Tax disputes: an increasingly common reality for companies in Romania Tax disputes are no longer an exception for companies operating in Romania. They have become a stage we frequently see in their relationship with the tax authorities. Below, Kinstellar’s Tax Disputes team explains the reasons behind this growth, the sectors most exposed and the steps every company should know in order to prepare in advance.
Why is it important for a law firm to have a dedicated tax disputes practice, separate from its tax or litigation practices?
A tax dispute is never just a matter of procedural law, nor just a matter of correctly establishing the tax merits. In essence, it is a combination of the two. A team of litigators can build a sound procedural strategy in general terms, but will lack the ability to challenge the tax merits at a technical level. On the other hand, a tax adviser can pinpoint exactly where the tax authority is wrong, but does not have a litigator’s training to build a robust procedural framework for the substantive arguments and to argue them before the court or the body that rules on tax appeals.
At Kinstellar, we chose to build a practice in which these two components work together from the first day of a tax audit, not only at the appeal stage. In practice, a team of tax advisers works alongside a litigation team on every mandate where we foresee, at some point, the potential for a dispute. This fundamentally changes the quality of the strategy we can propose to the client from the very early stages of the case.
In your view, what is the purpose or mission of such a practice?
Our mission is to protect the taxpayer’s rights throughout its entire relationship with the tax administration, from preparing for an audit to a potential final court ruling. We do not see a tax dispute as an isolated event, but as a multi-stage process in which a misstep at the beginning can compromise the chances of success later on.
That is why we structure our assistance on three levels: preventive advice, usually delivered through a mock tax audit; representation during the audit itself; and, where necessary, challenging the tax assessment decision at every procedural level. The ultimate goal is, of course, a favourable outcome for the client, achieved as quickly as possible and with the lowest possible financial impact.
What kind of team is needed to advise a client on a tax dispute mandate?
A complete, multidisciplinary team. Ideally, this means tax advisers specialised in the technical areas (transfer pricing, VAT, corporate income tax, tax procedure), together with litigators experienced before the administrative and tax courts, as well as accountants or financial experts whenever the stakes require complex calculations to be reconstructed.
Our team of specialists is coordinated by Theodor Artenie, together with Nicoleta Florea, Carmen Mazilu and Roxana Gheorghe. On the litigation side, mandates are coordinated by Marius Ezer, together with Raluca Botea, Vlad Simion and Raluca Constantin. We deliberately work as a single team on tax dispute mandates, not as two departments handing over the baton. Direct communication between the two areas of expertise is, in fact, what sets a truly proactive strategy apart from a reactive one.
How would you broadly describe the tax disputes market in Romania at the moment?
It is an active market and, we would say, one that keeps maturing. The tax authority has become more sophisticated in its approach to audits, especially in areas with a high potential for reclassification, such as transfer pricing, permanent establishments and intra-group transactions. This is directly reflected in the volume and complexity of the disputes we see.
At the same time, taxpayers, and multinational companies in particular, have become more willing to challenge tax assessments when they believe their original tax position was correct, rather than automatically accepting the adjustments proposed by the tax authorities. This leads to a steady flow of cases, many of them involving significant amounts and cross-border elements.
Has demand for these services changed? Are there more tax disputes than a few years ago?
We are seeing a clear increase in the number of mandates. Our litigation practice in Romania currently handles more than 100 active mandates for around 60 clients, and tax disputes are an increasingly important part of this portfolio, alongside insolvency, employment and fraud/white-collar crime.
This growth is driven not only by the number of tax audits, but also by a change in attitude: companies are investing more in prevention, through mock audits and internal tax risk reviews, precisely because they know that once a dispute begins, it can be far more costly than early intervention.
Which economic sectors face tax disputes most frequently?
In our recent experience, a few sectors consistently stand out:
• Energy and utilities – large-scale energy infrastructure projects, where issues relating to permanent establishment and VAT refunds frequently arise;
• Automotive and industrial – companies with production or distribution operations integrated at group level, where transfer pricing and cross-border intra-group reorganisations frequently trigger audits and, subsequently, appeals;
• Technology and services – multinational companies with complex operating structures in Romania, where the tax authority closely examines the local tax presence, particularly in terms of staff structure and remuneration models.
Which types of tax disputes are generating the most activity at the moment?
Three categories consistently dominate our work:
• Transfer pricing – challenging the methodology used by the tax authorities to recharacterise intra-group transactions and assess additional taxes;
• Permanent establishment – disputes over whether the activities of a foreign entity create a taxable permanent establishment in Romania, with a direct impact on the tax base;
• VAT – in particular, refusals of VAT refunds, as well as diverging interpretations of the right to deduct.
In addition, we see a steady flow of corporate income tax appeals, particularly regarding the deductibility of certain expenses or the reconstruction of the taxable base following corporate reorganisations.
What are the main lessons a company should keep in mind to prevent a tax dispute?
A few principles that seem simple but are often overlooked in practice:
• Documentation matters most before you need it. Many disputes are lost or needlessly prolonged because supporting documents were not prepared in advance: intra-group agreements, transfer pricing files, evidence of the economic substance of an activity.
• How you communicate with tax inspectors during the audit decisively shapes the final outcome. Information provided unclearly or incompletely during the audit can later become the tax authority’s main argument.
• A mock audit carried out in advance costs far less than a dispute. Identifying tax vulnerabilities before an audit begins allows the company to correct what can be corrected and to prepare for what cannot be avoided.
• Procedural deadlines are unforgiving. Under Romanian tax law, missing an appeal deadline can effectively remove any chance of later challenging a tax assessment, however strong the arguments on the merits may be.
• Integrating tax and legal advice from the outset, not only at the dispute stage, is key to a strong defence. A strategy built only after the tax assessment has been issued often starts with a disadvantage that could have been avoided.
A tax dispute should not come as a surprise. It is the result of a process that starts long before, with the way a company structures its operations and documents its tax decisions. With an integrated tax disputes team by their side, companies can turn this process from a source of risk into an exercise in discipline and long-term protection of their interests.
Kinstellar Romania’s Tax Disputes team provides integrated assistance at every stage of a tax case: mock audits, representation during the audit and challenges to tax assessment decisions. For more details, the team can be contacted at marketing@kinstellar.com