The importance of preparing the transfer pricing file23 January 2024
The document through which tax inspectors can verify the correctness of pricing for intra-group transactions is called the transfer pricing file.
Early preparation of the transfer pricing file can generate a number of advantages for the companies that prepare it. For example, the transfer pricing file includes analyzes of the risks to which the company is exposed, economic analyzes carried out for intra-group transactions, functional analyses, but also analyzes of the industry in which the company for which the file is drawn up operates.
With the help of the transfer pricing file, possible irregularities can be detected and subsequently corrected, reducing their negative impact on the company for which the file is prepared, especially during a tax inspection.
The transfer pricing file includes an analysis of the main functions performed, risks assumed and assets used by the company for which the file is drawn up and its affiliated parties within the intra-group transactions carried out during the period under review. Therefore, if the company is exposed to risks, this transfer pricing file can signal and clarify them through detailed and in-depth analyses.
The preparation of the transfer pricing file helps in the in-depth understanding of the company’s business model, but also in the possibility of fiscal planning of the taxes owed by the company/preventing and combating deviations from the provisions of the tax legislation. It is recommended for small and medium-sized taxpayers to prepare the transfer pricing file ahead of time as they can avoid possible future adjustments made by the tax authorities and establish a company-wide transfer pricing policy. Of course, for large taxpayers, preparing the transfer pricing file is a tax liability.
With regard to the prices of intra-group transactions, according to the intervals resulting from the comparability studies that are part of the transfer pricing file, a company can observe at what level the profit margin obtained from the respective transactions is located, or it falls within the interval (the price is at market level), or does not fit (price is not at market level). These comparability studies show us whether or not the company’s taxable base is undervalued as a result of its intra-group transactions.
A comparability study involves the identification of companies that carry out activities similar to those of the company whose profitability is tested, being also useful for an analysis of the company’s competition, but also of the financial results of the industry in which the company operates.
Also, if errors have been identified in the transfer pricing, the preparation of the transfer pricing file before the end of the financial year, i.e. by 29 May 2024 or at the latest by the date of filing the corporate tax return (the deadline for 2024 it is June 25), may signal multiple possible errors, giving the company the chance to correct them through voluntary transfer pricing adjustments.
Voluntary transfer pricing adjustment generates either a lower risk of adjustment by the tax authorities, or lower penalties in the framework of the fiscal control carried out at company level.
The company has two options through which it can voluntarily adjust transfer prices. The first option is to submit a rectification statement and the second option is to issue an intra-group regularization invoice.
In Romanian tax legislation, there are no special rules applicable to voluntary end-of-year adjustments of transfer prices, the Romanian taxpayer having the possibility of voluntary adjustment of transfer prices in the relationship with a Romanian affiliated person whenever, as a result of the analysis carried out as part of the transfer pricing file, it is found that the transfer prices applied do not comply with the market value principle.
From the point of view of the procedures, a voluntary adjustment of transfer prices can be made in the form of a rectification declaration through which the company can carry out plus or minus corrections on the level of tax obligations initially declared. According to the rules provided in art. 105 of the Fiscal Procedure Code, voluntary transfer price adjustments cannot be made within a fiscal inspection carried out at company level.
Therefore, the preparation of the transfer pricing file generates clear advantages for companies, as the economic and functional analyzes carried out as part of the file can signal errors, identify risks, and tax consultants specialized in transfer pricing can suggest solutions to correct the identified errors.
Article published in Business-Mark
Junior Transfer Pricing Consultant