The importance of preparing the transfer pricing report
18 February 2025
Due to the growing interest of the Romanian tax authorities in transactions between affiliated companies, transfer pricing audits have become more frequent.
Given the emphasis placed by NAFA on verifying intra-group transactions and the tax risk category in which a taxpayer falls, it is important for companies to have supporting documentation for transactions carried out with affiliates and to identify and monitor potential risks, to avoid adjustments resulting from a transfer pricing audit.
Change in the classification of taxpayers by size categories
In 2024, NAFA updated the lists of large and medium taxpayers. Therefore, companies need to check if there are any changes regarding their classification, especially for those that were previously classified as small or medium taxpayers.
The obligation to prepare the transfer pricing report
Taxpayers conducting transactions with affiliated companies, where the total annual value is greater than or equal to any of the significance thresholds detailed below, are required to prepare and present the transfer pricing documentation at the request of the tax inspectors.
Below are presented the specific terms and conditions for each taxpayer category:
| Taxpayer category | The deadline for providing the transfer pricing documentation |
|---|---|
Large taxpayers are required to prepare the transfer pricing documentation annually. It can be requested by the tax authority even outside of a tax audit, and the documentation must be presented at the request of the tax inspection authority. The annual materiality thresholds for the analysis of intra-group transactions are:
| In the case of a transfer pricing audit, the deadline for providing the report is a maximum of 10 calendar days from the date of the request, but not earlier than 10 days after the expiration of the legal deadline for its preparation (i.e., the deadline set for the submission of annual profit tax returns for each fiscal year) (!) Companies that are part of the category of large taxpayers are required to prepare the transfer pricing documentation annually, before receiving an official request in this regard. Given the number and complexity of transactions carried out with affiliated companies, the 10-day deadline for providing the report is insufficient for its preparation in the case of a transfer pricing audit. |
Taxpayers in the category of large taxpayers, as well as taxpayers/payers in the categories of small and medium taxpayers, are required to prepare and present the transfer pricing documentation only at the request of the tax authority, within the framework of a tax audit. The annual materiality thresholds for the analysis of intra-group transactions are:
| In the case of a tax audit, the deadline for providing the report will be established by the tax authorities through the transfer pricing report request form. The deadline will range from 30 to 60 calendar days, with the possibility of a one-time extension, upon the taxpayer's written request, for a maximum period of 30 calendar days. (!) It is recommended that companies in this category prepare the transfer pricing report annually, to document compliance with the arm's length principle in transactions with affiliated parties and to make any necessary adjustments, if applicable. |
The advantages of preparing the transfer pricing file
Firstly, 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, which can be corrected before an inspection begins. Considering that such adjustments also affect affiliated companies, coordination with the group is essential, especially in the case of transactions with non-resident affiliated companies.
Furthermore, if a company does not have the transfer pricing report prepared, the tax authorities can impose fines and adjust transactions based on comparability studies conducted by inspectors. Any transfer pricing adjustment thus leads to an increase in the taxable base in Romania, to which interest and penalties are added. In this context, collaboration with the group's representatives becomes essential, given the risk of double taxation in transactions with non-resident affiliated companies.
Another important aspect is the review and justification of the transfer pricing policy at the local level, as well as providing a clear overview for the group regarding documentation obligations in Romania and the associated risk level.
Additionally, we reiterate that the deadline granted by the authorities for the preparation and submission of the transfer pricing file 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 the tax authorities during the tax audit.
Documentation prepared at the Group level
In many situations, the documentation for the Group entities is prepared at the central level, in accordance with the OECD Guidelines. Therefore, companies in Romania should review and adapt the report prepared at the Group level to ensure that it meets the legal requirements in Romania.
From practice, some of the risks that can be identified regarding the documentation prepared at the Group level include:
- Specific criteria of Romanian legislation for comparability studies - according to Romanian legislation, comparability analyses must be conducted for the Romanian market. If independent comparables are not identified, they can be extended to the EU market, Pan-European, or International level. Most of the time, analyses are conducted directly on the EU market, without complying with local legislation, and in the case of an audit, the tax authorities may request a different study.
- The lack of adaptation of the group's documentation to the requirements of Romanian legislation.
- Economic analyses that are not included in the local report, from the perspective of transaction values. Therefore, the transfer pricing report must include all material transactions carried out locally, in accordance with legal provisions.
- The lack of a functional analysis for all material transactions carried out locally and, in some cases, the absence of conclusions in the economic analysis.
Given that tax audits regarding transfer pricing are becoming increasingly frequent, we recommend that companies document intra-group transactions in advance, to identify risks that should be addressed before the tax audit begins or, if necessary, to prepare the appropriate supporting documents.
