S.C. X S.R.L.
Object of activity: Manufacture of other parts and accessories for motor vehicles and their engines (CAEN code 2932).
Period audited: 01.10.2019 – 31.12.2021.
The main statements of the tax inspection authorities were:
As regards corporate income tax, the tax inspection authorities found the following deficiencies at S.C. X S.R.L.:
- Recalculation of operating expenses: This was based on the data provided by the transfer pricing documentation in the transfer pricing files submitted to the tax inspection authorities for 2019, 2020 and 2021. These did not contain a description of the functions and risks assumed by S.C. X S.R.L. and its affiliated companies.
- Description of functions and risks: The transfer pricing file does not describe the main functions performed, risks assumed and assets used, which significantly contribute to the creation of added value, individualized for each group entity.
- Method of purchase price formation: The company did not disclose the method of purchase price formation for material, raw materials and services transactions with related parties, although it has chosen the cost plus method for analyzing transfer prices.
- Coverage of losses: Losses and cash requirements for the ordinary course of business were covered by loans granted by related parties, partially repaid by the accumulation of successive loans.
- Applicability of the cost plus method: S.C. X S.R.L., not being a company with full functions and risks within the group, was considered a toll manufacturer. The auditors concluded that the cost-plus method presented in the transfer pricing file was not applicable and recalculated the transfer price on the basis of the profit margin.
- Declaration of tax loss: The taxpayer mis-declared tax losses to be recovered from previous years.
- Loans without proper contracts: The granting of loans by affiliated persons was carried out without drawing up a loan contract reflecting the economic substance of the transactions and allowing their performance to be monitored.
- Supporting documents: The company did not submit supporting documents proving that the amounts received were used in the interest of the beneficiary’s business.
- Interest paid without contracts: The amounts representing interest paid by S.C. X S.R.L. to affiliated legal entities, without loan contracts, were considered non-deductible expenses for tax purposes for the calculation of taxable profit, totaling RON x.
The tax inspection authorities recalculated the tax situation of the company, canceling the tax loss (accumulated) carried forward entered in the Tax Return 101 on corporate income tax as at 31.12.2021 and establishing additional corporate income tax in the total amount of x lei.
Source: ANAF