R O M N I A

HIGH COURT OF CASSATION AND JUSTICE

The Administrative and Tax Litigations Chamber

Decision No 1995/2021

Decision No 1995

Public sitting of 30 March 2021

On these appeals;

From an examination of the case-file, finds as follows:

I. The circumstances of the case

1. Subject-matter of the application

By means of an application for a writ of summons, registered on 10 April 2017 at the Brașov Court of Appeal, Administrative and Tax Litigation Section under no. x/2017, the applicant A. requested, in contradiction with the defendants National Tax Administration Agency - Regional General Directorate of Public Finances Iasi, National Tax Administration Agency - Regional General Directorate of Public Finances Iasi - County Administration of Public Finances Vaslui, General Directorate for the Administration of Large Taxpayers:

(i) annulment of the Decision on the settlement of the appeal No 3/31.01.2017 issued by the DGAMC, which rejected, as unfounded, the tax appeal lodged against the Tax Decision No x/31.05.2016 issued by AJFP Vaslui;

(ii) annulment of Tax Decision No x/22.04.2016 issued by AJFP Vaslui, which established additional tax liabilities for the applicant in the total amount of RON 4,415,610, namely: RON 3,026,356 as income tax; RON 1,070,198 as late payment surcharges/interest on income tax; RON 319,056 as late payment penalties on income tax;

(iii) annulment of Tax Decision No x/31.05.2016, issued by AJFP Vaslui, correcting certain clerical errors in the original Tax Decision, which established additional tax liabilities for the applicant in the total amount of RON 4,398,048, namely: RON 3,026,356 in respect of corporation tax; RON 937,639 in respect of late payment/due interest on corporation tax; RON 434,053 in respect of late payment penalties on corporation tax;

(iv) annulment of Tax Inspection Report No x/22.04.2016 issued by AJFP Vaslui;

(v) order the defendants to pay the costs.

2. Judgment of the Court of First Instance

By civil judgment no. 72 of 3 May 2018, the Brașov Court of Appeal, Administrative and Fiscal Litigation Section, admitted the application for legal action; annulled the tax assessment decisions no. x/22.04.2016 and no. F-VS 59/31.05.2016, the tax inspection report no. x/22.04.2016 and the decision no. 3/31.01.2017 and ordered the defendants to pay the applicant the sum of RON 103,093.63 in costs.

3. Appeal in the case

3.1. Appeal brought by the defendant Administrația Județeană a Finanțelor Publice Vaslui, on its own behalf and on behalf of the Direcția Generală Regională a Finanțelor Publice Iași

An appeal against civil judgment No 72 of 3 May 2018 of the Brașov Court of Appeal, Administrative and Fiscal Litigation Division, was brought by the defendant Vaslui County Administration of Public Finances, on its own behalf and on behalf of the Regional Directorate-General of Public Finances of Iași, based on the provisions of Article 488(2) of the Civil Code of Vaslui County. (1)(6) and (8) of the Code of Civil Procedure (as the appeal was framed by the court of judicial review), requesting that the appeal be allowed, the judgment under appeal be set aside and, on appeal, the action be dismissed.

In the grounds of the appeal, the following was stated:

In view of the lapse of the limitation period for 2009, under Article 98(2) of the EC Treaty, the applicant claims that the Court should (2) of O.G. no. 92/2003 on the Code of Tax Procedure, republished, as amended and supplemented, for large taxpayers, the period subject to tax inspection begins from the end of the period previously inspected, under the terms of paragraph. (1), which states that "the tax inspection shall be carried out within the limitation period of the right to establish tax obligations".

By Decision no. 7/2011, the Central Tax Commission ruled in this regard as follows: "In the interpretation and uniform application of the provisions of Art. 91 para. (2) of Government Ordinance No. 9 2/2003 on the Tax Procedure Code, republished, as subsequently amended and supplemented, the limitation period of the tax authority's right to establish tax obligations, in the case of corporate income tax, shall begin to run from 1 January of the year following the year in which the law requires the submission of the Corporate Income Tax Return".

In substantiating its convictions, the court relied on the conclusions of the expert accountancy report carried out in the case, which it took up in its entirety over three pages, and which in practice constitutes a large part of the grounds for the judgment.

With regard to the conclusions of the expert report, the defendant raised objections, in which it pointed out that during the tax inspection, no supporting documents of the nature of those presented in objective no. 2 of the report were submitted, and that in points 3 - 5 of the accounting expert report, information was presented which did not dispute the conclusions of the tax inspection report no. x/22.04.2016.

However, the court did not demonstrate what arguments led to the rejection of its defences and, implicitly, to the adoption of the conclusions of the accounting expert report in its entirety, although at most of the objectives, the accounting expert does not dispute the data mentioned in the RIF no. x/22.04.2016.

In view of the consideration of the services performed by the plaintiff as actually rendered and necessary for the performance of the plaintiff's activity, the court of first instance also limits itself to taking over the conclusions of the expert's report in their entirety.

The defendant reiterated the defences made in the case, at length, which are repeated in the appeal, pointing out that, in connection with point C) on page 120 of the RIF, the tax inspection body grouped management and consultancy services together because they are part of the same category, and therefore of a different category from IT services, trademark licences, financial loans, etc. The tax inspection bodies mention in the Transfer Pricing File that the audited company does not demonstrate that "the operations concerning management and consultancy services have a real economic justification and that they would have been decided under the same conditions as between independent enterprises, within the framework of free competition".

Therefore, the cost-plus method is not appropriate for assessing compliance with the market value principle in the case of the provision of management services between B. and A., on the one hand, and in the case of the provision of consultancy services between C. and A., on the other, on the other hand, because the comparability of gross margins depends on the similarity of functions performed, risks assumed and contractual terms; ensuring a high degree of comparability would lead to practical difficulties in carrying out the process of selecting comparable companies for the benchmarking study; the financial statements of potentially comparable companies, as presented in the databases of D. databases and as they have been prepared in accordance with Romanian accounting regulations, present expenses by nature and not by purpose; as a result, it is not possible to separate the cost of goods sold or the cost of services rendered from other operating expenses of the potentially comparable companies.

