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Romania

Extensive Summary of Romania’s Transfer Pricing Requirements

1. Introduction​

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This summary provides an in depth overview of Romania’s transfer pricing framework, including its legal and regulatory background, key guiding laws, scope of application, documentation and methodological requirements, compliance measures, high risk industries and transactions, and anticipated future developments.

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2. Legal and Regulatory Framework

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2.1 Core Legislation and Regulations

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​Romania has a well-defined framework for transfer pricing that aligns with international standards, particularly the OECD Transfer Pricing Guidelines and the OECD's BEPS (Base Erosion and Profit Shifting) Action Plan. The following are the key legislation and guidance documents governing transfer pricing in Romania:

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  • Romanian Tax Code:

    • The Romanian Tax Code, which is the main legal framework for taxation in Romania, includes provisions on transfer pricing under the Corporate Income Tax Law.

    • The arm’s length principle is embedded in the tax code, requiring transactions between related parties to be priced in accordance with what would be agreed upon by independent entities.

    • The Tax Code ensures that businesses must justify their transfer pricing practices and document transactions with related parties.

  • Government Ordinance No. 92/2003 on Transfer Pricing (As Updated):

    • Government Ordinance No. 92/2003, known as the Transfer Pricing Ordinance, is the primary piece of legislation in Romania regulating the transfer pricing rules.

    • The ordinance requires that all related-party transactions be priced in accordance with the arm's length principle.

    • This ordinance provides guidance on the methods to be used to determine the arm’s length prices for goods, services, and intellectual property.

    • The ordinance aligns Romania’s transfer pricing framework with the OECD Transfer Pricing Guidelines.

  • Romanian Fiscal Code (Updated in 2020):

    • The Fiscal Code includes provisions for transfer pricing documentation and documentation requirements for related-party transactions.

    • It sets out the requirements for submitting the transfer pricing documentation and the penalties for non-compliance.

    • The code also requires taxpayers to submit a transfer pricing study upon request by the Romanian National Agency for Fiscal Administration (ANAF) during tax audits.

  • Order No. 442/2008 for the Approval of Transfer Pricing Documentation and Methods:

    • Order No. 442/2008 provides detailed rules regarding the documentation required to support transfer pricing positions.

    • The order specifies that businesses must maintain transfer pricing documentation that demonstrates the application of the arm’s length principle.

    • The document specifies that taxpayers must include financial data, methodologies, and comparability analyses to substantiate their transfer pricing practices.

  • OECD Transfer Pricing Guidelines:

    • Romania aligns its transfer pricing legislation with the OECD Transfer Pricing Guidelines, which serve as the global standard for determining arm’s length pricing.

    • These guidelines are the basis for Romania's tax authorities (ANAF) when reviewing transfer pricing documentation and assessing whether intercompany transactions are conducted at arm's length.

  • OECD’s BEPS Action Plan:

    • Romania’s tax system has been adapting to the recommendations from the OECD’s BEPS Action Plan, which aims to combat base erosion and profit shifting.

    • Romania’s transfer pricing legislation and documentation requirements reflect OECD’s BEPS Action 13, particularly the documentation requirements (Master File, Local File, and Country-by-Country Reporting (CbCR)).

    • As part of the implementation of BEPS Action 13, Romania requires multinational enterprises (MNEs) with consolidated revenues above a certain threshold to submit CbC reports, providing detailed information on global income and tax allocation.

  • Transfer Pricing Documentation Requirements:

    • Romanian transfer pricing legislation requires taxpayers to maintain proper documentation to justify the prices charged in related-party transactions. The main documentation categories include:

      • Master File: A document that provides an overview of the multinational group, including its organizational structure, financial data, and global transfer pricing policies.

      • Local File: A document that provides detailed information about the local entity’s transactions with related parties, including pricing methods and a comparability analysis.

      • Country-by-Country Reporting (CbCR): For larger MNEs, this report must be submitted if the group meets the revenue threshold. It provides a detailed breakdown of the global allocation of income, profits, taxes, and business activities.

  • National Agency for Fiscal Administration (ANAF) Guidelines:

    • The National Agency for Fiscal Administration (ANAF) in Romania issues administrative instructions and detailed guidance on how transfer pricing should be applied and assessed.

    • ANAF’s guidance often includes examples, explanations of transfer pricing methods, and the acceptable methodologies for determining arm’s length prices.

    • ANAF also outlines the penalties for failure to comply with transfer pricing documentation requirements and provides specific timelines for submitting transfer pricing studies.

  • Penalties for Non-Compliance:

    • The Romanian tax legislation includes penalties for non-compliance with transfer pricing rules. These penalties may include:

      • Fines for failure to submit the required transfer pricing documentation within the prescribed time frame.

      • Adjustments to taxable income and additional tax liabilities if the transfer pricing positions are found not to be at arm's length.

      • Interest on any underpaid taxes due to improper transfer pricing adjustments.

  • Updates to Transfer Pricing Legislation:

    • Romania has consistently updated its transfer pricing rules to align with OECD recommendations and international tax trends, including the implementation of BEPS measures.

