ERNST & YOUNG SRL

  |  2013-03-01

Transfer pricing becomes a key tax issue in the Romanian tax environment

As expected, the Romanian tax authorities’ attention on transfer pricing matters is continuously increasing and our experience reveals that in the last year they are increasingly scrutinizing the related party transactions of Romanian companies, requesting transfer pricing documentation reports as part of various tax audits (audits focused on corporate income tax or even VAT).

The Ernst & Young’s 2013 Romanian Transfer Pricing Survey, released today reveals that transfer pricing is perceived by Romanian entities as one of the tax aspects of greater importance faced by them over the next period. Specifically, 63% of multinational enterprises operating in Romania replied that transfer pricing is a key issue at highest level.

 

Considering the rise in both the number and value of related party transactions (anticipated by 52% of respondents) and the predicted increase in the number of inspections in this area (82% of respondents), companies should take steps to get prepared for a possible transfer pricing audit by the Romanian tax authorities and to potential disputes in this area.

 

The Romanian tax authorities’ awareness on transfer pricing matters is increasing and they are undertaking a more in-depth analysis of the transfer pricing documentation. This has resulted in a number of cases of challenges raised on the transfer pricing policies and practices adopted by the multinationals operating in Romania. Also, recent experience reveals that attribution of profits to Romanian branches/permanent establishments (where transfer pricing is also a key issue) represents another focus area of the tax authorities.

 

Consequently, 65% of respondents expect to undergo a tax audit as regards transfer prices in the next two years.

 

Recent experience shows that the Romanian transfer pricing environment is quite litigious, with tax authorities questioning quite often the transfer pricing policies applied in cross-border related party transactions and from 2010 onwards also in domestic ones. The transfer pricing adjustments levied by the authorities had in most of the cases important effects on the tax position of these Romanian entities and in many cases the taxpayers’ appeals against the adjustments were rejected and even went to court.

 

Furthermore, given the recent changes of the tax rules, transfer pricing adjustments may also impact the VAT position of certain categories of taxpayers performing related party transactions (for example, from financial services industry and healthcare).

 

 

Given the current degree of preparedness of the companies in the transfer pricing field, we expect that the transfer pricing would represent one of the main area of tax controversy in the coming years.

 

Adrian Rus, Tax Executive Director Ernst & Young Romania states: “The majority of the multinational enterprises operating in Romania expect undergoing transfer pricing audits in the following period. Considering the increasing number of audits, mitigating disputes will be tougher and the number of litigations on transfer pricing matters will significantly increase. As such, it is of essence for multinationals to consider a more proactive approach to controversy management, including appropriately targeted Advance Pricing Agreements.”

 

Ernst & Young’s 2013 Romanian Transfer Pricing Survey aims at continuing the work started by Ernst & Young Romania in 2008, when the first transfer pricing survey was conducted in Romania, by helping multinational enterprises operating in Romania in better understanding and approaching the transfer pricing challenges in this period of downturn in the global economy. The second edition of the survey was conducted in late 2012 and was based on the responses received from 111 multinational enterprises operating in Romania.

 


Ernst & Young is a global leader in assurance, tax, transactions and advisory services. Our 167,000 people are united by our shared values, which inspire our people worldwide and guide them to do the right thing, and our commitment to quality, which is embedded in who we are and everything we do. Ernst & Young is committed to doing its part in building a better working world for our people, for our clients and for our communities.
 

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