The transfer price is the price established in business transactions between different divisions of a single company or between members of a single group of companies.
Transfer pricing allows for the establishment of prices for the goods and services exchanged between subsidiaries, affiliates, or commonly controlled companies that are part of the same larger enterprise.
Announcement
We are developing a new service to automate the preparation of reports on transfer prices and controlled transactions
Including:
- comments regarding the specifics of selecting a Pricing Method
- comparability of commercial and (or) financial terms of transactions and functional analysis
- recommended stages of preparing documentation regarding a controlled transaction
- RM news regarding transfer prices
For you need to register in your personal account.
Normative base
Concepts:
- Transfer price – established or prescribed conditions, rules and pricing methods that exist in commercial or financial relationships between affiliated entities, different from those existing between independent entities.
- The arm's length principle is an international standard that provides that if the terms of commercial or financial relationships between affiliated persons differ from those between independent persons, then any income that would have been received in favor of one of the persons in the absence of these conditions may be included in that person's income and taxed accordingly.
- Arm's length price – is the price that would be paid by an independent person to another independent person at the same time and in the same place for the same or a similar product or service under fair competition.
- Affiliated person is an individual or legal entity that has the ability to influence major decisions that could be life-changing for the company, including
- participation in the collegial management body of the organization: executive body, board of directors or supervisory board;
- the ability to control directly or through intermediaries at least 25% of the total number of votes;
- sole management;
- family relationship with the head of the company.
- An independent person is a person who is not an affiliated person.
- Controlled transaction is a transaction made between affiliated persons.
- A comparable transaction is a transaction made between independent parties, which can be used, due to the similarity of conditions, as a comparison sample for a controlled transaction.
Transfer prices - Subjects
- Companies with a transaction value of more than 20 million lei per year
- Information on transfer prices is required.
- Transfer pricing file (dossier) - at the request of the State Tax Service.
- Companies with a transaction value of more than 50 million lei per year
- Information on transfer prices is required.
- Transfer pricing file (dossier) is required.
-
Taxpayers who are not required to compile and submit transfer price dossiers are required by the State Tax Service to provide certain information and documents for pre-audit (see details below).
Transfer pricing verification methods
- a) comparable prices method (CUP);
- b) resale price method (RPM);
- c) cost plus method (Cost plus);
- d) net trade margin method (TNMM);
- e) profit distribution method (PSM);
- f) any other method recognized in accordance with the OECD Transfer Pricing Guidelines
The criteria for determining the most appropriate method are provided for in section (5) of Section 22620 of the Internal Revenue Code.
Elements of comparability analysis
- characteristics of the transaction object;
- functional analysis;
- contractual terms and concepts of the transaction;
- the economic circumstances in which transactions are made;
- business strategies and other factual circumstances of the parties to the transaction.
Determining the range of comparable prices
- Lower quartile is the value below which the smallest 25% of values in the range of transaction price values fall.
- Upper quartile is the value below which the highest 25% of values in the transaction price range fall.
- Median value is a value in the middle of the range of comparable prices.
The lower and upper quartiles represent the minimum and maximum values of the comparable price range.
Pre-audit
Taxpayers who do not have the obligation to compile and submit transfer price dossiers, at the request of the State Tax Service, are required to provide the following information and documents:
- Taxpayer information:
- a) organizational, legal and operational structure of the taxpayer;
- b) list of affiliated persons, including branches/permanent representative offices and their identification data, geographical location of affiliated persons;
- c) clarification of direct and indirect affiliate relations of the taxpayer participating in the transactions.
- information about the main markets for supplies;
- information about main competitors;
- information about payments made and received under controlled transactions;
- agreements/contracts related to concluded controlled transactions;
- documents and accounting information of the taxpayer;
- other information, legal acts, documents that served as the basis for concluding controlled transactions.
The transfer pricing dossier (Local file) must contain the following data and documents:
- information about the taxpayer:
- a) the organizational, legal and operational structure of the taxpayer who is entrusted with the responsibility for compiling a transfer price dossier;
- b) list of affiliated persons, including branches/permanent representative offices and their identification data, geographical location of affiliated persons;
- c) clarification of direct and indirect affiliated connections of the taxpayer participating in the transactions, starting from the period for which the transfer price file was compiled, indicating the changes that have occurred.
- a general description of the taxpayer/payer’s activities, business strategy, including changes in business strategy since the period for which the transfer price dossier was compiled, a presentation of the main markets for supplies, including a description of the taxpayer’s research/development activities, if any;
- main competitors;
- a description of the transactions carried out with each affiliate and the context in which they are carried out, including:
- a) description of the object of the transaction, including physical characteristics, quality, country of origin and manufacturer, presence of a trademark and other information related to the characteristics of the object of the transaction;
- b) a description of transactions related to possible business restructuring during the period for which the transfer price file is compiled;
- c) a description of transactions consisting of intra-group services, respectively a presentation of the distribution of costs, depending on the circumstances, with the individualization of services that significantly and definitively contribute to the creation of added value;
- d) description of transactions relating to cost reimbursement agreements;
- information on payments made and received under controlled transactions involving the taxpayer who is responsible for compiling a transfer price dossier;
- copies of all agreements/contracts related to controlled transactions concluded by the taxpayer who is responsible for compiling a transfer price file;
- functional analysis and detailed analysis of the comparability of the taxpayer, who is responsible for compiling the transfer price dossier, and the audited person who is a party to controlled transactions, including a description of the reasons in the case of conducting an analysis over several years;
- description of the method for establishing the transfer price for each transaction and justification of the criteria for its selection;
- in the case of methods for establishing transfer prices that involve the choice of the person being verified, a justification for such choice is provided;
- description of selected comparable uncontrolled transactions (internal and/or external), if any, and information on financial and economic indicators of profitability or margin/result/price of relevant transactions of independent companies on which the transfer pricing analysis is based, including a description methodology for searching for analogues and the source of this information;
- calculation of the range of comparable prices;
- a description of any comparability adjustments made and an indication of the adjustments made based on the results of the audited party and/or for comparable uncontrolled transactions;
- a description of the reasons why it was concluded that the transfer prices of the relevant transactions were determined on an arm's length basis based on the application of the selected transfer pricing method;
- copies of information, legal acts, documents that served as the basis for controlled transactions;
The model of the Information on transfer prices was also approved.
The model consists of two tables and two appendices as follows:
- Table 1 – will contain information about the taxpayer, namely: the name of the taxpayer, the tax code, the main type of activity, the code of the main type of activity as well as the fiscal period for which the information is presented.
- Table 2 – data on the name of the affiliated party part of the controlled transaction, the fiscal identification number, the name of the state, the state code and the total amount of the controlled transactions will be indicated.
- Annex A – will contain information regarding the company's affiliations with other entities.
- Annex B – will contain information on controlled transactions, such as: the transaction code, the description of the object of the transaction, the code of the part of the contract, the code of the transfer pricing method, the tested part, the code regarding the margin and the economic-financial indicators of profitability, the value of the transactions (inputs and outputs recognized as procurements and respectively as deliveries of goods and/or services according to the accounting records), etc.
