CMS Expert Guide to Transfer Pricing Documentation in Romania

Romania has had transfer pricing documentation requirements in place since 2008. Transactions with both non-resident related parties and domestic related parties should be documented. 

Under the transfer pricing (TP) rules, a distinction regarding TP documentation requirements based on categories of taxpayers (large, medium-sized or small), on materiality thresholds (annual value of inter-company transactions) and also on types of transactions (financial transactions, supply of services, purchases) has been introduced.  

The rules provide a first set of materiality thresholds for large taxpayers having a total annual value of inter-company transactions of: 

• EUR 200,000 for interest received/paid for financial services;
• EUR 250,000 for supply/receipt of services; 
• EUR 350,000 for purchases/sales of tangible or intangible assets. 

A second set of materiality thresholds for large taxpayers who do not meet the above mentioned criteria and for small and medium-sized taxpayers having a total annual value of inter-company transactions of: 

• EUR 50,000 for interest received/paid for financial services;
• EUR 50,000 for supply/receipt of services; 
• EUR 100,000 for purchases/sales of tangible or intangible assets. 

Large taxpayers that exceed the first set of materiality thresholds described above will have to prepare a TP file each year. Large taxpayers who do not meet the first set of materiality thresholds and small and medium-sized taxpayers that exceed the second set of materiality thresholds will have to prepare the TP file only if the Romanian tax authorities so request, during a tax audit. 

Taxpayers that do not meet the second set of thresholds will have to document that they have respected the arm’s-length principle during a tax audit, according to general tax and accounting principles. 

A TP file should not be prepared by taxpayers that have an advance pricing agreement (APA) issued by the Romanian tax authorities, for the transactions and periods covered by such APA. 

The content of the TP file is detailed in the Romanian legislation and is broadly in line with the Code of Conduct on Transfer Pricing Documentation for Associated Enterprises in the European Union (EU TPD). The TP file covers two main areas: 

1. Information on the Group such as: 
   •  the organisational, legal and operational structure of the Group; description of the transfer pricing methodology applied at Group level; 
   • general presentations of transactions between related parties within the EU (including amounts of transaction flows); 
   • the description of the main functions performed, risks assumed and assets used at group level, which contribute significantly and in a definite manner to creating added value, presented individually for each of the participating group entities; 
   • ownership of intangibles; 
   • general description of the transfer pricing policy regarding financing arrangements. 
2. Information on the Romanian taxpayer. This section provides more detailed information regarding the Romanian taxpayer and related party transactions (including domestic transactions) and should include:

•  company’s analysis, which provides the characteristics of the Romanian taxpayer that are relevant to the transfer-pricing analysis; 
• functional analysis, which should provide information on the characteristics of property or services, functions performed, risks assumed, fixed assets used, contractual terms, information on comparable domestic or foreign transactions, special economic circumstances of the transaction(s), presentation of the critical assumptions on which the TP policy was established, presentation of the reasons for applying a multiannual analysis or an annual analysis of the comparable data. 
• economic analysis, which contains the selection of the transfer pricing method and benchmarking study/studies. 

2.1 Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)? 

Should the thresholds under point 1 above be met/exceeded for a category of transactions (interests, services, goods), the taxpayer should document all transactions with related parties falling within the specific category. 

2.2 What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)? 

According to Romanian tax legislation, two legal entities are related parties if: 

• One entity holds, directly or indirectly (through the shareholding of related entities) a minimum of 25% of the number/value of shares or voting rights in the other entity, or it effectively controls the other entity; or 
• One entity/individual holds, directly or indirectly (through the shareholding of related entities) a minimum of 25% of the number/value of shares or voting rights in the two entities. 

 An individual is a related party to a legal entity if he/she holds, directly or indirectly, including the shareholding of related entities, a minimum of 25% of the number/value of shares or voting rights in the legal entity, or she/he effectively controls the legal entity. Two individuals are related parties if they are spouses or relatives up to the third degree. 

 The dealings between a Romanian permanent establishment (PE) and its foreign head office should not be included in the TP file. However, the taxable base for corporate income tax purposes at the level of the PE should be determined by treating the PE as a separate, distinct entity and by using TP rules to establish the market value for any transfer between the PE and the head office. 

2.3  For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?  

As previously mentioned, the content of the TP file is broadly in line with the EU TPD. Taxpayers should present the TP file in accordance with local rules and content requirements.  

2.4 For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach? 

The TP file is not in line with the final report on Action 13 of the BEPS project (i.e. no Country-by-Country Report details included in the local legislation). 

 As mentioned, taxpayers should present the TP file solely in accordance with local rules and content requirements. 

2.5 Do taxpayers which are not established in Romania need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer inRomania to provide information which is located in another state?  

An entity that is not an established/tax resident in Romania, nor subject to limited taxation in Romania, but is only a party to a transaction with an “associated enterprise” that is subject to TP file requirements in Romania does not have any requirement to present documents/specific information to the Romanian tax authorities. 