Therefore, the application of the net margin method is the most appropriate for assessing the compliance with the Market Value Principle of the costs incurred by A. from the purchase of management and consultancy services. The Respondent pointed out that the method of benchmarking, in the Transfer Pricing File, is different between management services and consultancy services, although they are part of the same category of type of services and CAEN code.

No additional information was requested from S.C. A. on this point because, following the tax inspection, it was found that the audited company did not submit supporting documents showing that management, consultancy, assistance, production management, product management and logistics services in the amount of RON 20,056,430.90 had been performed.

In law, the provisions of Article 483 et seq. of the Civil Procedure Code were invoked.

3.2. Appeal brought by the defendant General Directorate for the Administration of Large Taxpayers

The defendant General Directorate for the Administration of Large Taxpayers appealed against civil judgment no. 72 of 3 May 2018, rendered by the Court of Appeal of Brasov, Administrative and Fiscal Contentious Section, based on the provisions of Article 488 para. (1), para. 8 of the Civil Procedure Code, requesting that the appeal be admitted, the judgment under appeal be quashed and, on the merits, the claim be dismissed.

At the same time, the defendant indicated that it also intends to challenge the decision on the plea of lack of standing to bring proceedings, as well as the considerations which found that the procedural document of the statement of defence had been filed without observance of the time-limit provided for by law, found in the judgment of 14 June 2017, delivered in the same case, requesting, on retrial, that the plea be admitted.

In the grounds of the appeal, the following was stated:

With regard to the conclusion of the hearing of 14.06.2017, the court of first instance misapplied the provisions of Article 201 of the Civil Procedure Code.

The application was served on the appellant on 14.04.2017, according to the date stamped on the post office stamp. The statement of defence formulated by the DGAMC was submitted to the Post Office on 10.05.2017, in compliance with the legal time limit of 25 days provided for in Article 201 of the Civil Procedure Code. Accordingly, the statement of defence formulated by the DGAMC was submitted within the legal time limit.

With regard to the rejection of the lack of legal standing of the DGAMC on the heads of claim concerning the annulment of the administrative acts issued by the DGRFP Lași, it is submitted that the court of first instance misapplied the provisions of Article 1 para. (1) of Law 554/2004. The plaintiff requests the court to order, in its judgment, the annulment of Tax Decision no. x/22.04.2016, the annulment of Tax Decision no. x/31.05.2016, the annulment of Tax Inspection Report x/22.04. 2016 issued by the DGRFP lasi- AJFP Vaslui; the solutions that the court of administrative jurisdiction may give shall be pronounced in contradiction with the public authorities issuing the contested administrative acts, respectively, on heads of claim 2, 3 and 5 concerning the annulment of the acts issued by the DGRFP lasi, the DGRFP lasi has standing to sue and not the appellant.

With regard to the judgment under appeal, it is submitted that it was handed down by the court of first instance on a misinterpretation of the rules of substantive law.

The Court of Appeal of Brasov erroneously held that in the matter of the income tax for 2009, the taxable base was established in 2009, misapplying the provisions of Article 98 para. (1) and para. (2) and Article 23 of the Code of Tax Procedure, based on the case law of the High Court of Cassation and Justice.

The limitation period of 5 years begins to run from 1 January of the year following the year for which the tax is due, and in this case the limitation period for the income tax for 2009 began to run on 1 January 2010 and expired on 01.01.2015, before the tax inspection began on 12.10.2015.

As a result, the limitation period of the tax authority's right to determine the tax liability on the corporate income tax owed by the taxpayer for the year 2009, the tax base of which was established by the company by filing the 101 Return in 2010, starts to run from 01.01. 2011 and expires on 01.01.2016, and the limitation period for the right of the tax authority to determine the tax liability for the corporate income tax due for the year 2010, the tax base of which was established by the company by filing the 101 return in 2011, begins to run from 01. 01.01.2012 and expires on 01.01.2017, so that on the date of registration of the Notice of Tax Inspection in the Single Register of Control of the company, 12.10.2015, the tax inspection bodies were fully entitled to establish tax liabilities for corporate income tax for the years 2009 and 2010, in this regard, in essence, the Decision of the Central Tax Commission No. 7/2011 given in the uniform application of tax regulations in this matter was also formulated.

On the merits of the case, the Court of First Instance adopted exclusively the conclusions of the expert's report without giving its own reasons for upholding the action. Thus, with regard to the amount of RON 4,398,048, representing additional income tax payable in the amount of RON 3,026,356, as well as related accessory tax obligations in the total amount of RON 1,371,692, established by Tax Decision no. x/31.05.2016, partially contested, it is pointed out that the court of first instance misapplied the provisions of Law no. 571/2003 on the Tax Code, republished, art. 21 para. (4) letter m), in conjunction with paragraphs 48 and 49 of Government Decision No. 44/2004 approving the methodological rules for the application of Law No. 571/2003 on the Tax Code.

The appeal body held that expenditure on management, consultancy, assistance or other services for which taxpayers cannot justify the need to provide them on the basis of statements of work, acceptance reports, work reports, feasibility or market studies or any other appropriate material cannot be deductible, but which are drawn up in such a way as to provide documents and information of probative value to the tax inspectorate, and it is the tax authority which, in the exercise of its tax audit activity, is entitled to assess, within the limits of its powers and competences, the relevance of the tax facts and to adopt the solution permitted by law, based on complete findings of all the circumstances in question. The Tax Code, in its implementing rules, also specifically regulates the costs of services provided by affiliated companies, since, according to the Code, costs of that nature cannot be deducted by a subsidiary which uses those services, taking into account the legal relationship between them, solely on its own terms, bearing in mind that it would not have used those services if it had been an independent person.

