Transfer pricing is a concept applicable to related party transactions. Transfer pricing deals with determination of the prices charged between associated companies belonging to the same group (intra-group pricing arrangements).
Transactions between related parties should observe the arm's length principle. As such, prices charged in related party transactions should not differ from prices charged in third party transactions under comparable circumstances (market value).
Are you part of a group of companies?
Do you carry out transactions with other companies in your group?
Do you want to be compliant with Romanian transfer pricing documentation rules?
Are you looking for opportunities to restructure your business operation in a tax efficient manner?
If yes, transfer pricing is of interest to you!
Why is transfer pricing a must on your agenda?
- The current economic context and the need to stay competitive puts pressure on your transfer pricing policy;
- Transfer pricing has become one of the most frequent and disputed areas of tax investigation;
- Transfer pricing adjustments are the most frequent trigger of economic double taxation;
- Transfer prices affect not only your tax position, but also your key performance indicators, cash flow and business strategy;
- A number of transfer pricing investigations have resulted in significant adjustments of the local taxable result and entailed material additional profit tax liabilities and related late-payment interest and penalties;
- You aim to streamline your business operations and align your transfer pricing policy accordingly.
What are the local Romanian transfer pricing regulations?
- Domestic and cross-border transactions between related parties must be carried out at arm’s length;
- Taxpayers engaged in related party transactions have to prepare and present a local transfer pricing documentation file at the tax authorities’ request during a tax inspection;
- The content of this file is in line with the Code of Conduct on Transfer Pricing Documentation for associated enterprises in the European Union (EUTPD);
- The deadline for presenting the transfer pricing documentation file to the tax authorities cannot exceed three calendar months following a written request, with the possibility of a single extension by a period equal to the term initially granted;
- The documentation needs to be presented in Romanian language.
What are the consequences of non-compliance?
- If your transfer prices are not set at arm’s length, the Romanian tax authorities have the right to adjust your revenues and expenses so as to reflect the market value;
- Failure to present the transfer pricing documentation file results in fines and estimation of transfer prices by the tax authorities based on generally available information on similar transactions, as the arithmetic mean of prices of three similar transactions. The same estimation occurs if your transfer pricing file is incomplete;
- The additional taxable profits resulting from this estimation or any transfer pricing adjustments are subject to the general 16% profit tax rate and related late-payment interest and penalties;
What are the benefits of a proactive approach?
- Preparing documentation in advance is the best defence against the potential negative consequences of transfer pricing audits;
- Gaining awareness of exposure areas so as to take corrective measures before a transfer pricing audit starts;
- Advance Pricing Agreements enable you to clear up-front your proposed transfer pricing policy with the Romanian tax authorities;
- A formalised transfer pricing policy facilitates a clear and structured picture of your inter-company transactions, pricing and invoicing mechanism;
- A transfer pricing analysis leads to a better awareness of your supply chain and identification of optimisation opportunities.
How can we help you?
PwC Romania can assist you with any transfer pricing matters by leveraging upon industry specific expertise:
- Preparation of your local transfer pricing documentation file by leveraging upon any group transfer pricing documentation;
- Assistance during tax audits performed by the tax authorities;
- Development and implementation of transfer pricing policies properly aligned to your business model;
- Assistance in the preparation of Advance Pricing Agreement requests and during the negotiation process;
- Assistance in assessing the local implications of your proposed group business restructuring;
- Design of tax efficient business models (including Intellectual Property migration schemes) and assistance in their implementation;
- Analysis of inter-company agreements in order to identify and address transfer pricing issues.