Romania

Background

The general Transfer Pricing rules were implemented in the Romanian legislation in 2003 through the Tax Code. 

Arm’s Length Principle

According to the current national legislation (i.e., Art. 11 of Law no. 227/2015 on the Tax Code – ‘the Romanian Tax Code’), related party transactions must comply with the Arm’s Length Principle.

The Arm’s Length Principle is based on a comparison of the terms agreed in any business or financial transaction between related parties and the terms to be agreed between unrelated parties in similar business or financial transactions in comparable circumstances.

Related Parties

Two legal entities are related parties whenever:

  • One entity directly or indirectly owns (through shareholdings in related entities) at least 25% of the value of the shares or voting rights in the other entity or effectively controls the other entity, and.
  • One entity directly or indirectly owns (through shareholdings of related entities) at least 25% of the value of the shares or voting rights in the two entities.

Transfer Pricing Methods

According to Romanian tax legislation, all related parties are obliged to assess the method applied for pricing controlled transactions (domestic or cross-border) between related parties and keep the relevant documentation supporting this method.

The Transfer Pricing methods recognized by the OECD, as well as by the Romanian Tax Code, are as follows:

  • Comparable Uncontrolled Pricing Method (‘CUP’);
  • Cost Plus Method (‘CP’);
  • Resale Price Method (‘RPM’);
  • Profit Split Method;
  • Transactional Net Margin Method (‘TNMM’).

The most appropriate Transfer Pricing should be selected on a transaction-by-transaction basis.

Transfer Pricing Documentation

Large taxpayers carrying out related party transactions for a total annual value, calculated by adding the value of all related party transactions greater than or equal to any of the thresholds presented below, are required to prepare the Transfer Pricing Documentation. 

 The thresholds for the above taxpayers, by type of transaction, are as follows:

  • € 200,000 for interest received/paid for financial services;
  • € 250,000 for transactions representing services rendered/received;
  • € 350,000 for purchase/sale transactions involving tangible or intangible property.

Medium and small taxpayers carrying out related party transactions for a total annual value, calculated by adding the value of all related party transactions greater than or equal to any of the thresholds below, are required to prepare and file the Transfer Pricing Documentation only upon request of the tax authorities.

The thresholds for medium and small taxpayers by type of transaction are as follows:

  • € 50,000 for interest received/paid for financial services;
  • € 50,000 for transactions representing services rendered/received;
  • € 100,000 for purchase/sale transactions involving tangible or intangible property.

Local Report and Master File

Only upon request of the Tax Administration, the master file and the local report must be filed by large taxpayers, no later than March 25 of the following tax year. When tax auditors issue a request, these files must be filed within 10 calendar days following the request.

In this regard, medium and small taxpayers must prepare and file the master files and local reports within 30 to 60 days from the tax upon audit request, with the possibility of an extension for an additional 30 days.

Country-by-Country Report

Concerning the local Country-by-Country Report requirements, Romanian entities, members of Group companies with total revenues exceeding € 750 million, must notify the Romanian Tax Administration about the identity of the last controlling entity or the substitute entity in charge of filing the Report in its country of residence.

Penalties

For non-compliance with the preparation and filing of the Transfer Pricing documentation, penalties apply:

  • For large and medium taxpayers – RON 12,000-14,000 (approx. € 2,510-2,930).
  • Other taxpayers – RON 2000-3500 (approx. € 420-730)
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