The arm’s length principle is based on a comparison of the terms which were agreed in any business or financial transactions between related parties and the terms which would have been agreed between unrelated parties in similar business or financial transactions, in comparable circumstances.

The review of comparability of the terms is made by confronting, in particular, the businesses conducted by the parties, including, but not limited to, their production, assembly works, research and development, purchase and sale, the scope of their business risks, the characteristics of the compared property or the service, the terms agreed between the parties to the transaction, the economic environment in the marketplace, and the business strategy. The terms shall be considered comparable if there is no difference at all or if only minor adjustments would compensate any such difference.

If there is a difference between the prices agreed in transactions of related parties and the prices applied between unrelated parties in comparable business transactions, the tax authorities may adjust the taxable base of the related parties involved in the transactions.

Content

Transfer Pricing documentation represents a set of information, data and facts which demonstrate and explain the method of taxpayer’s price formation in controlled transactions. Transfer Pricing documentation, in general, consists of two parts: a general one and a specific one.

General rules

Transfer Pricing documentation shall be prepared for each controlled transaction separately or for each group of aggregated controlled transactions and in Romanian language. Transfer Pricing documentation refers to each fiscal year.

Even if each Romanian taxpayer performing economic transactions with affiliated parties should prepare a Transfer Pricing documentation, there are some differences when it comes to deadlines and timing, as detailed in the following two subsections.

Taxpayers categories

1. Large taxpayers are obliged to prepare the Transfer Pricing documentation if they carry out transactions with related parties exceeding the following thresholds:

• EUR 200,000 cashed in/paid interest for financial services
• EUR 250,000 services rendered/received towards/from related parties
• EUR 350,000 acquisitions/sales of tangible/intangible assets

2. Large taxpayers that do not meet the above thresholds or medium or small taxpayers are obliged to prepare the Transfer Pricing documentation if they carry out transactions with related parties exceeding the following thresholds:

• EUR 50,000 cashed in/paid interest for financial services
• EUR 50,000 services rendered/received towards/from related parties
• EUR 100,000 acquisitions/sales of tangible/intangible assets

3. The other taxpayers who do not fall in any of the above-mentioned categories are not obliged to prepare the Transfer Pricing documentation, however they should document that the arm’s length principle is observed in dealings with the related parties in line with financial and tax applicable principles.

Deadlines

Based on the classification detailed above, the deadlines for drafting/presenting the Transfer Pricing documentation are as follows:

Taxpayers in category 1 should present the Transfer Pricing documentation within 10 days of the tax authorities’ request.

Taxpayers in category 2 should present the Transfer Pricing documentation within 30-60 days of the tax authorities’ request. The taxpayers may ask for maximum 30-day postponement.

Due to the short preparation period, it is recommended having the documentation prepared in advance.

Advance Pricing Agreements (APA) are available under Romanian legislation. APA are valid up to 5 years with possibility of extension in case of long-term contracts.

For large taxpayers and other taxpayers with consolidated value of transactions higher than EUR 4,000,000, the fee is EUR 20,000 for the initial APA and EUR 15,000 for amending the initial APA.

For other taxpayers and consolidated value of transactions lower than EUR 4,000,000, the fee is EUR 10,000 for the initial APA and EUR 6,000 for amending the initial APA.

For non-compliance regarding the preparation and presentation of the Transfer Pricing documentation, penalties are applicable:

• For large and medium taxpayers – RON 12,000-14,000 (approx. EUR 2,510-2,930)
• Other taxpayers – RON 2,000-3,500 (approx. EUR 420-730)

Separately, adjustment of tax base plus late payment interest and penalties may be applicable.