As Contexpert estimated, last year, verifications regarding transfer pricing have intensified in 2015. One billion lei is the amount of the additional obligations detected by the tax inspectors in the first semester, an increase of 130% compared with the amounts instituted in 2012.
Given the fact that in a single tax inspection were established a few additional amounts of approximately 27 mil. lei, it is obvious that business risks can be enormous leading to its closure.
The tax authorities are becoming more interested in transfer pricing, but also more specialized, and companies must keep up.
Do you need the transfer pricing file?
The first line of defense against the tax authorities is the transfer pricing file. The legislation will require its preparation only if it is requested by the inspectors within a verification. According to the law, you have 3 months to present it, but you should also take into consideration the fact that, given the complexity of the documentation, this term may be insufficient.
For this reason, it would be better if the file were to be prepared before the beginning of an inspection, especially because, in many cases, the inspections that have other subjects, such as VAT reimbursements, are extended, the „transfer pricing” file being also requested.
What is essential in case of transfer pricing file?
The area Transfer pricing is difficult and you have to remember that, in addition to drawing up the file, it is essential to demonstrate that the transactions with affiliates (companies that are part of the same group, meaning that they hold, directly or indirectly, at least 25% of the number of shares) are not artificial. The transactions must have economic substance, so you can prove that they are real, related to the activity required and that they weren’t conducted just to diminish the tax base.
If these conditions are not fulfilled, any analysis of the price will be useless because the transactions will not be taken into consideration when calculating the taxes in Romania.
In the file, the transactions must be analyzed, explained and documented, emphasizing the functions and risks, so that the practiced prices to be justified.
What is the market’s price?
After you set up the documentation, you must justify that the transactions were made at the market’s price. Basically, it means that the transactions were made at the same price or at a price comparable to the one which would have been determined by independent parties.
In what situations is the transfer pricing file more likely to be requested?
The tax authorities ask for the transfer pricing file, especially if there are: requests for VAT refunds or tax compensation, big losses for long periods, high volume of intra-group transactions, disputes with tax authorities, sudden turnover decreases, complex intra-group transactions or modified transfer prices.
How does the tax authority calculate?
The inspectors estimate transfer pricing using mainly three examples of similar transactions with the one investigated and the calculation of the arithmetic mean of the prices from the identified similar transactions.
After checking the file, the transfer prices of the taxpayer are validated or adjusted. The adjustment occurs when the tax authorities conclude that the transaction price between the affiliates is not in the „market range”, that means that the profits obtained by the parties after the transaction are not properly reflected, thereby decreasing the paid taxes.
Transfer pricing legislation represents the tool through which the tax authorities are ensuring that the profits are registered and the taxes are paid in the states where they were obtained. The purpose is to limit the transfer of profits in jurisdictions with a more favorable taxation through tax base erosion in the states with a higher rate of taxation.
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