In that regard, it is held that the existence of a contract for the provision of services concluded between the parties and the possession of invoices and e-mails are not sufficient to entitle the company to deduct the costs of the services specified in the contract if the company does not justify the need to provide those services for the purposes of the activity carried out and does not prove that those services were actually provided, which legal requirements can be satisfied by the company only by submitting documents such as statements of work, acceptance reports, work reports, feasibility studies, market studies or any other appropriate material;

At the same time, it is noted that for management, consultancy and technical assistance services provided by non-residents affiliated to the taxpayer, the principles of the commentary to Article 9 on the taxation of associated enterprises of the Model Convention on Income and Capital Taxes must also be taken into account when analysing the transactions to determine the deductibility of expenses, but also in this case, the analysis of these services must take into account the parties involved, the nature of the services provided and the elements of recognition of expenses and income on the basis of supporting documents attesting the provision of these services.

It is clear that purchases of services which are not intended to be used for the benefit of the company's taxable operations are not necessary for those operations (Decision No 1325/2012 of the High Court of Cassation and Justice).

Indeed, the proof (proof) of the actual provision of services and the necessity of their purchase depends on the nature of the service provided, the specific nature of the activity, which is why a certain type of supporting document has not been provided for, leaving it to the taxpayer (provider) to determine which documents should be drawn up. However, whatever evidence (proof) is provided by the taxpayer, it must be accurate and detailed enough to allow a concrete identification of the services provided, in relation to the service rendered and the specific activity carried out.

In this regard, it is unquestionable that the tax inspection authorities cannot carry out their tax inspection activity without the submission by the company being inspected of documents containing information on the need to incur expenditure on services by reason of the specific nature of the activities carried out and the actual provision of those services, and which thus acquire a supporting character, with a view to the tax inspection authorities establishing the right of the company to deduct the expenditure incurred for those services.

In this context, the tax inspection authorities held that the fact that the company had not been able to justify, by means of documents with probative value, the need to incur expenditure on services by the specific nature of the activities carried out and the actual provision of those services was a factual reason for disallowing the deduction of expenditure on services.

By means of emails sent repeatedly between 15.10.2015-09.02.2016, the tax inspection bodies sent the audited company information on the documents that it could submit in support of each form of contractual activity, as recorded on pp. 4 of the RIF.

The court erroneously held that paragraph 41 of H.G. no. 44/2004 is not applicable in the present case. The tax inspection bodies found that the shareholder's own services were invoiced by the shareholder of the company, which would not have occurred in the case of an independent company, and according to point 41, letter b) of the Methodological Norms, "b) the services must be rendered in fact. The mere existence of the services within a group is not sufficient, since, as a general rule, self-employed persons only pay for services which have actually been provided. In applying these methodological rules, tax authorities will also take into account the Transfer Pricing Guidelines issued by the Organisation for Economic Co-operation and Development."

Thus, it is noted that, from the documents on file in the case, it appears that B. of Spain has E. of Sweden as sole shareholder and is the sole shareholder of S.C. A. of Romania and C. S.A. of Spain; C. S.A. has B. as sole shareholder; B. and C. S.A. have the same registered office. During the period under audit, the audit of B., C. S.A. and A. was carried out by F..

It is noted that in these circumstances regarding the affiliation relations of the company, since the company did not prove with supporting documents that the aforementioned services in the amount of RON 20,056,430.90, contracted with affiliated persons, were performed, the respective expenses for management consultancy, product management, production consultancy, administration, logistics, financial consultancy, were considered by the tax inspection bodies as non-deductible for the calculation of corporate income tax - according to Annexes 1, 3 and 4 to the RIF.

It is held that, without being subject to undue administrative constraints, as alleged in the appeal, the taxpayer was given the opportunity to justify any economic and commercial reasons for which those transactions were entered into and to demonstrate that the abovementioned transactions would have been decided on under the same conditions between independent undertakings, in the context of free competition, but by the documents submitted by the company to the tax inspection bodies, it was unable to justify the provision of those services.

Costs of such nature cannot be deducted by a company which is part of a Group (such as A. within G.) using these services (provided by G., in this case, the sole partner approx. 58.35%, the other company C. OR approx. 41.65%, affiliated companies), with the same tax domicile, taking into account the legal relationship between them, only on the basis of the conclusion of contracts, taking into account the fact that an independent person would not have used these services.

All the more so as the company did not submit to the tax inspection authorities any supporting documents for these service contracts registered in the period 2009-2014, while the company has also concluded contracts with independent companies providing services in the field of: financial-accounting-economic and auditing.

With regard to the company's contention that the need for management/consultancy services to be provided by B. and C. respectively. OR for the benefit of the Company, is justified by the fact that they have more resources and knowledge than those available at A., and on the other hand the purchase of services by A. from its affiliated parties is in line with the market practices of any independent company that needs support services in order to carry out its activity and is in line with the transfer pricing provisions in Romania and internationally, these allegations cannot be retained in the admission of the objection since, following the transfer in its entirety of the production of the safe deposit boxes of G. in the factory of S.C. A. and the permanent increase in production and its complexity over 10 years, the company can no longer invoke the lack of the necessary experience regarding the activity of a producer and distributor of products such as safes.

The first instance wrongly held that the services contracted with the members of the group were in fact provided and were necessary for the applicant's business. The tax inspection bodies repeatedly requested, on 15.10.2015, 04.12.2015, 29.12.2015, 09.02.2016, documents justifying the contracts in question, and the only criterion for the analysis of these documents was their probative value in relation to the services registered by the company. Shortly before the control was completed, the company's representatives sent approximately 300 files, according to the email dated 22/03/2016.

