the arm’s length principle for the transaction with a high transfer pricing risk.
In certain situations, the Romanian Tax Authorities may even request certain transactions for which they request the transfer pricing documentation.
• Required content to present in the transfer pricing documentation in Romania
Every jurisdiction have a transfer pricing legislation within is specified the information to be included in the transfer pricing documentation in Romania.
Thus, in order to avoid the risk that the transfer pricing documentation will be considered incomplete by the tax authorities, it is preferable that the documentation be complete and structured in chapters.
• Transfer Pricing Romania – Master File vs Local File
Companies part of multinational groups choose not to prepare the transfer pricing file but instead use the transfer pricing documentation available at the level of the group.
The most common problem of this approach is related to the fact that the documentation available at the group level does not take into account the geographical location of each branch.
For example, most of the transfer pricing documentation available at the level of the group will contain a unitary analysis for the royalties charged for the use of intangibles assets, regardless of the geographical location of the subsidiary.
Thus, a company which may not have a turnover as high as that of other subsidiaries is charged at the same level of the royalty. Also, another problem in this approach is that the influence of the trademark in the market in which the company operates is not taken into account.
However, when making the decision to prepare the transfer pricing documentation or to use the documentation available at the level of the group, an argument that can support non-location of this documentation is that not all companies that carry out intra-group transactions have to prepare the documentation locally.