    • Most recently, Romania has focused on implementing the BEPS Action 13 requirements for Country-by-Country Reporting and ensuring that its transfer pricing framework is consistent with global tax practices.

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2.2 Alignment with International Standards

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Romania’s transfer pricing legislation and guidelines are closely aligned with international standards, particularly those set by the OECD Transfer Pricing Guidelines and the OECD's BEPS (Base Erosion and Profit Shifting) Action Plan. Here’s how Romania's transfer pricing framework aligns with these global standards:

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  • Adoption of the Arm’s Length Principle:

    • Romania’s Tax Code and Government Ordinance No. 92/2003 (the Transfer Pricing Ordinance) require that related-party transactions be priced in accordance with the arm’s length principle, which is at the heart of the OECD Transfer Pricing Guidelines.

    • The arm’s length principle ensures that intercompany transactions between related parties are priced as if they were conducted between independent entities, ensuring fairness and market-based pricing.

  • Compliance with OECD Transfer Pricing Guidelines:

    • Romania has structured its transfer pricing rules to comply with the OECD Transfer Pricing Guidelines, which provide detailed methods for determining arm’s length prices.

    • The Romanian Transfer Pricing Ordinance and Fiscal Code emphasize the use of OECD-approved methods such as:

      • Comparable Uncontrolled Price (CUP) method

      • Cost Plus method

      • Transactional Net Margin Method (TNMM)

      • Resale Price Method

    • These guidelines help ensure consistency with international practices for pricing related-party transactions and allow businesses to use globally recognized methodologies.

  • Documentation Requirements:

    • Romania’s transfer pricing rules align with the OECD’s BEPS Action 13 requirements for transfer pricing documentation. Businesses in Romania are required to maintain documentation supporting their transfer pricing policies, including:

      • Master File: A document providing an overview of the multinational group, its global operations, and transfer pricing policies.

      • Local File: A document containing detailed information on the taxpayer’s local transactions with related parties.

      • Country-by-Country Reporting (CbCR): For larger multinational groups, Romania requires CbCR if the consolidated revenue exceeds the prescribed threshold. This aligns with BEPS Action 13, which aims to enhance transparency by providing detailed financial and tax data for each country in which the multinational operates.

    • These documentation requirements ensure transparency and prevent tax avoidance by providing tax authorities with a clear picture of multinational enterprises’ operations.

  • Adherence to OECD’s BEPS Action Plan:

    • Romania has aligned its transfer pricing rules with the OECD’s BEPS Action Plan, particularly with Action 8 to 10 on intangibles, Action 13 on documentation, and Action 5 on harmful tax practices.

    • The implementation of Country-by-Country Reporting (CbCR) in Romania is a direct result of BEPS Action 13, which mandates multinational groups to report their income, taxes, and business activities by jurisdiction, increasing tax transparency and ensuring that taxes are paid where economic activities occur.

  • Penalties for Non-Compliance:

    • Romania has incorporated penalties for non-compliance with its transfer pricing rules, including failure to submit required documentation or adjust prices in accordance with the arm’s length principle. These penalties align with international standards, ensuring that businesses adhere to proper transfer pricing practices.

    • This is consistent with the OECD guidelines, which recommend imposing penalties for non-compliance to ensure that taxpayers are incentivized to comply with transfer pricing rules.

  • Cross-Border Dispute Resolution:

    • Romania follows the OECD Model Tax Convention for resolving cross-border transfer pricing disputes, including provisions for Mutual Agreement Procedures (MAP). The MAP procedure allows taxpayers to resolve disputes over the interpretation of tax treaties and avoid double taxation, which is in line with international dispute resolution mechanisms.

  • Focus on Economic Substance:

    • Romania’s transfer pricing framework emphasizes the importance of economic substance in transactions, aligning with the OECD’s focus on ensuring that tax outcomes correspond to the economic realities of transactions.

    • This includes ensuring that profits are allocated where value is actually created, which is particularly relevant in the context of intangible assets and finance-related transactions.

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Romania’s transfer pricing regulations also align with EU directives, which provide a harmonized approach to taxation across EU member states. These directives aim to enhance tax transparency, reduce tax avoidance, and prevent profit shifting within the EU. Here’s how Romania’s transfer pricing framework aligns with relevant EU directives:

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  • EU Anti-Tax Avoidance Directive (ATAD):

    • The Anti-Tax Avoidance Directive (ATAD), adopted by the European Union, aims to tackle tax avoidance practices and aligns with OECD’s BEPS recommendations.

    • Romania, as an EU member state, implements the provisions of ATAD, which include rules on controlled foreign companies (CFC), interest deduction limitations, and hybrid mismatches.

    • The transfer pricing rules in Romania are designed to ensure that cross-border transactions and profit allocations comply with the OECD's arm’s length principle and align with EU anti-avoidance rules.

    • Specifically, Romania follows ATAD's rules on taxpayer reporting requirements and documentation, ensuring the alignment of transfer pricing policies with EU-wide measures against tax avoidance.

  • EU Directive on Administrative Cooperation (DAC6):

    • The EU Directive on Administrative Cooperation (DAC6) requires intermediaries (such as tax advisors and accountants) and businesses to report certain cross-border arrangements that have the potential to be used for aggressive tax planning.

