PKF Finconta survey: Transfer pricing in Romania in 2020

PKF Finconta survey: Transfer pricing in Romania in 2020

The audit and tax consulting company PKF Finconta launches the second edition of the survey “Transfer pricing in Romania” which identifies the most important issues related to transfer pricing, as perceived by directors and managers of companies in 2020. Prepared two years after the first edition was published, the current survey report also presents comparative data indicating trends and developments in this area of ​​taxation.

The survey was conducted using the CAWI (Computer Assisted Web Interviewing) method, and the questionnaire consisting of 20 questions, that was applied between 30 September and 2 November 2020. The report was formulated by analyzing the feedback received on the 114 questions contained in the online questionnaire.  Of the respondents, 30% are Economic, Financial or Tax Directors, 34% are General Managers, Vice Presidents or Members of the Boards of Directors, the difference being represented by other managerial roles.

“The second edition of this study comes with clear data at a time when companies, more than ever, are focused on the proper management of tax risks. Thus, we have found out from the responses from PKF Finconta’s clients, but also from other important companies in Romania, what are the aspects which are priority areas in the fiscal and transfer pricing agenda during this period. The study is all the more welcome as the current global transfer pricing environment has an influence on how companies reconfigure their business models to become resilient, and in this context, how they address the issues of transfer pricing”, says Florentina Șușnea, Founder and Managing Partner of PKF Finconta.

The main results of the study:

1. The topic of transfer pricing is high on the agenda of Romanian companies. Only 1% of the respondent companies say that this topic has low importance in 2020, compared to 9% in 2018, while only 7% do not consider it important at all, the same percentage as in the last edition.

2. In 2020, 45% of the respondent companies say that the main reason to prepare transfer pricing documentation is to support their tax audit which requires such documentation (slightly down from 46% in 2018). The motivations on the following places include reducing the risk of controversy regarding transfer pricing (34% in 2020 vs. 37% in 2018), coherence of documentation at the group level (7% vs. 4%), and identifying tax planning opportunities (7% vs. 5%).

3. The report shows that 55% of companies consider that the main reason for fears related to potential transfer prices issues is related to the increase in the volume of intra-group transactions. On the other hand, 50% say that these reasons are related to the increase in the number of inspections of the tax authorities, and 21% say that they are related to the change in the group’s transfer pricing policy, followed by 14% who see more reasons to change the organizational structure of the group.

4. Still, almost 7 out of 10 companies (64% in 2020 vs. 69% in 2018) see the issue of transfer pricing turning into a tax problem in the next 2 years. Of these, 14% give this topic critical importance.

5. In 2020, the percentage of companies in which the Group’s policy on transfer pricing is adopted without changes at the level of the Romanian company has significantly increased, from 18% to 28%. It has also increased, from 5% to 14%, the percentage of companies in which the local policy of transfer prices is developed and implemented in accordance with Romania’s rules for setting transfer prices.

6. Only 36% of the respondent companies say they are aware that the Group and the company should have a new transfer pricing policy that takes into account recent economic changes caused by the COVID pandemic. On the other hand, 29% of respondents say that this issue is not known at the company level and no action has been taken in this regard, followed by 14% who say that this issue is known and discussions are being held with the Group on how to implement a relevant set of measures.

7. Especially, in this period impacted by the effects of the pandemic, we see that only 29% of respondents say that, within the company, it is known that some contracts concluded with related parties should be reinstated, but no action has been taken yet. In this context, we see that only 7% of companies say that the Group has initiated a working procedure to renew some contracts with related parties, and 21% say that, at the level of the company, neither this aspect is known nor any action has been taken.

8. 32% of companies in 2020, compared to 38% in 2018, consider that the distribution of goods is the category of transactions with related parties most exposed to questioning by tax authorities from a transfer pricing perspective. On the following places are these categories of transactions: consulting and management services (26% in 2020 vs. 30% in 2018), financing within the group (14% in 2020 vs. 11% in 2018), and discounts and commissions (14% in 2020 vs. 9% in 2018).

“The survey conducted by PKF Finconta’s experts reveals the up-to-date picture of how companies relate to the legislative aspects of transfer pricing. The results of this report clearly show to the Chief Financial Officers, but also to the other top management executives, the defining trends and evolutions in this fiscal area, so that they understand how companies approach these issues. The most interesting aspect, from my point of view, is the fact that only 2 out of 10 companies (21%) say that they have gone through a fiscal audit that has led to certain adjustments of transfer prices”, says Nilanjan Nag, Transfer Pricing Manager at PKF Finconta.