If your Romanian distribution subsidiary ends an audit with an assessment of several million lei, it is rarely because of fraud. The usual "fault" is that its operating margin fell, in certain years, below the range the tax authority considered arm's length, after it rejected part of the comparables in the file. In transfer pricing, the biggest adjustments come not from a fraud, but from a calculation.
A transfer-pricing adjustment does not "cut" a one-off expense, as happens with an invoice lacking supporting documents. It reconstructs the arm's length price of a recurring transaction and imposes the difference across the whole flow. The typical mechanism has four moves:
The inspection analyses the file and identifies the targeted transaction — distribution, services, interest, royalty.
Rejects part of the taxpayer's comparables (different functions, markets, years) and thereby narrows the reference range.
On a narrower set, often with higher margins than those retained in the file.
Positions the taxpayer's result at the median of the new range and imposes the difference as additional taxable income.
Each move is technically contestable — but, if left unchallenged, it produces a taxable base that multiplies across all the open years. To the additional base are added corporate income tax and the accessories — interest and penalties calculated for each year, from the due date on which the tax should have been paid. Since the adjustment usually concerns years already closed, the accessories accumulate over long periods, and the final amount can significantly exceed the "base" tax. Time works against the taxpayer twice here: through the multiplication of the difference across all the years, and through the interest attaching to it.
The most disputed point — and the one that inflates the amounts — is the positioning at the median. The rule: if the taxpayer's profitability indicator falls within the interquartile range, the transaction is compliant; if it lies outside it, the adjustment is made not to the nearest edge (the lower quartile) but to the central tendency of the market — usually the median of the range or, in certain situations, the arithmetic mean.
The effect is amplifying. A company whose margin was slightly below the lower quartile is not "raised" to that quartile but to the median — a far larger jump. Each percentage point of difference, multiplied by the annual turnover and by the number of years audited, becomes additional taxable base. This is the arithmetic behind the "huge" amounts: not a large error, but a small difference multiplied by volume and time.
In the specialist literature and in practice it has been argued, moreover, that automatic positioning at the median is not always correct: where the taxpayer was already close to the range, an adjustment towards the lower quartile would be more appropriate. This is a legitimate technical argument, raised in the appeal and in litigation — on the basis of the arm's length principle and of proportionality, not of an automatic rule of bringing the result to the middle.
A group distributor has, year after year, a small margin or losses, while the group is profitable. The inspection asks why an independent distributor would work constantly at a loss — and adjusts to the median. Losses must be documented in the file (market entry, restructuring, cost shock), not invoked only at audit.
Management services are the favourite target, easy to contest: "what did you actually receive?". If the provision is not proven or the price is not supported, the expense is rejected — a subject treated in intra-group services and management fees.
Does the interest respect the market? Is the loan economically real? Too high an interest erodes the borrower's base; too low, the lender's. The specific rules are in intra-group loans.
Vulnerable on two fronts: the amount (does the rate respect the market?) and the substance (does the entity that receives it actually own and manage the intangible, or merely "host" it for tax purposes?). A large royalty to an entity without real functions is doubly exposed.
When the file is missing or incomplete, the taxpayer loses control of the analysis. The tax authority may resort to estimating the tax base, on the basis of its general right to establish the base by estimation (art. 106 of the Fiscal Procedure Code) and of the special procedure for estimating transfer prices in OPANAF 828/2026. In practice, ANAF (the Romanian tax authority) chooses the method and the comparables, and the result is set, here too, at the central tendency of the market. Estimation is, by its nature, unfavourable: it is done on the tax authority's data and reasoning, not the taxpayer's. The documentation obligation that prevents estimation is treated in the article on the transfer-pricing file; the detailed mechanism of estimation in the absence of the file is developed separately.
A purely Romanian adjustment creates a cross-border problem. If ANAF increases the profit of the Romanian subsidiary by amount X, but the other state's administration does not symmetrically reduce the profit of the foreign affiliate, the same amount is taxed in two states. Elimination is achieved through international instruments, not through the domestic appeal:
The other state recognises the adjustment and symmetrically reduces its taxable base, on the basis of the double-taxation treaty.
The two administrations negotiate, at the taxpayer's request, the elimination of double taxation; the basis may be the bilateral treaty, the EU Arbitration Convention or Directive (EU) 2017/1852, transposed in Romania.