    • Romania is required to comply with DAC6, which includes mandatory reporting of arrangements that could potentially involve transfer pricing risks.

    • The implementation of DAC6 enhances transparency and ensures that potentially harmful tax arrangements are identified and reported to tax authorities, including transfer pricing schemes that may be used to shift profits or evade taxes.

  • EU Directive on the Common Consolidated Corporate Tax Base (CCCTB):

    • The Common Consolidated Corporate Tax Base (CCCTB) is an EU proposal aimed at harmonizing tax rules for multinational companies operating within the EU.

    • The CCCTB would allow businesses to compute their taxable base consolidated at the EU level and allocate the tax base across EU member states based on a formula, which would include factors like sales, employees, and assets.

    • While Romania does not yet participate in a fully consolidated tax base, it follows the general principles of the CCCTB as they apply to transfer pricing and profit allocation between related parties.

    • The CCCTB proposal is aligned with the OECD guidelines and ensures that profit allocation within the EU is fair and in line with economic activity, which is also a core principle of Romania's transfer pricing rules.

  • EU Directive on Dispute Resolution Mechanisms (EU Arbitration Convention):

    • The EU Arbitration Convention provides a framework for resolving tax disputes between EU member states, including issues related to transfer pricing adjustments.

    • Romania, as an EU member state, adheres to the EU Arbitration Convention, which helps resolve disputes over double taxation arising from transfer pricing adjustments.

    • This directive ensures that businesses operating in Romania (and across the EU) can resolve transfer pricing-related disputes in a fair and efficient manner, minimizing the risk of double taxation and providing a multilateral dispute resolution process.

  • EU Directives on Tax Transparency:

    • The EU's tax transparency initiatives focus on ensuring that businesses operating within the EU maintain transparent tax reporting to reduce opportunities for tax evasion and profit shifting.

    • Romania’s transfer pricing legislation is aligned with these initiatives by requiring businesses to submit detailed transfer pricing documentation, including the Master File, Local File, and Country-by-Country Reporting (CbCR) for larger multinational groups.

    • These requirements ensure that businesses in Romania provide sufficient disclosure of their tax practices, and their intercompany transactions, which is in line with the EU’s broader goals of tax transparency.​​​

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3. Scope and Application of Transfer Pricing Rules

 

3.1 Definition of Related Parties

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Under Romanian transfer pricing laws, the definition of related parties aligns with the OECD Transfer Pricing Guidelines and focuses on the ability to control, influence, or significantly affect the financial and operational decisions of another entity. The key criteria for defining related parties in Romania are as follows:

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  • Control and Influence:

    • A related party relationship exists when one entity has the ability to control or significantly influence the decisions of another entity. This can occur through ownership, voting rights, or other means of influence.

  • Ownership:

    • An entity is considered related to another if it owns directly or indirectly at least 25% of the share capital or voting rights of the other entity. Alternatively, if one entity can exercise control or substantial influence over another, it will be deemed a related party, even if its ownership is below 25%.

  • Family and Personal Relationships:

    • Related parties also include entities where there are family relationships or personal relationships that enable an individual or entity to control or influence another entity. This includes cases where individuals or families have significant ownership stakes in different companies and their business decisions are interlinked.

  • Affiliates and Subsidiaries:

    • Parent companies, subsidiaries, and other affiliates within the same corporate group are considered related parties if one entity can exercise control over the other.

  • Partnerships and Joint Ventures:

    • Entities involved in partnerships or joint ventures where there is shared control over the business operations may also be considered related parties under Romanian law.

  • Indirect Ownership:

    • Even if control is exercised indirectly through intermediate entities (e.g., through ownership of shares or voting rights in a chain of companies), these entities are still considered related parties if the overall control surpasses the threshold.

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3.2 Types of Transactions Covered

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Under Romanian transfer pricing laws, the definition of related parties aligns with the OECD Transfer Pricing Guidelines and focuses on the ability to control, influence, or significantly affect the financial and operational decisions of another entity. The key criteria for defining related parties in Romania are as follows:

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  • Control and Influence:

    • A related party relationship exists when one entity has the ability to control or significantly influence the decisions of another entity. This can occur through ownership, voting rights, or other means of influence.

  • Ownership:

    • An entity is considered related to another if it owns directly or indirectly at least 25% of the share capital or voting rights of the other entity. Alternatively, if one entity can exercise control or substantial influence over another, it will be deemed a related party, even if its ownership is below 25%.

  • Family and Personal Relationships:

    • Related parties also include entities where there are family relationships or personal relationships that enable an individual or entity to control or influence another entity. This includes cases where individuals or families have significant ownership stakes in different companies and their business decisions are interlinked.

  • Affiliates and Subsidiaries:

    • Parent companies, subsidiaries, and other affiliates within the same corporate group are considered related parties if one entity can exercise control over the other.

  • Partnerships and Joint Ventures:

    • Entities involved in partnerships or joint ventures where there is shared control over the business operations may also be considered related parties under Romanian law.

