Legislation regulating offshore trading. Offshore trading with related companies placed in tax havens combined with artificial transfer prices is a well-known way to avoid payment of legally prescribed taxes and fees to the country of harvest and considered as an important generator of funds that can be used for payment of bribery and black money to the forest operation and personnel involved in the harvesting operation. Many countries have established legislation covering transfer pricing and offshore trading. It should be noted that only transfer pricing and offshore trading as far as it is legally prohibited in the country, can be included here. Risk relates to situations when products are sold out of the country for prices that are significantly lower than market value and then sold to the next link in the supply chain for market prices, which is often a clear indicator of tax laundry. Commonly, the products are not physically transferred to the trading company.

1.18.1. Applicable laws and regulations

Law 227/8 September 2015 Fiscal Code Article 11 (2):

http://legislatie.just.ro/Public/DetaliiDocument/171282

Order no. 222/2008, regarding the content of the transfer pricing documentation file:

http://legislatie.just.ro/Public/DetaliiDocument/89707

1.18.2. Legal Authority

Ministry of Public Finances;

National Agency for Fiscal Administration (ANAF)

1.18.5. Risk Determination

Overview of Legal Requirements

Romania is not a member of the OECD, but has implemented legislation covering transfer-pricing that has adopted the OECD guidelines and Arm’s Length Principle. Transactions between related parties shall be carried out at market prices. Related parties are defines as:

  • An individual (or legal entity) is a related party with a legal entity provided that they hold, directly or indirectly, including the shareholding of related entities, a minimum of 25% of the number/value of shares or voting rights in the legal entity, or it effectively controls the legal entity (unfortunately the legislation is silent on the meaning of ‘effective control’).
  • Two individuals are related parties provided that they are spouses or relatives up to the third degree. (PWC 2015, p. 869)

Description of risk

From non-government sources, it seems that the amount of tax for the first half of 2015 are approximately 130% higher than the additional tax obligations set in 2012, which demonstrates the viability of reorganisation and the effective business performance of NAFA, including transfer pricing issues, that have occurred in the year 2013. Thus, the risk is considered low.

Risk conclusion

This indicator has been evaluated as low risk. Identified laws are upheld. Cases where law/regulations are violated are efficiently followed up by the authorities and/or by the relevant entities taking preventive actions.

1.18.7. Control measures and verifiers

Generic

  • Products shall not be traded through countries known as “tax havens” when it is illegal in the country of the supplier or sub-supplier to do so.
  • There shall be no illegal manipulation of or in connection with transfer pricing.

Country Specific

  • N/A
Categories: 1. Controlled Wood Category 1 – Legality, 1.18. Offshore trading and transfer pricing
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