Romania transfer pricing laws are aligned with the guidelines set by the Organization for Economic Co-operation and Development (OECD Guidelines) and incorporated within the Tax Act, and Ord 442/2016- TP File.
Arm’s Length Principle
Based on the internal legislation in force in Romania, the transactions between related parties must comply with the arm’s length principle. If the legal provisions are not applied adequately, the Romanian Tax Authorities have the right to adjust or assess the revenues or expenses of the affiliated entities associated with it, ensuring that the transactions reflect market value.
Related Party Definition
Related parties are individuals or entities that have a close financial or personal connection. A natural person is associated with a company if they own at least 25% of its shares, have voting rights, or have effective control over it, either directly or indirectly, including through affiliated persons. Additionally, two companies are considered related if they are both controlled by the same entity, which owns at least 25% of their shares or voting rights, either directly or indirectly.
Transfer Pricing Methods
The methods that can be used to determine the arm’s length price in Romania are:
- Comparable Uncontrolled Price Method
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method
- Profit Split Method
In Romania, there is no established order for selecting transfer pricing methods. Instead, the most appropriate method is used based on the specifics of each case, following OECD Transfer Pricing Guidelines (TPG). In addition, if none of the above methods is suitable, parties can choose another method, as long as it is recognized by the OECD Guidelines.
Comparability Analysis
Romania follows the OECD Transfer Pricing Guidelines (TPG) for comparability analysis. When selecting comparables, there is a preference for domestic data first, followed by European Union, Pan-European, and then international comparables. Secret comparables are not used for transfer pricing assessments but may be considered for risk assessment. Romanian legislation allows the use of an arm’s length range and statistical measures, such as the interquartile range and median, when necessary. Comparability adjustments are required in line with OECD TPG.
Documentation Requirements
Transfer pricing documentation requirements in Romania are based on the three-tiered approach set forth by the OECD. This requires multinational groups to submit the following documentation to the Romanian tax authorities:
- Master File;
- Local File, and
- Country-by-Country (CbC) report
Master and Local File
Romania has specific rules about documentation for transfer pricing and they follow guidelines recommended by OECD countries. Large taxpayers engaging in related-party transactions must prepare an annual transfer pricing documentation file, which includes both a local file and a master file. The local file contains detailed information about the taxpayer’s transactions, while the master file provides an overview of the group’s structure, business strategy and transfer pricing policies. Romania requires large companies to prepare annual transfer pricing documentation if they have related-party transactions exceeding: €200,000 (interest), €250,000 (services), or €350,000 (goods).
For smaller taxpayers who have relatively low income or get below certain ward tax limits, they don’t have to gather paperwork unless the tax collectors request it directly.
Country-by-Country Reporting
Companies with consolidated revenue of at least €750 million from the previous year are required to annual Country by Country reports. The report should include key financial information, such as revenue, profits, taxes paid, number of employees, and assets for each jurisdiction where the group operates.
If the ultimate parent is based in an EU member state, it is responsible for filing the Country-by-Country report. But if a parent company is not in the EU or refuses to report things properly then another EU company that is more closely related could do the reporting instead. The Country-by-Country reports are exchanged automatically between tax authorities of EU member states. Failing to file the report or providing incorrect information may result in fines.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
Advance Pricing Agreements (APA): Romania allows the issuance of Unilateral, Bilateral, and Multilateral Advance Pricing Agreements (APAs). Bilateral and multilateral APAs can only be issued for transactions with taxpayers from countries that have a Double Taxation Agreement (DTA) with Romania. The responsible authority to govern these agreements is the National Tax Administration Agency (ANAF).
Mutual Agreement Program (MAP): The Mutual Agreement Procedure (MAP) in Romania allows taxpayers to resolve tax disputes arising from double taxation or misinterpretation of tax treaties. It covers transfer pricing cases and other treaty-related issues, ensuring that adjustments made by tax authorities align with international agreements. Taxpayers can request MAP assistance even if they have pursued domestic legal remedies. The request must be submitted within three years from the first notification of the disputed tax action. While there is no suspension of tax collection during the MAP process, agreements reached through MAP must be implemented, even if they override domestic time limits. Romania follows OECD guidelines and EU regulations for MAP, providing public guidance on the procedure.
Approach to Transfer Pricing Audits
The tax authorities can conduct audits to ensure compliance, and the transfer pricing documentation must be presented in Romanian. During an audit, if a taxpayer does not meet the documentation requirements, penalties may be imposed. While not every company involved in intra-group transactions is audited for transfer pricing, those that report losses are more likely to be audited. Losses can raise concerns and act as a red flag, prompting the RTA to scrutinize the transactions more closely to ensure compliance with the arm’s length principle and other tax regulations.
Penalties
Romania does not apply specific penalties with regard to the transfer pricing practices; instead, penalties imposed are those related to the interest charges on late tax payments and unpaid taxes. Violation fees vary depending on how big or small a taxpayer is. Small and midsized companies face fines around of RON 2,000-3,500, while large taxpayers face penalties of RON 12,000-14,000 under the Fiscal Procedural Code.
Taxation at a Glance
Romania is located in Southeast Central Europe, made up of 41 administrative divisions and one municipality. Romania has a relatively straightforward tax system, which includes several types of taxes such as income tax, value-added tax and so more that individuals and businesses must comply with.
In Romania, the currency is the Romanian leu (RON). The official name of the Romania tax authority is the National Tax Administration Agency (ANAF).
The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 16% |
VAT | 19% |
Withholding tax on dividends to non-residents | 8% |
Withholding tax on interest to non-residents | 16% |
Withholding tax on royalties to non-residents | 16% |
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