Transfer pricing and DAC 6 obligations for US multinationals in Romania

Transfer pricing (“TP”) has been a hot topic for the Romanian Tax Authorities (“RTA”) in the past 10 years. The number of TP audits has gradually increased during this period together with the amount of additional corporate tax assessed by RTA.

One of the main areas of TP dispute between the RTA and multinational groups in Romania is the requirement to prepare local benchmark studies, in addition to the EU/Pan-European benchmarks that are usually prepared by multinationals to cover European operations.

A common feature of the RTA approach is to deny operating losses registered by group companies, even in cases where the losses may have been generated by difficult economic conditions.

As Romania is not yet an OECD member, the provisions of the OECD TP Guidelines are subject to excessive interpretation by the RTA which may lead to disputes.

Here are some aspects US multinationals operating in Romania should analyse to ensure local compliance:

Newly established companies

We recommend new US companies to review their TP methodology in respect of Romanian rules, before starting local operations. The analysis should focus on the TP method used, cost base applied, or the benchmark study used as reference to set the mark-up. The review should be a priority for companies that carry out transactions only with the group.

Companies that have not been subject to tax or TP audits

We recommend that US companies that have not yet been subject to tax or TP audits in Romania, to review their tax liability and TP policy/ documentation from a local perspective. The review will help identify and mitigate potential risk areas.

Transfer pricing report

US companies that perform transactions with related parties are obliged to prepare the transfer price file, depending on the value of the transactions.

Local benchmark studies

Benchmarking studies are the critical part of any transfer pricing documentation file or policy. The Romanian TP legislation specifically provides that the benchmarking studies must be first prepared first on the Romanian market. Only if no local comparables are found the geographic criteria can be extended to the European Union level, PanEuropean and Worldwide level.

CbC reporting

Following the implementation of the provisions of the EU Directive 2016/881 in the Romanian legislation, US companies who are part of Multinational Enterprise (MNE) Groups with total consolidated income exceeding the threshold of €750 million have Country-by-Country (CbC) reporting obligations in Romania. If the Romanian taxpayer is a constituent entity, it is obliged to submit the CbC notification. and if the Romanian company is a reporting entity, it must submit the CbC report. If the Group submits the CbC report in the US or jurisdictions outside the EU, the Romanian company must require to the report in Romania.

For more information, please download the full document below.

Download the full material