Reff & Associates and Deloitte Romania obtained a final victory for a transportation and logistics company in a dispute with the tax authority on transfer pricing and deductibility of intra-group services
A multidisciplinary team of tax litigation lawyers from Reff & Associates | Deloitte Legal and tax advisors from Deloitte Romania has obtained an important final solution for one of the leading logistics and transportation companies in the world from the Ploiesti Court of Appeal, which clarifies essential aspects regarding the tax treatment applicable in the area of intra-group services, both from the perspective of the market price and the deductibility of expenses and related VAT. The victory was obtained in a complex litigation, started more than four years ago, which involved the management of extensive evidence, as well as the acknowledgement of conclusive legal and tax principles for intra-group services.
The solution is even more important as, during tax inspections, the authorities' analysis focusses mainly on intra-group services and leads, in most cases, to transfer pricing adjustments and to the rejection of the deductibility of expenses and VAT related to services received by taxpayers from affiliated companies.
The decision obtained by the Reff & Associates | Deloitte Legal team confirms, first of all, that in the transfer pricing analysis quantitative criteria such as turnover or number of employees are not decisive in the selection of comparable companies operating in the same field, in order to determine whether the prices charged by the company in question comply with the market value principle. Thus, the courts invalidated the approach of the tax inspectors who considered that companies with a lower turnover and number of employees than the analysed taxpayer were not comparable, although they were competitors, and thus distorted the comparability analysis.
Secondly, the court confirmed that the deductibility of expenses and VAT related to management services provided by the affiliated company to the Romanian taxpayer cannot be refused on the ground that similar services would be provided by other companies in the group or by Romanian taxpayer employees, as long as the latter are different from the intra-group services analysed. Thus, the taxpayer has the legal possibility to incur the expenses it considers necessary in its activity, with no tax sanctions exposure.
The tax litigation team that obtained this important solution, coordinated by Bogdan Marculet, Counsel, also included Stefan Mihartescu, Managing Associate, and Tatiana Pluteanu, Senior Associate, Reff & Associates | Deloitte Legal, while Deloitte Romania's tax team that contributed to the success of the project consisted of Bogdan Barbu, Partner, Loredana Ilea, Director, and Adelina Bobe, Senior Manager.
"The decision obtained in court represents a benchmark both in transfer pricing, as it confirms that the tax authorities cannot invalidate taxpayer’s transfer pricing analysis, by setting comparability thresholds according to its own assessment, but also in the broader matter of intra-group services, reaffirming that the tax inspection bodies don’t have the right to refuse the deductibility of expenses and VAT related to these services for purely formal reasons, not anchored in the applicable tax legislation," said Bogdan Marculet, Counsel, Reff & Associated | Deloitte Legal.
"We are pleased with this new reference solution regarding the tax treatment applicable to intra-group services, as the tax authorities continue to focus their attention in this area, and we hope that the decision will provide additional confidence to our clients on how they conduct comparability analyses as part of transfer pricing file and will encourage the development of business relationships, including intra-group, with no risk of unfavorable tax rulings," said Bogdan Barbu, Partner, Transfer Pricing, Deloitte Romania.
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Reff & Associates | Deloitte Legal is recognized as a leading law firm in Romania for the quality of services and ability to deliver solutions on complex legal matters. The areas of practice include banking and finance, competition, employment, energy and environment, insolvency, legal management consulting, litigation, corporate, mergers and acquisitions, public sector and real estate, as well as optimization of legal processes and the adoption of new technologies. The firm represents in Romania Deloitte Legal, a global network with more than 2,500 lawyers in 80 countries.
