Project Iceberg, launched at the beginning of this year by the Romanian tax authorities, is a giant nationwide operation to be implemented throughout 2019. It consists of a wave of tax audits on major multinational companies active in all sectors, with the aim to fight profit shifting.
Although the scale is unprecedented, the operation actually reflects older concerns of the Romanian tax authorities, including transfer pricing, which, as we anticipated in a previous newsletter, ranks high on their agenda.
The announcement has prompted a lot of discussion in Romania, as companies have little to go on when it comes to the selection criteria that the tax authorities will apply when defining the profile of the companies included in the programme. Any multinational company active in any sector is a potential Titanic targeted for "sinking" by the Romanian tax authorities' Iceberg operation, if that company:
- is a large taxpayer;
- carries out transactions with related parties;
- incurred a streak of tax losses in the previous years;
- pays less taxes than its industry peers;
- has unpaid tax bills.
Some people say that Iceberg is just a PR stunt, as the tax authorities do not have the manpower to implement such a complex programme. But we believe we will see at least a few impactful audits.
The Romanian tax authorities are highly active in initiating audits, with or without an intimidating name, and unfortunately companies do little to ensure they are prepared for a "visit" from the tax inspectors. We recommend that companies should take at least a minimum set of measures that would help them react more effectively during a tax audit, including:
- making sure they have ample supporting documentation for their intra-group charges;
- ensuring that they have an updated transfer pricing file; and
- putting in place procedures for dealing with tax officers during a tax audit.
Unfortunately, this is not a story that ends with "happily ever after", but with "to be continued..." Given the tax authorities' intense activity over the past years, we believe that companies should be ready for a tax audit at any moment, whether it comes under a frightening headline or as part of the authorities' business as usual.
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