The tax inspection bodies state that these documents, which were submitted by the representative of the company shortly before the completion of the tax inspection, are drawn up in English, represent mathematical calculations without explanations, without specifying who drew up such statements and for whom they are intended, and were not attached to the e-mails previously transmitted by the company and which represent, according to the representative of the company, supporting documents for the above-mentioned services, for which reason, they requested S.C. A., by e-mail dated 05.04.2016, to submit appropriate materials to justify the provision of services, the content of which was previously exemplified by types of documents, which could prove the provision in fact of the services mentioned above.

In view of these aspects, by e-mail dated 23.03.2016, the representative of the company opines that in remote management activities carried out by electronic means, the justification of the provision of services can be made by e-mails, documents transmitted, e-mails addressed to business partners or specialists to whom solutions and guidance are reported or requested, which benefit from the evidentiary value of the documents, specifying that although he does not agree with the view of the tax inspection bodies, nevertheless for transparency, in the e-mail dated 22. 03.2016, the company sent additional documents supporting that the activities described in the emails in October 2015 were performed.

In view of this approach of the company, the view of the tax inspection is that the documents submitted subsequent to its requests may be supporting documents, but it would follow that the services were no longer provided by electronic means, as claimed by the representative of the company from the beginning of the tax inspection until the date of sending these documents, and as a result the connection should be made between the documents submitted by: travel tickets, special powers of attorney, travel orders and other documents presented above.

With regard to the provisions of the OECD Guidelines (OECD Transfer Pricing Guidelines), the tax inspection bodies did not mention in the contested act that the intra-group management/consulting services are not necessary for the activity that the company S.C. A. carries out, and as proof, out of the total intra-group services in the total amount of 64,781,915 RON, recorded by the company in the period 2009-2014, the tax inspection bodies granted the right to deduct expenses in the total amount of 44. 725,484 RON relating to intra-group services of the nature specified by the company, which the company justified with documents, and did not grant the right to deduct expenses in the total amount of 20,056,431 RON relating to intra-group services for which the company did not submit supporting documents showing that they were performed for the benefit of the respondent.

With regard to the admissibility of the head of claim relating to the order that the appellant pay the costs of the proceedings, the appellant requested that the conditions imposed by Articles 451 - 453 of the Civil Procedure Code be examined.

In this regard, he requested that the court apply the provisions of Article 451 para. (2) of the Civil Procedure Code, which provides that the court may even, ex officio, reduce the portion of the court costs representing the lawyer's fee, when it is clearly disproportionate to the value or complexity of the case or to the work carried out by the lawyer, taking into account the circumstances of the case.

The legal basis for the award of costs is the procedural fault of the party "falling within the claim". Procedural fault is the basis for any amount to be paid by the party who has failed to pay the costs. The unsuccessful party may be obliged to bear the costs of the lawsuit, but in doing so, the unsuccessful party must be at fault in the lawsuit or, by its conduct during the course of the lawsuit, have caused these costs. Neither can the party be held to have acted in bad faith, negligent conduct or improper exercise of procedural rights in order to be ordered to pay the costs.

The appellant submits that those costs, which were allowed by the court of first instance in the amount of RON 103 093,63, are manifestly disproportionate in relation to the complexity and value of the case.

As a matter of law, Article 488(2) of the EC Treaty was relied on. (1), point 8 of the Civil Procedure Code.

4. Defences raised in the case

4.1. The appeal brought by the defendant Vaslui County Administration of Public Finances, on its own behalf and on behalf of the Regional Directorate-General of Public Finances of Iasi

The applicant A. lodged a response to the appeal brought in the present case by AJFP Vaslui, on its own behalf and on behalf of DGRFP Lași, by which it sought: principally, annulment of the appeal as unfounded and, in the alternative, dismissal of the appeal as unfounded, with an order that the appellants-respondents pay all the costs of the present case.

In the grounds of the application, it was stated that

As regards the invalidity of the appeal brought by AJFP Vaslui and DGRFP Iași

Having regard to the provisions of Article 486(2) of the EC Treaty (1) (d), Art. 487 para. (1) and Article 489(1)(d) of the EC Treaty (1) of the Civil Procedure Code, it can be seen from the appeal lodged by AJFP Vaslui and DGRFP Iași that the appellants-defendants have not indicated any legal grounds, limiting themselves to a generic reference to the provisions of Article 483 et seq. of the Civil Procedure Code. Moreover, the grounds of illegality do not result from the arguments of the appellants-defendants, who merely reiterate a series of statements made before the court of first instance, without, however, indicating concrete criticisms of the considerations upheld by the court. In those circumstances, the appeal brought by AJFP Vaslui and DGRFP Lași must be annulled for failure to state reasons.

The unfounded nature of the claims of the appellants-respondents relating to the decision of the court of first instance concerning the failure to comply with the legal provisions on limitation periods

The defendant-claimant submitted that the court was correct in holding that the limitation period for the period from 1 January 2009 to 31 December 2009 had expired on the date of the tax inspection.

With regard to the right of the tax authorities to impose obligations on Eldon for 2009, it follows from a combined interpretation of the relevant legal provisions (i.e. Articles 23, 91 and 98(1) of the Code of Tax Procedure) that the limitation period began to run, as the court of first instance correctly held, on 1 January 2010 (i.e. the year following the year in which the basis of assessment for the 2009 obligations was established) and expired five years later, on 1 January 2015. Therefore, on the date of the commencement of the tax inspection, 12.10.2015, the right of the tax authorities to assess Eldon's liability for 2009 was time-barred.

The High Court of Cassation and Justice, in its recent case-law, cited at length in the application, has clarified the issue of the moment from which the tax authority's right to examine the taxpayer's compliance with tax obligations arises and, respectively, the moment when that time-limit expires, with the consequence that the tax authority's right to establish additional tax obligations is extinguished. Thus, the Supreme Court held that the starting point of the limitation period is 1 January of the year following that in respect of which the tax liability is due, that is to say, the year in which the taxable amount was established by the performance of the income-generating transactions.

