What is Contemporaneous Transfer Pricing Documentation?
The broad meaning of the term refers to something that is „happening or existing at the same period of time”. Therefore, transfer pricing wise, a documentation that is contemporaneous must be relied on the information available to the taxpayer right before or right at the moment of undertaking the intra-group transaction.
In some cases, the information that the taxpayer may access to prepare the contemporaneous documentation is extensive and varied.
Fortunately, the Romanian Tax Authorities (as well as most OECD aligned countries) acknowledge that the documentation burden (i.e. costs) for the taxpayer should be limited to the benefits envisioned to be obtained through having it available.
Why should it be a priority?
In Transfer Pricing Romania legislation, large taxpayers are required by law to prepare and present contemporaneous documentation, as to prove that the transfer prices applied annually have taken into account the arm’s length principle.
Moreover, depending on the company size, even if the prior preparation of a contemporaneous transfer pricing file is not mandatory, the presentation of such a file at the request of the Romanian Tax Authorities implies the periodic drafting of justification documents.
This is to ensure that, if a request from the Romanian tax inspection team arises, the company can timely prepare and present the contemporaneous transfer pricing file and avoid potential fines.
How to achieve Contemporaneous Transfer Pricing Documentation?
- Know your obligations
As mentioned above, make sure you know which preparation method is mandatory for you (i.e. yearly or periodic preparation of contemporaneous documentation) as to adapt internal processes.
- Stay ahead
Even if your company only has to submit a transfer pricing file at the request of the tax audit team, the existence of periodically updated documentation gives the tax inspectors a sense of confidence that the company has acknowledged the transfer pricing regulations over the covered years. This is applicable for any tax authority around the globe.
- Update regularly the Romanian transfer pricing documentation
If your company is qualified as a large taxpayer by the transfer pricing Romania regulations, yearly updates are definitely mandatory.
But even in the cases of small or medium taxpayers, regular reviews and updates ensure staying up to date with the market practice and in line with the reality of today. This is especially valid in the context of the Covid-19 post-pandemic period.