MAP can run in parallel with the domestic appeal and has, in transfer-pricing cases, a real potential to recover significant amounts. The interaction between the adjustment, the treaty and the mutual agreement procedure is developed in the article on double-taxation treaties.
An adjustment that becomes final without a corresponding adjustment in the other state means tax paid twice on the same profit. The domestic appeal resolves only the Romanian component; to eliminate double taxation you need the mutual agreement procedure or the corresponding adjustment, with their own deadlines that start running from the communication of the decision. Whoever limits themselves to the appeal and "forgets" MAP can win partly in Romania and lose entirely at group level. The two routes are thought through together, from the start.
A large adjustment is not a foregone conclusion. The technical defence targets precisely the inspection's moves:
Was it the most appropriate, or did ANAF impose one convenient to the result?
Was it reasoned point by point, or "in bulk"?
Are they truly comparable — the same functions, markets, years?
Does it reflect the real profile of the tested party? And was the median justified, or was the correct point towards the lower quartile?
This is where the party-appointed expert comes in, who can redo the benchmarking, test the inspection's rejections and recalculate the range. Many multi-million adjustments do not survive a rigorous re-analysis — not through rhetoric, but through the correct reconstruction of the comparables. The role of the transfer-pricing expert report is treated in the dedicated article.
The route of challenge follows the general regime: first the administrative appeal, addressed to the competent body within ANAF, within the statutory deadline from the communication of the decision; then, if the outcome is unfavourable or does not come in time, the action in tax-administrative litigation, before the court. In litigation, the decisive evidence is the judicial expert report, and the presence of a party-appointed expert alongside the lawyer shifts the technical balance. Evidence in tax litigation — including the burden of proof and the force of expert reports — is developed separately.
The safest defence is the one that renders any adjustment unnecessary. The advance pricing agreement (APA) is the arrangement by which the taxpayer obtains, before the transactions are carried out, ANAF's confirmation of the method. Once issued and observed, the APA blocks subsequent adjustments on the covered transactions, and the file is no longer prepared for those transactions and periods. The procedure, updated in 2026, also allows, under certain conditions, the agreement to apply to earlier periods (roll-back). For groups with large, recurring flows, the APA turns a multi-million risk into administrative certainty.
Return to the opening scenario. The distribution subsidiary receives an adjustment of several million, based on an operating margin below the median of the range reconstructed by ANAF, after the rejection of half the comparables in the file. The technical re-analysis shows, however, that the rejected companies were genuinely comparable — the same distribution functions, the same market —, that two of the comparables added by the inspection in fact had production functions (a different profile), and that on the correctly rebuilt range the subsidiary's margin fell between the lower quartile and the median. The conclusion: no adjustment was justified. What reversed the amount was not an abstract legal argument, but the rigorous reconstruction of the comparables and the range. Here, in the technique of benchmarking, the fate of the adjustment is decided.
Because the rule applied retains the central tendency of the market (the median or, in certain situations, the arithmetic mean) as the reference point of the adjustment. The effect is amplifying: a margin slightly below the range is not lifted to the edge of the range but to the median. Automatic positioning at the median is, however, technically contestable, especially where the taxpayer was already close to the range.
You risk that if you do not obtain a corresponding adjustment in the other state. The domestic appeal resolves only the Romanian part. To eliminate economic double taxation you need the mutual agreement procedure (MAP) or the corresponding adjustment, under the treaty, the EU Arbitration Convention or Directive (EU) 2017/1852. The two routes are started in a coordinated way.
Yes, frequently. The adjustment is challenged through the appeal and then in litigation, where judicial expertise decides. The defence targets the method, the rejected and added comparables, the functional analysis and the level of the adjustment. Many large adjustments do not survive a rigorous technical re-analysis, because they rest on unreasoned rejections of comparables or on an unjustified positioning at the median.
Through correct, timely documentation (a solid file, defensible benchmarking) and, for large recurring flows, through the advance pricing agreement, which confirms the method in advance and blocks adjustments on the covered transactions. A preventive audit of the transfer-pricing positions costs far less than an adjustment discovered at audit.
This article is strictly informational and does not constitute legal or tax advice. Individual situations must be analysed on their specific facts. Legislative position reflected: 18 July 2026.
Deadlines run from the moment of communication. A first discussion clarifies what is being alleged, what you must justify and how the defence is built — before an estimation becomes an assessment decision.