Transfer Pricing in a Multidivisional Environment - PCB's Thesis Presentation
Transfer Pricing Presentation
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Transcript of Transfer Pricing Presentation
Transfer pricing requirements in Romania
Documentation of prices for bothcross border and domestic related party transactions
Definitions
• Transfer prices - Prices at which goods are transferred or services are performed to related parties (OECD)
• Related parties (article 7, Romanian Fiscal Code) one entity holds directly or indirectly, including the shareholding
of related entities, minimum 25% of the number/value of shares or voting rights in that other entity or it effectively controls the other entity, or
one entity holds directly or indirectly, including the shareholding of related entities, a minimum of 25% of the number/value of shares or voting rights in the two entities.
Romanian: Fiscal Code – articles 7 and 11 Fiscal Procedure Code – article 42 and article 79 Decision no. 529/2007 – Advance Pricing Agreements and advance
tax ruling Order no. 222/2008 – Transfer Pricing File
EU: OECD guidelines on transfer pricing EU Code of Conduct regarding transfer pricing
Transfer Pricing Legislation
Failure to present transfer pricing documentation in due time or incomplete transfer pricing documentation leads to adjustments made by the tax authorities and fines of up RON 14,000 (the equivalent of EUR 3,300)
Adjustments carry a 16% income tax on additional income established by tax authorities
Furthermore, the income tax liability is subject to late payment interest of nearly 36% per year for the period extending from 2006 to the first half of 2010
For the second half of 2010, the most recent amendments to the Tax Procedure Code set late payment interest to approximately 14,4% per year and late payment charges of 15% if more than 90 days passed since the recognition of the unpaid liability
Penalties
Acquisitions / deliveries of goods Lohn or contract manufacturing Provision of services:
• Management• Marketing• IT• Technical assistance
Research and development Royalties Intra-group financing Swap/hedging agreements
Types of transactions under scrutiny
Any delay in preparing the transfer pricing documentation may cause a series of inconveniences for your company such as a deferal of the VAT reimbursement process
If your company incurs losses as a direct result of the intra-group transactions, there is a high risk of income tax adjustments
If your company receives management or other services from groupcompanies it is likely that these transactions will be audited
The Romanian tax authorities may request for the transfer pricing file in relation to transactions concluded with related entities within the past 5 years
From our experience:
Prepare your transfer pricing documentation file today!
Learn about your risks and take appropriate measures!
Ask for the service providers in the group to prepare justifyingdocuments in order to support the deductibility of service expenses at the level of the Romanian entity!
Gather supporting documentation in order to prove the benefit ofreceiving services from group entities!
Our advice
According to the Romanian legislation, the transfer pricing file should include the following information:1. Group information• History, clients, competitors, financials, intra-group transactions concluded at the
level of the EU, transfer pricing policy set at group level
2. Taxpayer specific information:• History, clients, competitors, financials• Detailed presentation of the transactions performed with the related parties;• Presentation of the comparative analysis• Presentation of the related parties and of the permanent establishments• Description of the method used for transfer pricing and arguments forchoosing the respective criteria• Description of other conditions considered relevant for the taxpayer
The transfer pricing documentation file
At the request of the tax authorities, the taxpayers performing transactions with related parties have the obligation to submit the transfer pricing (article 79, Fiscal Procedure Code)
The time limit for submission of the transfer pricing file is of maximum 3 months. An extension equal to the time period initially granted may be requested.
The fine for non-submission of the transfer pricing file in time is between RON 12,000 and 14,000
Even if the file is submitted still income tax adjustments may be perfomed if the price established between related entities is not arm’s length
The transfer pricing documentation file
The stages in preparing the transfer pricing documentation file are:
• Company and industry analysis
• Functional analysis
• Economic analysis
The transfer pricing documentation file
Company and industry analysis includes:
1. Group general information• Group history, group legal and operational structure, products offered/services
provided, main clients and competitors, business strategy, intra-group transactions at the level of the EU, description of the transfer pricing policy at the group level.
2. Company general information• History, legal and operational structure, products offered/services provided,
main clients and competitors, business strategy.
3. Industry analysis• An analysis of the industry in which the group/the Romanian entity operate,
main players in the industry, main statistics and results.
The transfer pricing documentation file
Functional analysis includes:
1. Description of transactions• Description of transactions concluded by the Romanian entity with related
parties, identification of functions and risks based on contractual provisions and economic substance
2. Analysis of:• Functions performed by each of the entity involved in the transaction• The risks resulting from the performance of these functions• Assets used by each of the entities involved in the transaction
The transfer pricing documentation file
Economic analysis includes:
1. Benchmark study• Database screening - electronic identification (Orbis)• Quantitative screening - financial screening• Qualitative screening - manual selection
2. Interpretation of results• Analyse whether the results obtained by our company are within the
comparability range obtained for independent comparable entities• Present the reasons for which the results are outside the inter-quartile range (if
the case may be)
3. Documentation of the losses incurred (if the case may be)
The transfer pricing documentation file
Viboal Consulting SRL, No. 6, Mitropolit Veniamin Costache Street, District 4, BucharestTelephone: +40 373 367 828E-mail: [email protected]
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