  • Indirect Ownership:

    • Even if control is exercised indirectly through intermediate entities (e.g., through ownership of shares or voting rights in a chain of companies), these entities are still considered related parties if the overall control surpasses the threshold.

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3.3 Exemptions and Simplifications

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Romania's transfer pricing guidelines and documentation requirements include certain exemptions that reduce the compliance burden for smaller businesses or transactions that are deemed less complex. Here are the key exemptions to the transfer pricing guidelines and documentation requirements in Romania:

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  • Exemption Based on Annual Revenue Threshold:

    • Businesses with annual consolidated revenue below a certain threshold are exempt from the more extensive transfer pricing documentation requirements.

    • For Romanian transfer pricing regulations, the revenue threshold for mandatory documentation is typically EUR 200 million in consolidated group revenue. Companies below this threshold are not required to prepare the Master File, Local File, or submit Country-by-Country Reporting (CbCR).

    • While these businesses are not required to submit detailed documentation, they must still ensure that their related-party transactions are priced according to the arm's length principle.

  • Simplified Documentation for Small Businesses:

    • For small and medium-sized enterprises (SMEs) that meet the revenue threshold, simplified transfer pricing documentation requirements may apply. These businesses might not need to prepare the full documentation typically required for larger entities, such as the Master File and Local File.

    • Instead, they may need to submit a simplified transfer pricing study that only includes basic information, such as a description of related-party transactions and a summary of the transfer pricing method applied.

  • Low-Value-Added Services:

    • Romania’s transfer pricing regulations provide simplified compliance for transactions involving low-value-added services (e.g., administrative, support, IT, and other routine services).

    • If the services provided are deemed low-value-added (routine services that do not create significant value or intellectual property), companies may be able to apply simplified methods for determining pricing, and in some cases, may not be required to provide extensive documentation.

    • In these cases, businesses typically apply a mark-up on costs or use a cost-plus method to determine the arm's length price.

  • Intra-Group Financial Transactions:

    • Certain intra-group financing transactions, such as loans or guarantees, may be exempt from full documentation requirements if they meet specific conditions (e.g., straightforward loan arrangements with market interest rates).

    • However, the interest rates on these transactions must still comply with the arm's length principle, and businesses must be able to justify that the terms align with what independent entities would have agreed upon.

  • Transactions Involving Non-Taxable or Exempt Entities:

    • Transactions conducted with entities that are non-taxable or exempt from tax (such as certain public entities or charitable organizations) may not require the same level of transfer pricing documentation.

    • However, businesses must still ensure that related-party transactions are at arm’s length, and that any tax-exempt status does not result in unjustifiable tax advantages.

  • Transactions Between Domestic Related Parties:

    • Transactions involving domestic related parties (i.e., within Romania) may be subject to less stringent documentation compared to cross-border transactions. However, the arm's length principle still applies, and businesses must maintain appropriate documentation to demonstrate compliance with it if requested by the National Agency for Fiscal Administration (ANAF) during an audit.

  • Other Simplifications:

    • For businesses engaging in routine, non-complex transactions with low risk of tax avoidance, Romania provides some flexibility in applying simplified transfer pricing methods and documentation.

    • For example, Romania allows businesses to apply simplified approaches to determining pricing for intercompany transactions where there is minimal risk of profit shifting or tax avoidance.

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4. The Arm’s Length Principle

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At the core of Romania’s transfer pricing regulations is the arm’s length principle, which ensures that transactions between related parties are priced as if they were conducted between independent entities. This principle is essential to prevent the artificial shifting of profits and to ensure that taxable income accurately reflects economic substance.

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4.1 Determination of Arm’s Length Price

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Romanian taxpayers must use reliable, internationally accepted methods to determine the arm’s length price. Common methods include:

  • Comparable Uncontrolled Price (CUP) Method: Compares the price in a controlled transaction with that in a comparable uncontrolled transaction.

  • Cost Plus Method: Adds an appropriate profit margin to the costs incurred by the supplying entity.

  • Transactional Net Margin Method (TNMM): Compares net profit margins from controlled transactions with those from similar independent companies.

  • Resale Price Method: Bases the arm’s length price on the margin earned by a reseller in a similar uncontrolled transaction.

  • Profit Split Method: Allocates the combined profits from intercompany transactions based on the relative economic contributions of each entity.

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4.2 Comparability and Functional Analysis

 

A robust comparability analysis is vital to justify the chosen method:

  • Functional Analysis: A detailed assessment of the functions performed, risks assumed, and assets employed by each party in the transaction.

  • Economic Analysis: Consideration of market conditions, competitive dynamics, and industryspecific factors that may influence pricing.

  • Contractual Analysis: Review of the contractual terms governing the transaction, including pricing, payment terms, and any performance-related clauses.

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5. Documentation and Disclosure Requirements

 

Maintaining thorough documentation is a cornerstone of Romania’s transfer pricing regime. Taxpayers are required to prepare and retain detailed records that demonstrate compliance with the arm’s length principle.