On the other hand, an entity that is not established/tax resident in Romania, but is subject to limited taxation in Romania due to having a PE therein, and is required to prepare a TP file under the criteria set out under point 1 above, must provide information to Romanian tax authorities, upon request, for the purpose of carrying out a TP analysis in the course of a tax audit.

2.6  If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?  

The comparability analysis should consider the territorial criteria in the following order: national, EU, pan- European, international.

2.7 If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intragroup services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?  

The local TP rules are complemented by the OECD TP Guidelines and the tax authorities recognise the applicability of the EU Joint TP Forum guidelines on low value adding services. However, the local TP rules do not contain specific exemptions from preparing benchmarking studies. 

2.8 What language(s) are to be used by taxpayers in submitting the transfer pricing documentation? 

The transfer pricing file should be submitted in the Romanian language only.  

Large taxpayers that exceed the first set of materiality thresholds described under point 1 above will have to prepare a TP file each year. The yearly transfer pricing documentation must be prepared by the deadline of the yearly corporate income tax return (currently, 25 June of the following year for taxpayers having a fiscal year ending on 31 December). Companies fulfilling the above-mentioned criteria must be prepared to submit the transfer pricing documentation at the request of the tax authorities within ten calendar days from the date of the request, but not earlier than ten days after the deadline of the yearly corporate income tax return. 

For large taxpayers who do not meet the first set of materiality thresholds and small and medium-sized taxpayers, the deadline is between 30 and 60 calendar days from the date of the request with a possibility to extend the initial period once for maximum of 30 calendar days. 

In any event, taxpayers conducting transactions with related parties in amounts less than any of the thresholds must be able to provide evidence supporting compliance with the arm’s-length principle during a tax audit.

If the TP documentation file is not prepared or presented to the Romanian tax authorities, the following fines apply: 

•  From RON 12,000 to RON 14,000 (approx. EUR 2,700 to EUR 3,100) for medium and large taxpayers; and 
• From RON 2,000 to RON 3,500 (approx. EUR 440 to EUR 770) for small tax payers and individuals. 

In addition to the fine, if the transfer pricing file is not prepared/presented to the Romanian tax authorities or is incomplete, the tax authorities are entitled to estimate the transfer prices applied by the taxpayer in transactions carried out with related parties. 

The absence or incompleteness of TP file results in the tax authorities being entitled to estimate the transfer prices applied by the taxpayer in transactions carried out with related parties.  

In principle, the taxpayer may be allowed to initiate the mutual agreement procedure. 

Note that, although the new TP rules are in force starting 1 January 2016, clarifications are expected to be issued by the Ministry of Finance.   

On 13 June 2017, Government Emergency Ordinance no. 42/2017 (“GEO 42/2017”) was published. Provisions of Article 1 of the Council Directive (EU) 2016/881 and sections I and II of Annex III of EU Directive 2016/881 were transposed into Romanian legislation. 

It will apply for the fiscal year starting on 1 January 2016 or after that date, as appropriate. The CbC reports should be submitted within 12 months from the last day of the reporting fiscal year of the group.

Entities part of multinational groups that qualify as parent companies with tax residence in Romania have the obligation to submit an annual report for each country. 

Other Romanian tax residents that are group members will be obliged to file a CbCR on behalf of the members if at least one of the following applies: 

• The parent company of the group does not have the obligation to file a CbCR in its residence jurisdiction; 
• There is no exchange of information instrument in place with Romania: the parent company’s residence jurisdiction has a current international agreement with Romania (i.e. a multilateral or bilateral tax convention or a tax information exchange agreement providing for the automatic exchange of tax information), but there is no Qualifying Competent Authority Agreement in place between the two jurisdictions (i.e. the two jurisdictions have not included themselves mutually in the list of jurisdictions to which they intend to exchange CbC reports) by the end of 12 months following the end of the fiscal reporting year of the group; 
• There has been a systemic failure to exchange CbC reports by the residence jurisdiction of the parent company, which has been notified to the constituent entity by the Romanian tax authority. 

 The threshold for excluded multinational groups is total consolidated group revenue of less than EUR 750 million for the preceding fiscal year. 

Yes.

Submission with delay of the CbC report or submission of incomplete or incorrect information would trigger fines between RON 30,000 and RON 50,000 (approx. EUR 6,700 and EUR 11,000). Not submitting the report would trigger fines between RON 70,000 and RON 100,000 (approx. EUR 15,000 and EUR 22,000). 

 Only the entity that should have submitted the CbCR would be liable for the above fines in case of non- compliance. 

No.  

The automatic exchange of information rules provided under Council Directive (EU) 2016/881 was implemented in the Romanian legislation by GEO 42/2017. 

Not applicable

Besides the TP file (i.e. including the specific documentation requested for entities not meeting the second set of thresholds under point 1), there is no other tax documentation/filling requirement. 

Separately, Romanian entities must include in the notes to the financial statements information regarding related party transactions. 

Not applicable.

Not applicable. 

Not applicable. 

Not applicable. 

Not applicable.