Since the expiry of the limitation period has the direct and immediate effect, according to Article 93 of the applicable Code of Tax Procedure, of automatically terminating the procedures for the issue of debt certificates in respect of time-barred tax liabilities, the tax authorities were not permitted to carry out the analyses necessary to establish any additional tax liabilities in respect of periods and taxes for which the limitation period had expired.

Decision No 7/2011 of the Central Tax Commission cannot be relied on by the appellants in support of their appeal, since Decision No 7/2011 was not lodged by the appellants in evidence within the period prescribed by law, that being the only procedural means by which that document could have been the subject of the court's analysis, since it is an internal document of the structures of the Ministry of Public Finance and is not accessible to third parties. Decision No 7/2011 cannot be relied on against the company or the court, but is merely an internal act of the various structures within the Ministry of Public Finance. In that regard, Decision No 7/2011 was never approved by an order of the Minister for Public Finance nor was it published in Part I of the Official Gazette of Romania, and the provisions of Article 5(1) of that decision were not complied with. (3) of the Regulation approved by Order No 1765/2011 of the MFP, nor of Article 11 of Law No 24/2000 on the rules of legislative technique for the drafting of normative acts. As Decision No 7/2011 cannot be regarded as a normative administrative act, since its absence of publication in the Official Gazette deprives it of normative legal effects, it cannot have general applicability and cannot be enforced by the tax authority against the Company or other legal entities. In the light of that situation, the only legal conclusion which can be drawn is that Decision No 7/2011 is, possibly, an individual administrative act which does not have the force of law and cannot be relied on as such by the tax authority and cannot therefore be relied on against the taxpayer.

It also relies on the provisions of Article 78 of Law No 24/2000; however, Decision No 7/2011, as cited by the appellants-respondents, lays down conditions which are radically different from the legal text pursuant to which it was issued (namely Article 23 in conjunction with Art. 91 of the Code of Tax Procedure), namely it is substantially reinterpreted in contradiction with the reason for the enactment of the basic legal rule - the moment when the right to a tax claim and the correlative tax obligation arises in relation to the moment when, according to the law, the basis of assessment generating them is established.

In practice, by Decision No 7/2011, the tax authority equates the time of the establishment of the tax base with the date on which the corporation tax return should have been submitted, in clear contradiction with the legal text which refers to the establishment of the tax base as a factual situation existing independently of the tax obligation to declare it.

The unfounded nature of the appellants' submissions concerning the decision of the court on the substantive issues

With regard to the appellants' submission that Eldon would not have used management and consultancy services if it had been an independent person

Eldon has a functional reporting structure and an internal administrative reporting structure, this division meaning that, at local level, the General Manager of the A. plant is operationally responsible for the performance of the Company's production function, with primary responsibility for the delivery of the production plan (as communicated by the Group, within the timeframe and to the quality standards of G. ), but without having responsibility for the performance and objectives of employees in the support departments (who do not perform the production function), which are set and monitored by the functional managers at Group level.

The logistics, strategic purchasing, finance, IT, sales and marketing functions are operationally managed by the Group functional manager, who together with his team in Madrid provides support services to the Romanian plant in relation to these functions.

The situation described above corresponds to the level of development of the Company in the period 2009 - 2014, during the 8 years of its existence, regardless of the evolution of Eldon globally, to the Romanian plant activities in the field of metal cabinet manufacturing have been continuously transferred. This explains for A. the exponential growth in turnover from year to year. As the main focus of the activity was the production of metal cabinets, the emphasis was mainly on the transfer of the production function and less on the assimilation of the other support activities (as described above). In this respect, it should be noted that any problems encountered in the Romanian plant with regard to the implementation of the production plan would have created a very delicate situation for Eldon, given that the other plants of the group had laid off employees, were working at reduced capacity, while customers required products at the same pace and with the same delivery times. Therefore, a failure of production in Romania could mean a significant loss of customers and market share for the company. This is why all the efforts made in Romania were aimed at achieving the production function, without pursuing the local development of support functions.

As the court of first instance rightly held, paragraph 41(a) of General Order No 44/2004 does not apply in the present case 'since the legal basis for the provision of the services in question did not consist in the specific relationships of the group, but in the individual contractual relationship represented by the service provision contract itself subject to tax analysis, which includes tasks of a technical and specific nature'.

With regard to the justification for the contracting of management/consultancy services by B. and C. SAU

The provision of management/consultancy services by B. and C. SAU was clearly to the benefit of Eldon, since it was directly reflected in a considerable increase in the Company's turnover, an argument which was ignored by the tax authorities. The justification for Eldon's purchase of management and consultancy services from its affiliated companies, B. and C. SAU, took into account, as explained at length in the application, the fact that these companies possessed more extensive resources and knowledge of the business of a global manufacturer and distributor of products in the specific field of coffers than was available nationally.

Eldon's purchase of services from affiliated companies is in line with the market practices of any independent company that needs support services in order to carry out its business and in accordance with the legal provisions on transfer pricing in Romania and internationally (in this respect we refer to the OECD Transfer Pricing Guidelines).

With regard to the removal by the tax authorities of the documents submitted by Eldon in justification of the actual provision of services by the entities in the group solely on the basis of alleged formal criteria, without actually being examined on the substance

The appellants do not put forward, either in their application for leave to appeal or before the Court of First Instance, any real substantive argument in support of the conclusion that the activity reports do not demonstrate that the services were carried out, limiting themselves to subjective, unsubstantiated formal assessments.

However, for the types of documents specifically referred to in Article 21(1)(b) of the Staff Regulations, the Court of First Instance has not (4) (m) of the Tax Code and its implementing rules, the law does not impose any conditions as to form or content that must be met for them to be considered as supporting documents.

By the arguments put forward, the applicants confirm the unlawful manner in which the tax authorities acted, in breach of the Community principle of proportionality and the obligation of good faith incumbent on them, given that the company complied fully with the RIF's instructions, in the addresses previously sent to the Company, had indicated that for the purposes of justifying the services provided 'e-mails addressed to commercial partners or specialists to whom solutions and guidance are reported or requested which have the probative value of documents', as well as 'any other appropriate material', may also be used.