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5.1 Key Documentation Elements

 

In Romania, the documentation requirements for transfer pricing are designed to ensure that transactions between related parties are priced in accordance with the arm's length principle. These requirements align with OECD Transfer Pricing Guidelines and EU directives on transparency and tax compliance. The main documentation requirements for transfer pricing in Romania include:

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  • Master File:

    • The Master File provides a comprehensive overview of the multinational enterprise (MNE) group and its global transfer pricing policies.

    • This file should include:

      • Organizational structure of the MNE group.

      • Description of the business and financial activities, including a detailed explanation of the group’s global supply chain, operations, and business model.

      • Financial information at the group level.

      • Intangible assets, including details of how IP is transferred within the group, and the transfer pricing method applied to these assets.

      • Financial arrangements, including intercompany financing and related-party loans.

      • Tax policies applied within the group.

  • Local File:

    • The Local File focuses on the local entity’s intercompany transactions and the transfer pricing methods applied to those transactions.

    • This file should include:

      • Detailed information on related-party transactions conducted by the local entity, including nature and amount of the transactions (e.g., goods, services, financial arrangements, etc.).

      • The transfer pricing method used to determine the arm’s length price for these transactions.

      • Economic analysis to support the application of the selected transfer pricing method, including a comparability analysis and benchmarking studies.

      • Financial statements of the local entity for the relevant fiscal year.

      • Description of the contractual terms and conditions for the transactions.

      • Explanation of the allocation of profits, especially in cases involving intangibles or complex intercompany arrangements.

  • Country-by-Country Reporting (CbCR):

    • For multinational enterprises (MNEs) with consolidated revenues exceeding the reporting threshold (typically around €750 million or the equivalent in local currency), Romania requires the submission of Country-by-Country Reporting (CbCR).

    • CbCR provides a breakdown of the global allocation of income, taxes, and business activities for each country in which the MNE operates.

    • The report includes:

      • Total revenue by country.

      • Profit before tax by country.

      • Income tax paid and accrued tax by country.

      • Number of employees, capital, and assets in each country.

      • List of subsidiaries in each jurisdiction.

  • Transfer Pricing Documentation File:

    • Romania requires that businesses maintain an internal transfer pricing documentation file that should be prepared in advance of filing the tax return.

    • The documentation should be sufficient to demonstrate compliance with the arm’s length principle and must be readily available for submission to the National Agency for Fiscal Administration (ANAF) upon request.

    • Documentation must be updated annually and submitted to ANAF within 15 days of request during an audit.

  • Simplified Documentation for Small Entities:

    • For businesses with annual consolidated revenue below a specified threshold (typically €200 million), the documentation requirements may be simplified.

    • In such cases, businesses may be required to provide only a simplified transfer pricing study to support the arm’s length pricing of their transactions.

    • The simplified documentation often includes only the basic details of the related-party transactions and the methodology used.

  • Content of the Documentation:

    • The Romanian transfer pricing documentation must include:

      • Description of the related-party transactions and the methodologies used to set the transfer prices.

      • Analysis of the comparability between related-party and independent-party transactions.

      • Financial statements and relevant accounting records.

      • Benchmarking studies or market comparisons supporting the transfer pricing method used.

      • Contractual arrangements between related entities.

      • Functional analysis that explains the role of each entity in the transaction and the value it contributes (e.g., risks, assets, functions).

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5.2 Timing and Accessibility

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In Romania, the deadlines for each type of transfer pricing documentation are designed to ensure timely compliance with tax regulations and to allow tax authorities to assess whether the intercompany transactions comply with the arm's length principle. Below are the key deadlines for the various types of transfer pricing documentation in Romania:

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  • Master File:

    • The Master File should be prepared annually and maintained up-to-date. There is no specific deadline for submitting the Master File, as it should be available for review upon request from the National Agency for Fiscal Administration (ANAF) during a tax audit.

    • Businesses are required to keep the Master File on hand and make it available for submission within 15 days if requested by ANAF.

  • Local File:

    • The Local File must be submitted along with the annual tax return. For most companies, the tax return is due within 15 days after the end of the fiscal year, or by March 15th of the following year if the fiscal year ends on December 31st.

    • The documentation for related-party transactions (including the Local File) must be prepared in advance of submitting the corporate income tax return and should be available for submission upon request by ANAF during an audit.

  • Country-by-Country Reporting (CbCR):

    • The Country-by-Country Report (CbCR) is required for multinational enterprises (MNEs) with consolidated revenues exceeding the threshold set by the OECD BEPS Action 13 (typically €750 million).

    • The CbCR must be submitted within 12 months after the end of the fiscal year of the ultimate parent company in the MNE group. This typically means that the CbCR must be filed by December 31st of the following year if the group’s fiscal year ends on December 31st.

    • The CbCR can be filed through the ANAF’s online portal, and must be done by the ultimate parent company or the local entity if the parent company does not file the report.

  • Transfer Pricing Documentation (General Requirement):

    • Romanian tax authorities require companies to maintain transfer pricing documentation and to submit it upon request by ANAF. The documentation must be prepared before the submission of the annual tax return.

