Year 2018 was a mediocre year for NAFA, given that it has achieved a real counter-performance in terms of additional amounts set in tax inspections.
Thus, according to the annual performance reports available on the NAFA website, in 2018 additional payment amounts were set in tax inspections in the amount of only 5.9 billion Ron, whereas in 2017 additional amounts payment of 8.2 billion Ron, in 201, 11.4 billion Ron and in 2015 18.84 billion Ron.
The year 2019 began as bad as it could be for NAFA since it had to cope with the problems created by GEO 114/2018 and to allocate significant resources to transfer the administration of about 20,000 medium-sized taxpayers from the regional administrations in Iasi, Galati, Ploiesti, Craiova, Timisoara, Cluj-Napoca and Brasov in the county administrations.
The direct and immediate effects of the transfer of medium-sized taxpayers to the county administrations were:
- allocating a longer proportion of the restructuring project and a smaller amount of time to tax inspection activities;
- some county administrations with a smaller number of medium-sized taxpayers have begun to initiate tax inspections for some medium-sized taxpayers who were previously not in the hands of regional directorates; and
- the county administrations which have been allocated a larger number of medium-sized taxpayers have been forced to postpone tax inspection actions to some medium-sized taxpayers who were previously in the hands of regional governments.
Thus, after the beginning of 2019, with the appointment of NAFA’s new management, things seemed to have returned to normal, and not only has NAFA published the performance report for 2018 after two months of waiting, but also prepared a plan of measures to streamline revenue collection to the consolidated general budget, which proposes some changes that taxpayers should take into account in managing transfer pricing, as follows:
- Initiation of tax inspections in line with the BEPS plan
In other word, NAFA is paving the way for inclusion of risk-based criteria in Country-by-country ( CbCR ) reporting. Thus, once the working procedures have been developed, it is expected that the results of the CbCR reports will be of significant importance in taxpayers’ risk analyzes.
- National identification of affiliated persons and inventory of transactions susceptible to verification in the field of transfer pricing
Of all the measures envisaged in NAFA’s plan to streamline revenue collection to the consolidated general budget, this seems to be a big step forward, but on the other hand it is the point that leaves many places for interpretation.
If, with regard to the inventory of affiliated persons, NAFA could easily use the Orbis database as regards the ways of collecting information on transaction values, and in particular on how to identify possible deviations of such transactions at market value outside a tax inspection, things are unclear.
In addition, in view of the recent reorganization of NAFA and especially the lack of expertise of the staff of some county administrations regarding the transfer pricing file analysis, despite the fact that they have already been more than ten years since the legislation of the price file transfer plan, it is to be expected that the plan to instruct inspectors in verifying intra-group transactions will not have the expected effects.
- Inserting a check box to check transactions with affiliates in the 394 Return “Information Statement on Deliveries / Procurement and Acquisitions Performed on National Territory”.
Although, NAFA specified in the plan of measures that only the introduction of a single box in the 394 return to mark the existence of transactions with affiliated persons, is wanted, it is to be expected that we will see wider modifications, especially since the previous measure was clearly stated that there is a clear inventory of transactions with affiliated parties.
Thus, it would be no surprise that at the time of the changes in the 394 statement we should see, besides the sign on the existence of transactions with affiliated persons, a check on the existence of a transfer pricing file and segregation of purchases, respectively deliveries in relation to affiliated parties and respectively in relation to independent parties.
- Other measures indirectly impacting on how companies manage their transfer prices
In addition to measures that may directly affect the way companies handle transfer pricing, some other measures with indirect impact are outlined in the plan for measures to streamline collection to the consolidated general government.
Of these, the decrease in the number of tax inspections dedicated to the settlement of VAT reimbursements is expected to lead implicitly to a lower number of requests for the transfer pricing file.
On the other hand, the measure to open the insolvency procedure only after the establishment of the additional tax obligations due to the general consolidated budget will inevitably lead to the request for a larger number of transfer price files to the taxpayers who want to declare their insolvency.
Finally, we welcome the new plan of measures to streamline collection to the consolidated general budget, but we also hope to see an effective practical implementation that will not burden taxpayers even more administratively.
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Ionut is the Managing Partner and the founder of Tax Representation. He is a Fulbright scholar, holding a B.A. Finance, a JD and a MS in International Tax at Bentley University. Ionut has 20 years of experience in Romanian and international tax with a focus on foreign investments into Romania, tax controversy and litigation, M&A and international tax structuring.