However, the tax inspection team invalidated, on formal grounds, all the documentation submitted by the Company, ignoring, for example, the fact that Eldon had successfully used this documentation even in negotiations with several banks, which resulted in three financing offers, subsequently materialised in new loans. The unlawful conclusions of the IOF were refuted by the forensic expert's report drawn up in the case, in which it was held that the selection of documents made by the tax inspection bodies and analysed in detail by the expert demonstrated the provision of services.

With regard to the argument that there were no internal own resources or contracts with other suppliers for the same range of services purchased from G.

As regards the internal resources that the Company would have at its disposal in the areas for which the tax authorities denied deductibility of expenses, examples of job descriptions of staff employed in certain positions were provided in the explanatory notes provided to illustrate that those positions do not overlap with the typology of support services received from B., respectively C. OR.

With regard to these job descriptions, the tax inspection body noted that "the job descriptions [...] are in English, do not have a named person in the job description, but the duties of the job are presented. From the job descriptions presented we could not tell whether it is the Eldon group level function and/or the A level function". It is clear that the tax inspection body chose to disregard the job descriptions on the basis of derisory arguments, even though, if there had indeed been doubts as to their content, it had the procedural means at its disposal to request additional information and/or clarification from the Company, especially since it is expressly admitted that the duties of each post are indeed set out in the job descriptions. Moreover, in the explanatory notes provided on 10.03.2016, the Company clearly explains, for each type of contract, the difference between the duties of the internal staff per department and the specific characteristics of the services received from the group entities which are incident to the respective departments, the otherwise unsubstantiated assertions of the DGAMC to the effect that the performance of the services was not justified by this address being devoid of any basis.

There can be no overlap between the duties of the Company's internal staff and the services received from the Group, on the one hand because they operate in different markets and, on the other, because the services provided by the internal staff and the services received from the Group concern different duties.

Secondly, with regard to the Romanian companies expressly indicated on pages 11-12 of the RIF, which are suggested to have provided overlapping services, the conclusions are wrong and are the result of confusion as to the subject matter of the above-mentioned contracts, despite the detailed explanations provided by the Company during the inspection.

The services received under the above listed contracts with B., respectively, C. SAU were provided by experienced staff employed at Group level. Also, A. staff performs duties strictly related to the activity of the Romanian plant and they do not overlap with those performed by G. staff or G. entities, as shown in the job descriptions for A. staff in which the duties of each position are clearly outlined.

For the purposes of the foregoing, reference is made to the conclusions of the forensic expert report drawn up in the case (Objective No 5), according to which the services provided by staff within the Company do not overlap with those provided by staff at group level or by the entities in G., as is clear from the job descriptions of local staff.

On the interpretation of the information in the transfer pricing file

By their appeal in this case, the appellants merely reiterate in part the findings in the contested tax administrative acts, ignoring the conclusions of the expert report carried out in the case.

The applicants wrongly claim that the company did not submit supporting documents showing that the services were performed and the conditions under which they were performed. The methodology for allocating the costs for both the services generically referred to as consultancy services and the services generically referred to as management services is detailed in the transfer pricing file for the period 2013 to 2014 (for consultancy services purchased from C. SAU) and in the transfer pricing files for the period 2009 to 2014 (for management services purchased from B.). In addition, by the explanatory note of 1 April 2016, the allocation keys, the composition of the costs and the related calculations were detailed in excel, but these were unduly ignored by the tax authorities.

The Appellants-Respondents wrongly submit that the cost-plus method of transfer pricing is not appropriate for assessing compliance with the market value principle in the provision of management and consultancy services. However, the cost-plus method was selected only in respect of management services, since such management services are usually invoiced by providers at cost plus a profit margin, B. considered only the invoicing of costs, so that an analysis of the profit margin was no longer necessary. Moreover, the presentation of costs is also supported by mathematical calculations which were provided to OFI;

The Appellants-Respondents continue to ignore the fact that the pricing method for management services was cost billing and for consultancy services was cost billing plus a 10 % profit margin. Thus, in relation to consultancy services an additional analysis was necessary from the perspective of compliance with the market price principle of the 10 % profit margin.

The Appellants-Defendants ignore the fact that the transfer pricing analysis supporting the market level of the fees for intra-group services is detailed in the transfer pricing records for the period 2013 - 2014 (for consultancy services purchased from C. SAU) and in the transfer pricing records for the period 2009 - 2014 (for management services purchased from B.).

In law, the provisions of Article 205, Article 490 para. (2) C. proc. civ.

4.2. Appeal brought by the defendant General Directorate for the Administration of Large Taxpayers

The applicant A. lodged a statement of defence to the appeal brought in the present case by the DGAMC, requesting that it be dismissed as unfounded and that the defendant-appellant be ordered to pay all the costs of the proceedings.

In the grounds of the statement of defence, the following was stated:

The applicant pleaded the unfounded nature of the applicant's submissions concerning the decision of the Court of First Instance in the judgment of 14.06.2017 and pointed out that the Court of First Instance had correctly ordered the DGAMC to be deprived of the right to submit further evidence and to raise objections, in relation to the date on which the DGAMC submitted its statement of defence.

It was also stated that the court of first instance was right to reject the plea that the DGAMC lacked locus standi. In its statement of defence before the Court of First Instance, the DGAMC pleaded lack of locus standi in relation to heads of claim 2, 3 and 5 of the application, arguing that it is not the public authority which issued the administrative acts challenged, in this case Tax Decision No x/22.04.2016, Tax Decision No x/31.05.2016 and Tax Inspection Report No x/22.04.2016 and, consequently, it cannot be a party to the proceedings as regards the heads of claim relating thereto.

