Transfer pricing – extending the consequences of non-compliance to withholding tax
Taxpayers who carry out transactions with related parties must comply with the arm’s length principle and prepare the transfer pricing documentation to demonstrate compliance with the arm’s length principle.
The terms and conditions for the preparation and submission of the transfer pricing documentation vary according to the size of the category of the taxpayer (small, medium, large) and specific thresholds, as follows:
- Large taxpayers who carry out intra-group transactions above the first set of thresholds:
- Obligation to prepare annually the transfer pricing documentation.
- The file must be prepared by the legal deadline for submitting the annual corporate income tax (i.e. currently, 25th of June).
- If requested by National Agency for Fiscal Administration (“NAFA”), the documentation must be submitted within a maximum of 10 days from the date of request.
- Large, medium and small taxpayers that have intra-group transactions above the second set of thresholds:
- Obligation to prepare the transfer pricing documentation in case of a written request by NAFA, during a tax audit.
- The deadline for presenting the file is between 30-60 calendar days, with the possibility of extending the deadline once, within a maximum of 30 calendar days.
We also remind you the threshold sets are as follows:
- First set: €200,000 for interest, €250,000 for service provisions, and €350,000 for transactions involving tangible or intangible goods.
- Second set: €50,000 for interest, €50,000 for service provisions, and €100,000 for transactions involving tangible or intangible goods.
Sanctions for non-compliance
Failure of taxpayers to comply with the obligations to prepare/present the transfer pricing file under the legal conditions and deadlines is sanctioned with a fine:
- Between RON 12.000 and RON 14.000 for large and medium taxpayers
- RON 2.000 – 3.500 for the other categories of taxpayers
However, the greatest risk is not the fine itself, but a potential adjustment of the taxable base if the prices applied in transactions with affiliated entities are not in line with the arm’s length principle.
Thus, if the fiscal authorities consider that a price charged between affiliated entities isn’t at arm’s length level, they may adjust the revenues upwards or the expenses downward, increasing therefore the taxable profit. As a result, the company may be required to pay additional corporate income tax, to which interest and penalties may be added for the additional fiscal obligations.
It is already well known in the business environment that transfer pricing is one of the preferred areas of investigation during tax audits, and that significant amounts have been assessed as additional corporate income tax due, along with related interest and penalties.
Expansion of the consequences to withholding tax
We remind you that the NAFA portal publishes monthly reports on significant tax inspection cases (details here).
According to a recent information from March 2025, the subject of transfer prices can be found amongst the cases analysed by the tax authorities, highlighting the increased interest for this domain. Moreover, the document highlights the extension of the consequences of non-compliance with the arm’s length principle from the area of corporate income tax to also include withholding tax.
Specifically, it is presented the case of an entity from Romania which had as the main activity area “Manufacture of electronic subassemblies (modules)”, NACE code 2611.
The tax inspectors conducted a new comparability analysis for intellectual property licensing transactions and adjusted the royalty-related expenses by classifying them as non-deductible, which led to an increase in corporate income tax.
Furthermore, the tax inspectors assessed additional withholding tax on non-resident income, as the taxpayer failed to withhold and remit tax on the difference between the transfer price and the market price of the royalties paid. It is highlighted that, for the portion exceeding the market price, the tax exemptions or reductions provided by the Fiscal Code and the Double Taxation Treaties do not apply.
Following the tax inspection carried out, additional profit tax was established as well as additional withholding tax.
Nowium recommendations
Given the increased attention of the tax authorities on transfer pricing and the risks associated with non-compliance (i.e. additional corporate income tax, interest and penalties, fines, additional withholding tax) we recommend a proactive approach, by carefully reviewing intra-group transactions and their documentation without the pressure of a tax audit.
Nowium transfer pricing team supports companies with a wide range of services in the field of transfer prices, from the planning/documenting the transfer prices to assistance during the tax audit regarding the transfer prices/ in solving any possible disputes. More details can be found here.
Article written by Raluca Mihăilă, Transfer Pricing & Tax Partner, Nowium Transfer Pricing
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