Romania vs “A-SHS S.A.”, June 2025, Supreme Administrative Court, Case No 3413/2025

Category: Disallowed Deduction, Losses, Transfer Pricing Methods | Tag: , , , , , , , , , , , ,
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“A-SHS S.A.”, a Romanian company within a multinational group, underwent a transfer pricing audit for two main types of controlled transactions: management and centralised services from its foreign parent, and the purchase of products from an affiliated supplier.

Regarding the services, the tax authority treated the fees as shareholder activities that primarily served the interests of the parent company in terms of group monitoring. The tax authority denied the deduction and related VAT on the grounds that “A-SHS S.A.” had not provided concrete evidence of specific benefits, despite the company claiming that these were chargeable intra-group services that improved its performance and satisfied the OECD benefit test.

For the purchase of products, “A-SHS S.A.” applied the comparable uncontrolled price method using internal comparables with independent customers, and used the transactional net margin method for other dealings. However, the tax authority rejected this transaction-based analysis and instead applied a profitability test based on return on total costs for the whole business. They concluded that “A-SHS S.A.”’s overall margin was below the arm’s length range, resulting in a corporate income tax adjustment.

The Court of Appeal partly upheld the company’s challenge. It agreed with the administration that the services from the parent company were not supported by adequate evidence of benefit and could be treated as shareholder activities. Therefore, the denial of the deduction was upheld. However, it annulled the transfer pricing adjustment relating to the paper purchases, ruling that the tax authority had incorrectly replaced the taxpayer’s methods and comparables with a broad profitability test that disregarded product differences and the effect of a significant investment.

Judgment

The Supreme Administrative Court upheld this split outcome. It endorsed the strict evidentiary approach for intra-group services and found no fault in treating unsupported management charges as non-deductible shareholder activities. However, it also upheld the annulment of the transfer pricing adjustment for goods, recognising that the company’s use of the CUP method with internal comparables was, in principle, a more reliable basis for comparison than an undifferentiated return on costs test.

Excerpt in English
“The court emphasized that this global approach is only permitted in exceptional situations, which ANAF did not prove, and contravenes the principle of transaction-by-transaction analysis provided for by legislation (Order No. 442/2016) and the OECD Guidelines.
Furthermore, the appellant-defendant ANAF calculated a single profitability indicator—the return on total costs (ROTC)—for A.’s entire activity, including both transactions with affiliates and those with independent third parties.
The court of first instance pointed out that the law requires verification of the financial indicator of the transaction, not of the company’s entire activity. The overall profitability of a company can be influenced by many other factors, not just transfer prices.
Furthermore, the ANAF analysis did not take into account the fact that A.’s reduced profitability in 2017-2018 was not due to transfer prices, but to an exceptional and large-scale project: the construction of a new factory and the relocation of production lines.
The court of first instance classified this project as a “perfectly legitimate economic reason” for the temporary decrease in profit and emphasized that, in accordance with the OECD Guidelines, such extraordinary events must be taken into account and their effects eliminated from the analysis. ANAF erroneously attributed this loss of profitability to transactions with E..
ANAF also applied adjustments to consumables that E. purchased from third parties and re-invoiced to A. at cost, without adding a profit margin. Therefore, these expenses were already at market value, and their adjustment was incorrect.
In view of all these findings, it is noted that the specific and contextualized approach of the respondent was correctly considered to take precedence over the global and decontextualized analysis of ANAF, which is why the court of first instance carried out a correct analysis.”

 
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Related Guidelines

  1. TPG2022 Chapter VII paragraph 7.31The method to be used to determine arm’s length transfer pricing for intra-group services should be determined according to the guidelines in Chapters I, II, and III. Often, the application of these guidelines will lead to use of the CUP or a cost-based...
  2. TPG2022 Chapter VII paragraph 7.10The following are examples of costs associated with shareholder activities, under the standard set forth in paragraph 7.6: a) Costs relating to the juridical structure of the parent company itself, such as meetings of shareholders of the parent, issuing of shares in the...
  3. OECD COVID-19 TPG paragraph 39In all circumstances it will be necessary to consider the specific facts and circumstances when determining whether a so-called “limited-risk” entity could incur losses at arm’s length. This is reflected in the OECD TPG which states that “simple or low risk functions in...
  4. TPG2024 Chapter IV Annex III paragraph 4040. The selection of a transfer pricing method always aims at finding the most appropriate method for a particular case. However, in evaluating the choice of method for in-scope transactions, it is neither necessary to prove that a particular method is not suitable...
  5. TPG2024 Chapter IV Annex III paragraph 4141. Based on the economically relevant characteristics of in-scope transactions and the information available on comparable uncontrolled transactions, the transactional net margin method is chosen as the most appropriate method under the simplified and streamlined approach....
  6. TPG2024 Chapter IV Annex III paragraph 4242. However, it is recognised that there may be instances (although these may be rare, as the distribution of commodities is excluded from scope) where the application of the comparable uncontrolled price method using internal comparables could be potentially more appropriate to apply...


Related Case Law

  1. Romania vs A. Romania S.R.L., April 2021, Supreme Administrative Court, Case No 2644/2021A. Romania S.R.L. had purchased services from A. Nederland BV and A. CZ Holding sro, and the costs of the services had been deducted for tax purposes. At issue was whether these services had actually been provided to the benefit of A. Romania...
  2. Romania vs A. S.A, May 2023, Supreme Administrative Court, Case No 2594/2023A. Romania S.R.L. had purchased gas and strategy consulting services from related parties. The tax authorities issued an assessment where part of the deduction for these costs had been denied by application of the arm’s length principle. The court of first instance ruled...
  3. Romania vs S.C. A., March 2021, Supreme Administrative Court, Case No 1955/2021S.C. A. had paid for intra group services in FY 2013 and 2014 and deducted the costs for tax purposes. The purchases of services were made on the basis of a management services contract concluded with related party C. S.A. and a production...
  4. Poland vs F. S.A., August 2025, Supreme Administrative Court, Case No II FSK 1463/22A Polish company specialising in e-grocery logistics was assessed for additional taxable income after tax authorities applied the transactional net margin method and challenged its intra-group service pricing. The Tax Administration Chamber and Administrative Court annulled the assessment over inappropriate comparables. The Supreme...
  5. Italy vs Alfa Gomma SUD s.r.l. July 2014, Supreme Court 16480The tax authorities had issued an assessment where deductibility of service costs charged to an Italien company had been disallowed for tax purposes, as the Italien company – according to the tax authorities – had not provided sufficient proof of the alleged benefits...