    • If requested by ANAF, the documentation must be submitted within 15 days of the request. This includes both the Master File and Local File.​

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5.3 Penalties for Non-Compliance

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In Romania, non-compliance with transfer pricing regulations can result in a range of penalties and consequences designed to encourage proper documentation and ensure that related-party transactions comply with the arm’s length principle. Here are the key penalties and consequences for non-compliance under Romanian transfer pricing laws:

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  • Failure to Submit Documentation:​

    • Penalties for non-compliance may range from RON 1,000 to RON 5,000 (approximately EUR 200 to EUR 1,000) for minor failures. For significant violations, penalties could increase significantly.

  • If a business fails to submit the required transfer pricing documentation (such as the Master File, Local File, or Country-by-Country Reporting (CbCR)) upon request by the National Agency for Fiscal Administration (ANAF), the company may be subject to fines.

  • Failure to Maintain Documentation:

    • If a company fails to maintain the necessary transfer pricing documentation in advance of the tax return filing or does not have proper supporting documentation to justify its intercompany transactions, ANAF can issue a penalty for failing to meet the documentation requirements.

    • The penalty for missing or incomplete documentation can be up to RON 100,000 (approximately EUR 20,000), depending on the severity of the non-compliance.

  • Transfer Pricing Adjustments:

    • ANAF has the authority to make transfer pricing adjustments if it determines that the pricing of intercompany transactions does not meet the arm's length standard.

    • The adjustments can lead to additional tax assessments, where ANAF may increase the taxable income or reduce deductible expenses for the company.

    • These adjustments can also result in higher taxes owed for the company, as ANAF may revise the income allocated to Romania and increase the amount of taxes due on the intercompany transactions.

  • Late Payment of Taxes:

    • If the tax adjustments result in higher tax liabilities, businesses must pay the additional tax owed to ANAF.

    • Late payment penalties will apply, typically ranging from 1% to 5% per month of the overdue amount, depending on how long the payment is delayed.

    • In addition to the late payment penalty, interest is charged on overdue amounts, further increasing the total amount due.

  • Failure to Submit Country-by-Country Reporting (CbCR):

    • For businesses subject to Country-by-Country Reporting (CbCR), failure to submit the report on time or in accordance with Romanian regulations may lead to significant penalties.

    • Penalties for non-compliance with CbCR submission include fines ranging from RON 10,000 to RON 50,000 (approximately EUR 2,000 to EUR 10,000).

    • In cases of repeated failure to comply with CbCR, penalties can increase, and the company may face heightened scrutiny from ANAF.

  • Disallowance of Expenses:

    • If transfer pricing documentation is not submitted or is found to be insufficient or incorrect, ANAF can disallow certain intercompany expenses. This can lead to higher taxable income for the business.

    • The disallowed expenses may lead to an increase in the taxable income of the company, which can also result in additional tax liabilities.

  • Increased Audit Scrutiny:

    • Non-compliance with transfer pricing documentation requirements can result in increased audit scrutiny from ANAF. Companies that fail to comply with transfer pricing regulations may be subject to more frequent or more detailed audits, increasing the risk of further penalties and tax adjustments.

    • Companies with recurring non-compliance issues may face more extensive audits in subsequent years.

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6. Transfer Pricing Adjustments

 

In Romania, the National Agency for Fiscal Administration (ANAF) has the authority to make various transfer pricing adjustments if related-party transactions do not comply with the arm's length principle. These adjustments ensure that taxable income is properly aligned with market standards and prevent profit shifting or tax avoidance. The following are the key transfer pricing adjustments available to ANAF under Romanian law:

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  • Income Adjustments:

    • ANAF can adjust the taxable income of a company if it finds that the intercompany transactions are not priced in accordance with the arm's length principle.

    • For example, if the sale price of goods or services between related parties is deemed too low (below market value), ANAF may increase the taxable income of the selling entity to reflect an arm’s length price.

    • Conversely, if the price is too high (above market value), ANAF can reduce the taxable income of the purchasing entity.

  • Expense Adjustments:

    • ANAF can disallow or adjust deductible expenses if they are deemed excessive or inconsistent with what independent entities would agree upon.

    • For example, if a company claims inflated expenses for goods or services received from a related party, ANAF may reduce the amount of the expense deductions, increasing the taxable income of the entity.

    • The adjustments may affect various categories of expenses, including management fees, administrative costs, and royalties.

  • Interest Rate Adjustments in Financing Transactions:

    • For intercompany financing transactions, such as loans, guarantees, or other financial arrangements, ANAF may adjust the interest rates to reflect what would be agreed upon between independent parties under similar circumstances.

    • If the interest rate on an intercompany loan is set too low (or non-existent), ANAF can increase the interest income for the lender and increase the interest expense for the borrower, resulting in higher taxable income for the lending entity and reduced deductions for the borrowing entity.

    • Similarly, if the terms of financing (such as repayment terms or collateral requirements) are not consistent with market conditions, ANAF may adjust the terms to align with arm's length standards.

  • Adjustments for Intangible Assets:

    • In cases where there are intangible assets such as patents, trademarks, or intellectual property, ANAF may adjust the allocation of profits or royalty payments between related entities to reflect what would have been agreed upon in an independent party transaction.

