Romania's tax authorities' attention “is continuously increasing” on transfer pricing policy and they have been monitoring transactions related to the policy more in the last year, according to consultancy firm Ernst & Young. The authorities are requesting documentation related to transfer pricing in audits of corporate income tax and sometimes VAT.

Transfer pricing is a profit allocation technique, essentially the movement of money between different parts of a group. Some 63 percent of multinational companies in Romania surveyed by Ernst & Young indicated that at the moment transfer pricing is a key issue at the highest level.

With 52 percent of companies considering a rise in the number and value of transactions and 82 percent expecting increasing audits of transfer pricing policy, Ernst & Young advises companies to prepare for audits and possible disputes with the authorities.

“Considering the increasing number of audits, mitigating disputes will be tougher and the number of litigations on transfer pricing matters will significantly increase,” said Tax Executive Director at Ernst & Young Romania Adrian Rus.

As the Romanian authorities have learned more about transfer pricing policy and investigated companies more closely, the number of disputes has risen. Ernst & Young also describes the transfer pricing environment as “quite litigious” with the tax authorities regularly questioning international transactions and since 2010, domestic transactions too.

Adrian Rus deems it essential for multinationals “to consider a more proactive approach to controversy management, including appropriately targeted Advance Pricing Agreements.”

Ernst & Young is a global professional services firms with approximately 167,000 employees in 700 offices across 140 countries, and revenues of approximately USD 24.4 billion in 2012. In Romania, Ernst & Young was set up in 1992 and now has 500 employees in Romania and Moldova. The firm provides assurance, tax, transactions, and advisory services to clients ranging from multinationals to local companies. Ernst & Young has offices in Bucharest, Cluj-Napoca, Timisoara, Iasi and Chisinau.

editor@romania-insider.com