The transfer pricing documentation file must be submitted by March 25th, 2017, which is the deadline for filing the corporate tax return, or by the deadline set for companies that apply any tax year other than the calendar year.
The file has to be prepared and presented according to ANAF Order No. 442/2016 on the amount of transactions, submission deadlines for the transfer pricing documentation file, the content and conditions of requesting the preparation of a transfer pricing documentation file, and the transfer pricing adjustment/estimation procedure.
It is important to note that the interpretation of this Order by tax authorities is that, in case of a tax audit, if the file is requested for the past three years, companies must update the file according to the Order for the entire audited period, which is basically a retroactive application of the document. With audited companies, the deadline for meeting legal requirements is usually 30 to 60 days.
Therefore, the transfer pricing documentation file must be prepared by large taxpayers that conduct inter-company transactions of an aggregate annual value reached by adding up the values of transactions with all their related parties, exclusive of VAT, which is higher than or equal to the following materiality thresholds:
- EUR 200,000, exclusive of VAT, in case of interest costs incurred for financial services
- EUR 250,000, exclusive of VAT, in case of service provisions
- EUR 350,000, exclusive of VAT, in case of transactions involving purchases/sales of tangible or intangible assets.
The other taxpayers must prepare and submit their respective transfer pricing documentation file only at the request of tax authorities, during a tax audit, as follows:
- large taxpayers that conduct inter-company transactions below the materiality thresholds of EUR 200,000, EUR 250,000 and EUR 350,000, respectively, but above those specified for other categories of taxpayers (EUR 50,000 / EUR 50,000 / EUR 100,000);
- small and medium-sized taxpayers that conduct inter-company transactions of an aggregate annual value reached by adding up the values of transactions with all their related parties, exclusive of VAT, higher than or equal to the following materiality thresholds:
- EUR 50,000, exclusive of VAT, in case of interest costs incurred for financial services
- EUR 50,000, exclusive of VAT, in case of provisions of services
- EUR 100,000, exclusive of VAT, in case of transactions involving purchases/sales of tangible or intangible assets.
During a tax audit, taxpayers that conduct inter-company transactions below any of the materiality thresholds have the obligation to comply with the arm’s length principle, according to general rules set by the accounting and tax regulations in force.
The international context
There is currently a paradigm shift in international taxation that will gradually influence not only relationships with authorities, but the very business model of companies.
Both the Organization for Economic Cooperation and Development (OECD) and the European Commission are taking action for taxes to be paid in the countries where profits are made. Basically, the intention is for groups of companies to minimize the movement of profits for tax purposes to jurisdictions where activity is low or nonexistent, but taxes are low or zero.
In this context, Romania has recently taken several steps towards changing national legislation. The results will be more obvious in 2017 and in subsequent years, as reforms regarding controlled companies, tax base erosion and profits transfers, combating tax avoidance or implementing a common and consolidated base of profits taxation will be implemented at European level as well.
In early November, the Ministry of Finance published a draft law regarding Romania’s adherence as a member of the BEPS (Base Erosion and Profit Shifting) Plan.
Once it joins the BEPS Plan, Romania:
- will implement the four minimum standards of BEPS (fighting harmful tax practices, preventing treaty shopping, country-by-country reporting, and improving dispute resolution);
- will monitor the progress of taxes made as a result of digital economy challenges;
- will join the key decision-making bodies in the field of international taxation, such as the OECD Committee on Fiscal Affairs and its subsidiary bodies.
Also, the following are in preparation at European level and will apply in the coming years:
- Anti-Tax Avoidance Directive (ATAD) that governs interest deductibility, the exit taxation of asset transfers, the anti-abuse general rule, the calculation of revenue earned by controlled foreign companies, and the inconsistent treatment of hybrid components.
Romania has to introduce the ATAD provisions in national law by December 31st, 2018. However, some provisions are already applied, such as interest deductibility and the anti-abuse general rule (art. 11 of the Tax Code).
- Package related to the Common Consolidated Corporate Tax Base (CCCTB)
It will be mandatory for large groups of companies in the EU, will introduce unique rules for calculating the EU tax base, instead of the 28 systems applied for each Member State, and will be implemented in two phases: the common tax base, and subsequently its consolidation.
- Country-by-Country Reporting (CCR)
Groups of companies must submit detailed reports on their activity undertaken in each state where the companies have branches, subsidiaries, etc.