    • For instance, if one entity in a group holds valuable intellectual property but another entity generates most of the income from its use, ANAF can adjust the royalty or license fee payments to reflect a fair allocation of profits based on the contribution of each entity.

  • Recharacterization of Transactions:

    • ANAF has the authority to recharacterize transactions between related parties if the terms of the transactions do not reflect what would occur between independent entities.

    • For example, if a company claims a loan transaction between related parties but, upon investigation, it is found that the economic substance of the transaction is closer to an equity investment, ANAF may recharacterize the transaction and treat it as equity, which could result in different tax treatment.

  • Profit Allocation Adjustments:

    • ANAF can adjust the allocation of profits among different related entities in cases where the profit distribution does not align with the economic activities of the entities involved.

    • For example, if profits are being shifted to a related entity in a jurisdiction with a lower tax rate (e.g., through royalty payments or excessive service charges), ANAF can adjust the allocation of profits to ensure that they reflect the actual value created in Romania.

  • Adjustments for Low-Value-Added Services:

    • Romania allows for simplified transfer pricing adjustments for low-value-added services (e.g., administrative or back-office services) that are provided between related parties. These services may be priced using a cost-plus method or other simplified methods to determine an arm's length price.

    • ANAF may review these services and adjust the pricing if the markup or cost allocation is inconsistent with what independent entities would charge for similar services.

  • Adjustments for Permanent Establishments:

    • If a permanent establishment (PE) is created in Romania through the allocation of profits or risks between related entities, ANAF may adjust the profit allocation to ensure that profits are properly attributed to the PE based on its actual activities in Romania.

    • This is in line with the OECD guidelines for determining the appropriate allocation of profits for a permanent establishment, which must be based on the functions, assets, and risks associated with the PE.

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7. Advance Pricing Agreements (APAs) and Mutual Agreement Procedures (MAPs)

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To provide greater certainty and resolve disputes, Romania offers mechanisms similar to those found in other OECD jurisdictions:

 

7.1 Advance Pricing Agreements (APAs)

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  • Step 1: Submission of Application:

    • The taxpayer seeking an APA must submit a formal application to ANAF, requesting an agreement on the transfer pricing method for the related-party transactions in question.

    • The application should include:

      • Detailed information about the related-party transactions, including the goods, services, or financial arrangements involved.

      • The proposed transfer pricing method that the taxpayer intends to use, along with supporting documentation (e.g., functional analysis, benchmarking studies).

      • A description of the business model and the structure of the multinational group.

  • Step 2: Review of the Application:

    • ANAF reviews the application to determine whether the proposed method is in line with the arm's length principle and is appropriate for the transactions involved.

    • If the application is for a bilateral or multilateral APA, ANAF will also engage with the foreign tax authorities to begin discussions on reaching an agreement that satisfies both jurisdictions.

  • Step 3: Negotiations:

    • For a bilateral or multilateral APA, ANAF will initiate negotiations with the tax authorities of the other involved jurisdictions.

    • During this phase, ANAF and the foreign tax authorities will exchange information and negotiate the appropriate transfer pricing method, ensuring consistency between the agreed-upon terms and the arm's length principle.

    • If necessary, functional analysis and comparability studies are revisited to ensure the agreed pricing is appropriate.

  • Step 4: Agreement and Approval:

    • Once the transfer pricing method is agreed upon by the taxpayer and ANAF (and the foreign tax authorities in the case of a bilateral or multilateral APA), a formal APA agreement is signed.

    • The APA specifies:

      • The transfer pricing method that will be applied.

      • The specific terms and conditions of the related-party transactions covered by the APA.

      • The duration of the agreement (typically 3 to 5 years).

      • Any relevant adjustments or modifications to previous agreements, if applicable.

  • Step 5: Compliance and Monitoring:

    • After the APA is signed, the taxpayer must comply with the agreed-upon transfer pricing method and submit annual reports to ANAF to confirm that the transactions continue to adhere to the terms of the APA.

    • ANAF may perform periodic monitoring to ensure compliance with the terms of the agreement.

    • If any significant changes occur in the business model or transfer pricing arrangements, the taxpayer may need to amend or renew the APA.

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7.2 Mutual Agreement Procedures (MAPs)

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  • Step 1: Initiation of the MAP:

    • The taxpayer (whether an individual or corporation) must submit a formal request to ANAF to initiate the MAP.

    • The request must be made within 3 years from the first notification of the tax adjustment, transfer pricing dispute, or the event causing the double taxation.

    • The request should include detailed information about the dispute, the relevant tax treaty provisions, and an explanation of why the taxpayer believes that double taxation is occurring.

  • Step 2: Review of the Request:

    • ANAF reviews the taxpayer’s request to determine whether the case is covered by an applicable Double Taxation Agreement (DTA) between Romania and the other country involved.

    • The request is assessed to determine if the dispute is related to a transfer pricing issue or another matter within the scope of the DTA.

  • Step 3: Engaging with Foreign Tax Authorities:

    • For bilateral MAP, ANAF will communicate and engage with the tax authority of the other country involved to resolve the issue.

    • In cases of multilateral MAP, ANAF will coordinate with more than one tax authority to reach a resolution.

