- Funding Programme
- Year
- 2021
Strengthening the consistency of transfer pricing audits and legislation in Romania
The Romanian tax administration, National Agency for Fiscal Administration (NAFA), needed specialised external technical support to help them develop a unitary and efficient interpretation of legislation and transfer pricing (TP) rules. For the NAFA’s TP auditors, it is necessary to avoid different approaches and interpretations of legislation, guidance, documents etc., as well as to achieve correct tax assessments and fair treatment of taxpayers.
Context
In Romania, about 90% of the large taxpayers (LT) were non-resident shareholders or are part of groups of Romanian companies. Also, they tended to conduct commercial transactions with affiliates to keep the profit in countries with a lower level of taxation and thus optimize their taxes. Recent studies confirmed that the largest part of tax profit shifting is done by means of transfer pricing. NAFA lacks practical experience in identifying and correctly addressing potential abuses in transfer pricing. Moreover, the primary and secondary legislation in this area have certain limitations and needed to be updated based on current best European practices.
Support delivered
Experts from a specialised private consultant provided support to the NAFA during 12 months in the form of analytical work, recommendations for the improvement of the TP legal framework in Romania and capacity building. They also elaborated practical TP guidelines and a dedicated handbook for the use of NAFA auditors. A series of training sessions on (i) international law and double tax treaties, (ii) specific examples from the areas of manufacturing, distribution, provision of services, intra-group financing/interests, patents/royalties, and (iii) TP abuse through specific transactions, profit split method, were in conducted in Bucharest and online in June and July 2022.
Results achieved
After the end of the project, NAFA was able to prepare a uniform and systematic approach of tax auditors for controlling transactions between associated enterprises, to work with highly trained TP auditors, and ensure a higher quality of control activities in the field of TP, notably by identifying and addressing potential abuses in this area. The Romanian authorities should regularly monitor relevant regulatory developments on an international (OECD and EU) level. The following results are envisaged on the medium term: increased compliance of large taxpayers, further reduction of the average audit duration and potential additional tax revenues.
More about the project
You can read the documents related to the project here: