Transfer pricing audits conducted by tax authorities are no longer regarded as a purely formal exercise. In recent years, authorities have developed an increasingly analytical approach, based on detailed financial testing and a strict interpretation of the arm’s length principle. The result has been a significant increase in adjustments imposed on taxpayer, adjustments which, in most of the cases, concern either the improper allocation of profits among affiliated entities or the lack of evidence-based arguments for the declared transactions.
For companies operating internationally, it is essential to understand how transfer pricing obligations and approaches differ between jurisdictions. This analysis offers a comparative overview between Romania and Germany, addressing the required documentation and the priority areas that tax authorities typically examine in transfer pricing audits and disputes.
Focus areas of tax audits and transfer pricing controversy
In Romania, the adjustments imposed by the tax authorities are based on the premise that intra-group transactions must reflect the conditions that would have been negotiated between independent parties. In practice, tax inspectors compare the profit margins of the audited entity with those of comparable companies operating in the market. When the differences exceed the limits of the arm’s length range, the tax authorities may recalculate the taxable result so that the company’s margin falls within the market range. This is, in fact, one of the most common forms of adjustment: an increase in the taxpayer’s taxable profit resulting from the transfer prices being deemed “non-compliant with the arm’s length principle.”
Behind these adjustments, however, lie recurring documentation and interpretation errors. A first major mistake consists in the mechanical application of group policies without adapting them to the local context. Multinational groups often establish uniform pricing policies, but these do not always consider the risks and functions assumed by each entity. A subsidiary that does not control strategic decision-making but bears significant commercial risks cannot be remunerated at the same level as an entity with limited functions and risks. This misunderstanding regarding the economic role of the entity is one of the main reasons tax authorities consider the adopted margins to be unjustified.
Another significant source of adjustments is the comparability analysis. Tax authorities closely scrutinize how taxpayers select benchmark companies and compare margins. When the set of comparable includes entities with different risk profiles, non-homogeneous industries, or incomplete financial data, the results of the analysis become irrelevant.
In such cases, the authorities completely redo the study, using their own databases or criteria, and the resulting differences lead to substantial adjustments. It is also observed that many companies do not update their comparability analysis when significant changes occur in their activities or in the structure of transactions, which gives tax authorities grounds to argue that the documentation no longer reflects economic reality.
Intra-group services are also an area where adjustments are frequent. In these cases, tax authorities challenge not so much the level of the price, but rather the deductibility of the expenses themselves. In the absence of consistent supporting documents regarding the effective provision of services or the economic benefit for the Romanian entity, tax authorities consider that such services do not add value. This leads to the denial of the deductibility of the expenses and, implicitly, to an increase in the taxable base. The mere fact that the services are invoiced by a group entity is not sufficient, but the taxpayer must demonstrate that it has actually received a measurable economic benefit.
Furthermore, transactions involving goods, particularly those between affiliated manufacturers and distributors, are subject to adjustments when the profit margins of the Romanian distributor are lower than those achieved by independent companies in the market. In such cases, tax authorities adjust the purchase price of the goods or the resale margin to bring the taxpayer’s profitability within the market range. In practice, a company that purchases products from an affiliated entity at an excessively high price risks being subject to a transfer pricing adjustment that increases taxable profit, on the grounds that the “real” profit is being “shifted” outside Romania.
Finally, an essential factor in the Romanian tax authority’s decision to apply adjustments is the consistency of the documentation. Even where transactions are economically justified, the absence of a well-structured file aligned with financial and contractual reality can raise suspicions. Inspectors quickly identify discrepancies between the statements made in the documentation and the accounting data, between group policies and the actual flows of money or goods.
Since the transfer pricing systems in many countries are based on the OECD guidelines, the statements made and points highlighted for Romania in general apply to Germany as well. It is therefore particularly important to refer once again to the formal requirements. For example, care must be taken to ensure that in Germany, the preparation of a so-called transaction matrix has been required since January 1, 2025. The matrix has to include a table listing of all business relationships with foreign related companies and their scope.
The transaction matrix must be submitted unsolicited within 30 days of the audit order. Since this regulation is still very new and there is no corresponding document in the tax law systems of other countries, the matrix is often missing from company records, which repeatedly leads to problems or disputes during tax audits. It is therefore advisable to compile the documentation on an ongoing basis and to consult advisors from all countries involved.
Conclusion
Transfer pricing adjustments are not merely accounting corrections but reflect a complex assessment of the economic substance of intra-group transactions. To prevent them, companies must adopt an integrated approach that combines genuine economic analysis with rigorous and transparent documentation. In an increasingly demanding tax environment, the difference between a significant adjustment and a succesful audit outcome often lies in the details, in understanding the role of each entity, in the correct definition of risks, and in the ability to demonstrate the arm’s length nature of transactions