The court of first instance correctly rejected the plea of lack of standing as unfounded, given that the conditions for the participation of all the defendants in the proceedings are met (Article 59 of the Civil Procedure Code). Although the DGAMC is not the issuer of the initial tax decision, the tax decision and the RIF, it is the issuer of the decision to resolve the appeal No 3/31.01.2017. Therefore, the arguments put forward by DGAMC have no relevance in determining the procedural framework in the case, given that there is a close connection between the obligations of the defendants, as all the heads of claim are aimed at establishing the real and correct tax situation of the Company. Therefore, the court correctly held that the entities issuing all the tax administrative acts will be sued together, and the decision to reject as unfounded the objection raised by DGAMC is well-founded and legal.

With regard to the unfounded nature of the appellant-respondent's claims concerning the decision of the court of first instance concerning the failure to comply with the legal provisions on limitation periods, the defences put forward in the statement of defence lodged in the appeal by the appellant-respondent AJFP Vaslui are reiterated.

As regards the unfounded nature of the appellant-respondent's claims relating to the decision of the court of first instance on the substantive issues, it reiterates the points already made in the statement of defence lodged in the appeal of the appellant-respondent AJFP Vaslui.

Lastly, it is submitted that the DGAMC's criticisms of the order that it pay the costs are unfounded; the obligation to pay costs is based on procedural fault, which is inferred from the expression 'the party who is at fault'. With regard to the first condition, that of procedural fault, the authors of the law state that 'the party at fault in the proceedings must bear the costs'.

In the present case, the fault of the appellant-defendant manifested itself in the refusal to recognise the rights of the Company prior to the filing of the application. More specifically, in order to recognise those rights, the Company had to apply to the court, which upheld its claim. Therefore, in order for a party to be ordered to pay the costs, what is relevant is not its negligent or abusive conduct, as the DGAMC claims, but its procedural fault, a condition which is satisfied in the present case.

As regards the criticisms relating to the amount of the lawyer's fees awarded by the court by way of costs, the Court of First Instance correctly held that it was not disproportionate in relation to the value and complexity of the case and the work carried out by the lawyers. In that regard, the administrative tax acts challenged in the case established additional tax liabilities of RON 4 415 610 for the company, and nine time-limits were granted for the resolution of the case at first instance, to which was added the work relating to the expert's report.

In law, the provisions of Articles 205 and 490(2) of the EC Treaty were relied on. (2) of the Code of Civil Procedure.

4.3. At the hearing on 3 March 2021, the respondent-claimant A. pleaded the nullity of the appeal brought by the defendant General Directorate for the Administration of Large Taxpayers, as regards the amount of the costs.

5. Other procedural matters

The plea that the appeal is invalid on grounds of failure to state reasons, raised by the respondent-claimant in relation to the appeal brought by the defendant Vaslui County Administration of Public Finances, on its own behalf and on behalf of the Regional Directorate General of Public Finances of Iași, was dismissed as unfounded at the hearing on 3 March 2021, for the reasons set out in the minutes of the hearing which form an integral part of this judgment.

II. Decision of the Court of Appeal

II.1. As regards the plea of invalidity of the appeal brought by the defendant General Directorate for the Administration of Large Taxpayers, raised by the respondent-appellant A.

The High Court finds that, by the appeal lodged, the defendant DGAMC criticised both aspects falling within the scope of the case for annulment provided for in Article 488(1) of the EC Treaty and the grounds of appeal set out in Article 488(2) of the EC Treaty. (The appellant also seeks the annulment of the decision of the Court of First Instance of the European Communities of the amount of the costs awarded by the Court of First Instance.

However, according to Decision No 3/2020 of the High Court of Cassation and Justice - Appeal in the interest of the law, in interpreting and applying the provisions of Article 488(8)(b) of the Civil Procedure Code in a uniform manner, the Court of First Instance has held that, in the case of an appeal in the interest of the law, the Court of First Instance must apply Article 488(8)(c) of the Civil Procedure Code in the same way as it applies to an appeal in the interest of the law. (1) of the Code of Civil Procedure, the ground of appeal criticising the manner in which the court of first instance ruled, in the light of the provisions of Article 451(1) of the Code of Civil Procedure, is dismissed. (2) of the Code of Civil Procedure on the proportionality of the costs of the proceedings, in the form of lawyers' fees claimed by the successful party, does not fall within the grounds for annulment laid down in Article 488(2) of the Code of Civil Procedure. (1) of the Code of Civil Procedure.

On the other hand, the appellant DGAMC did not rely exclusively on the disproportionate nature of the amount of the costs, but also on matters relating to the application of the law (lack of fault, for example).

In conclusion, the reliance on arguments which cannot be classified as grounds for annulment under Article 488(1)(b) of the EC Treaty is not sufficient. (1) of the Civil Procedure Code, as long as there are arguments that are actually covered, cannot lead to the invalidity of the entire appeal, and a partial invalidity would be ineffective; in fact, the court of appeal will not respond to those criticisms that are not actually covered by the grounds of cassation.

The High Court will therefore reject the plea of invalidity of the appeal brought by the defendant General Directorate for the Administration of Large Taxpayers, raised by the respondent-appellant A., as unfounded.

II.2. Having analysed the documents and the case-file and the judgment and the conclusion under appeal, in the light of the grounds for annulment relied on, the High Court finds that the appeals brought by the defendants, the Directorate General for the Administration of Large Taxpayers and the Vaslui County Administration of Public Finances, on their own behalf and on behalf of the Regional Directorate General of Public Finances of Iasi, are unfounded, for the following reasons:

II.2.1. Findings of fact by the Court of First Instance

On 11.09.2015, the tax inspection bodies of AJFP Vaslui issued Tax Inspection Notice no. 3043/F-VS 151/11.09.2015 for the purpose of starting a tax inspection against the claimant S.C. A. with the following objectives: verification of the registration of invoices issued, of income and of the way of registering the expenses related to the obtaining of income, as well as their tax treatment; verification of the correctness of the classification of deductible expenses; verification of the way of calculating the taxable base and the corporate income tax; verification of the correct declaration of the corporate income tax; verification of the correct declaration of the corporate income tax and of the documents justifying its payment, for the verified period 01. 01.01.2009 - 31.12.2014. At the same time, value added tax checks were carried out for the period 01.02.2010-31.07.2015.