    • The relevant foreign tax authorities and ANAF will discuss the issue, exchange information, and try to reach an agreement on how to resolve the dispute, including how the income should be allocated between the jurisdictions.

  • Step 4: Resolution and Agreement:

    • Once an agreement is reached between the involved tax authorities, they issue a mutual agreement on how the dispute will be resolved. This agreement typically outlines the following:

      • The transfer pricing method to be applied.

      • How income should be allocated between the countries involved.

      • The adjustments needed to ensure that there is no double taxation on the taxpayer’s income.

    • The mutual agreement is binding on the tax authorities of both jurisdictions and provides the taxpayer with certainty regarding the resolution of the dispute.

  • Step 5: Implementation:

    • Once the mutual agreement is made, the tax authorities will implement the resolution by adjusting the tax liabilities of the taxpayer to reflect the agreed-upon terms.

    • This may involve the adjustment of income, deductions, or tax assessments in the relevant jurisdictions to eliminate double taxation.

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8. Industries and Transactions with Higher Transfer Pricing Risk

 

Certain industries and transaction types pose a higher risk due to their inherent complexity and the potential for profit shifting.

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8.1 High Risk Industries

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  • Manufacturing and Distribution:

    • Nature of Transactions: Often involves multistage production and complex supply chains, where pricing for raw materials, components, and finished goods is critical.

    • Risk Factors: Complex cost allocations and intercompany dependencies require thorough functional and comparability analyses.

  • Financial Services:

    • Nature of Transactions: Involves intragroup financing, guarantees, and other financial instruments.

    • Risk Factors: Accurate pricing is essential to reflect market and credit risks, with mispricing potentially resulting in significant adjustments.

  • Technology and Intellectual Property:

    • Nature of Transactions: Licensing, royalty arrangements, and transfers of intangible assets such as patents and software.

    • Risk Factors: Valuation of intangibles is inherently challenging due to rapid innovation cycles and a lack of directly comparable data.

  • Pharmaceuticals and Life Sciences:

    • Nature of Transactions: Encompasses R&D, licensing of innovations, and distribution agreements.

    • Risk Factors: High investments in R&D and the allocation of returns on innovation require robust economic analysis and detailed documentation.

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8.2 High Risk Transaction Types

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  • Intercompany Financing:

    • Key Considerations: Determining appropriate interest rates, fees, and risk premiums for loans and guarantees.

    • Risk Factors: Volatile market conditions and potential mispricing can lead to substantial adjustments.

  • Intangible Asset Transfers and Licensing:

    • Key Considerations: Accurate valuation of intellectual property and other intangibles.

    • Risk Factors: Rapid technological change and difficulty in obtaining comparable data increase complexity.

  • Service Agreements and Cost Sharing:

    • Key Considerations: Appropriate allocation of costs and benefits for shared services and centralized management functions.

    • Risk Factors: Requires comprehensive functional analysis to ensure that pricing is consistent with arm’s length principles.

  • Capital Asset Transactions:

    • Key Considerations: Transfers of significant fixed assets or equity interests require robust independent valuation.

    • Risk Factors: Incorrect valuation may significantly impact taxable income, capital gains, and depreciation calculations.

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9. Challenges and Emerging Trends

 

9.1 Digital Economy and New Business Models

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  • Valuation of Digital Assets: Traditional valuation methods may need adaptation to accurately capture the value of digital assets and data driven business models.

  • Complex Global Supply Chains: The increasing digitalization and globalization of supply chains add complexity to establishing comparability and appropriately allocating income.

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9.2 Evolving International Standards and BEPS Initiatives

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  • Integration of BEPS Measures: Romania continues to align its transfer pricing framework with OECD BEPS recommendations, impacting documentation, adjustment mechanisms, and disclosure obligations.

  • Enhanced Transparency: Global initiatives toward greater tax transparency result in more detailed reporting requirements and improved information exchange among tax authorities.​

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10. Future Outlook and Recommendations

 

10.1 Continuous Monitoring and Proactive Management

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  • Dedicated Transfer Pricing Teams: Establish specialized teams to monitor regulatory changes, market trends, and ensure ongoing compliance.

  • Regular Policy Updates: Continuously review and update transfer pricing policies to reflect current business operations and evolving regulatory requirements.

  • Investment in Technology: Leverage advanced data analytics and IT systems to enhance benchmarking accuracy and streamline documentation processes.

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10.2 Strengthening Engagement with Tax Authorities

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  • Advance Pricing Agreements (APAs): Engage early with tax authorities to negotiate APAs and secure clarity on transfer pricing methodologies for complex transactions.

  • Utilize Mutual Agreement Procedures (MAPs): Where disputes arise, actively participate in MAP processes to resolve cross border issues and avoid double taxation.

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10.3 Preparing for Heightened Regulatory Scrutiny

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  • Enhanced Documentation: Ensure that all transfer pricing documentation is comprehensive, current, and aligned with both domestic and international standards.

  • Ongoing Training: Regularly update the expertise of personnel involved in transfer pricing to stay informed about evolving methodologies and regulatory expectations.​​​

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