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Perspectives in Fiscal Litigation in Romania

Perspectives in Fiscal Litigation in Romania


A number of modifications to Romanian fiscal legislation implemented on January 1, 2016, have had significant effects on both taxpayers and competent authorities. The most important of these modifications target the transfer pricing policies and the VAT payment mechanism and have had a direct effect on fiscal litigations.

The recent modifications implemented on January 1, 2016 through Romanian NAFA’s President Order no. 442/2016 (the “Order”) have generated real controversy and heated debates over the application of new provisions involving the content and interpretation of the mandatory transfer pricing file for all taxpayers who deal with affiliated parties.

With the Order’s entry into force, the content of the transfer pricing file became more complex as additional information was required, such as the description of the function, the risks undertaken, and the assets used in the process, which contribute significantly to creating added value for the participant entities.

The Order also adds an exclusive procedure for the estimation and adjustment of transfer pricing. In addition, a new territorial criterion will be used for comparability studies (in the following order: national, EU, pan-European, and international).

The entry into force of the new Order triggered important debates concerning its applicability and interpretation, and the Courts of Law that adjudicate fiscal disputes involving transfer pricing have not yet established the benchmarks that would facilitate a unitary case law.

The main open points still under debate from this perspective relate to: (a) the applicability of the new Order to the transfer pricing files already in use by the taxpayers but not yet verified by the competent tax authorities; (b) the lack of a clear definition of the notion of an incomplete transfer pricing file; and (c) the situation of taxpayers who do not fall under the provisions of the Order but still have a legal obligation under general provisions to document the observance of the principle of respecting market value in their transactions.

Litigation arising after the entry into force of the Order has presented a new set of problems to the courts, as parties face incomplete legislation that nonetheless has significant implications to their fiscal duties and obligations.

The analysis of the findings of the fiscal authorities and the review by the courts of their calculations and interpretations of the fiscal regulations adds even greater complexity to the technical appraisal of the results of the fiscal inspections.

A considerable number of challenges have been brought before the courts in the last 12 months involving taxpayers contesting the technical interpretations of the fiscal authorities. In most cases, a complete analysis of the situation would involve court-appointed fiscal experts in order to clarify the calculations and technical applicability of the norms set out in the Order.

One of the most difficult points requiring the analysis of the courts is the definition and acceptance of “comparables” when analyzing market studies, as there are cases where a simple refusal to recognize as comparable an offer present on the market could lead to significant changes in the calculation of the comparable market value for a certain range of products or services.  

Such cases warrant an integrated approach and require combining the expertise of fiscal experts with that of specialized lawyers in order to provide a complete and correct answer to all legal interpretations and accurate technical verifications of the formulas used to calculate adjustments from the comparability studies.

Given the complexity of the regulation and the lack of uniform interpretation of the legal provisions, we expect that there will be further modifications of the relevant legal provisions based on the case law of the courts as well as on the recommendations expected to be established at the EU level in the near future.

By Marius Ezer, Partner, Nestor Nestor Diculescu Kingston Petersen

This Article was originally published in Issue 4.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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