Following the tax inspection, the tax inspection report dated 22.04.2016 and the tax assessment decision dated 22.04.2016 were drawn up, holding the applicant liable to pay the total amount of RON 4,415,610, i.e. additional tax in the amount of RON 3,026,356 on an additional base of RON 18,914,725; late payment surcharges in the amount of RON 1,070,198; late payment penalties in the amount of RON 319,056.

In addition, according to the tax inspection report, the deductible VAT registered by the applicant was reduced by RON 15,930, representing VAT not accepted for deduction in relation to expenses incurred in relation to three companies whose VAT registration had been cancelled at the time they issued invoices to the applicant.

Against the tax inspection report and the initial tax assessment decision, the claimant filed a tax appeal, registered at AJFP Vaslui under no. x/18.05.2016.

Subsequently, on 03.06.2016, by Address no. x/01.06.2016 issued by AJFP Vaslui, the applicant was notified of the tax assessment decision issued on 31.05.2016, which corrected material errors in the initial tax assessment decision, establishing the applicant's obligation to pay additional tax obligations in the amount of 4. 398,048 RON, as follows: corporate income tax in the amount of 3,026,356 RON, interest and late payment surcharges in the amount of 937,639 RON, late payment penalties in the amount of 434,053 RON.

The applicant also lodged an administrative appeal against that tax assessment decision and, by the decision, the defendant Directorate General for the Administration of Large Taxpayers held that the tax appeal against the initial tax assessment decision was without object and rejected the appeal against the tax assessment decision as unfounded.

II.2.2. Analysis of the grounds for annulment raised by the appellants-respondents and of the defences raised by the respondent-claimant

As a first clarification, the High Court will analyse the grounds of appeal in the two appeals together, finding that they essentially cover the same points of law.

As regards the plea in law in cassation alleging that the limitation period for 2009 was wrongly found to have expired

The High Court will have regard to Decision No 21/2020 of 14 September 2020 delivered by the High Court of Cassation and Justice - Full Court for the resolution of appeals in the interest of the law, by which, in interpreting and applying the provisions of Article 91(1)(a) of the EC Treaty, the Court of Justice of the European Communities (1) and (2), in conjunction with Article 23 of Government Ordinance No 92/2003 on the Code of Tax Procedure, republished, as subsequently amended and supplemented, it was held that the five-year limitation period for the right of the tax authority to establish tax obligations in respect of corporation tax and ancillary charges thereto runs from 1 January of the year following the tax year in which the taxable profit from which the corporation tax owed by the taxpayer arose was made.

In the grounds for that unifying decision issued by the Supreme Court, it was held that the right of the tax authority to establish tax liabilities is time-barred within five years, the limitation period for that right begins to run from 1 January of the year following that in which the tax claim arose, and the right to the tax claim and the related tax liability arise, unless the law provides otherwise, at the time when, in accordance with the law, the taxable amount giving rise to them is established.

According to Article 23 of the Code of Tax Procedure, the basis of assessment giving rise to the tax claim and the corresponding tax liability is created in accordance with the law, i.e. in accordance with the legal provisions governing the basis of assessment.

The concept of 'tax base' is not defined in the Code of Tax Procedure or the Tax Code, so, since the tax liability concerns corporation tax, the provisions of the Tax Code governing taxable profit, which constitutes the 'tax base', and the calculation of corporation tax must be taken into account.

What is relevant to the tax base is the fact that it is actually constituted by the realisation of income and the incurring of expenses for the purpose of realising income as a result of transactions carried out during the tax year. It follows that the taxable amount of taxable profits is actually constituted by the receipt of income and the incurring of expenses exclusively during the tax year in which they are made, from the first to the last day of that year.

"The 'time' of the establishment of the taxable amount, within the meaning of Article 23(2)(a) of Directive 77/388/EEC, is the 'time' of the taxable amount. (1) of the Code of Tax Procedure is the tax year in which the taxable profit is made. The realisation of this profit generates a tax claim for the State budget and a tax liability for the taxpayer, consisting of corporation tax.

Consequently, according to the same provision, the tax claim and the related tax liability arise in the tax year in which the taxable profit is made.

Consequently, the tax claim does not arise from the tax return; the tax return is merely an act which establishes the existence and extent of the tax base and the tax claim arising therefrom, in accordance with the provisions of substantive tax law. In other words, the tax return is an act declaring a claim that already exists, within the power of the law. The tax base does not arise on the date on which the taxpayer is obliged to submit the tax returns provided for by law, namely the date on which the taxpayer determines and declares it in the annual tax return or the date on which the legal deadline for submitting the tax return expired. The tax return does not constitute the tax base, but must be filed precisely because a tax base has already been established in the previous tax year, giving rise to a tax claim and the corresponding tax liability.

As a result, the limitation period for the assessment of tax liabilities for 2009 began to run on 1 January 2010 and expired on 1 January 2015, so that the tax inspection carried out in respect of the tax for 2009, which began on 12 October 2015, is unlawful as it was carried out outside the limitation period for the right to assess tax liabilities. Thus, this plea for annulment is unfounded.

As regards the ground for annulment relating to the appellant-respondent's erroneous forfeiture of the right to submit further evidence and to raise objections other than those of public policy

This ground of appeal concerns the judgment of the Court of First Instance of 14 June 2017, by which the Court of First Instance found that the defendant General Directorate for the Administration of Large Taxpayers had lodged a statement of defence after the expiry of the legal time-limit laid down in Article 201(1)(b) of the EC Treaty. (1) C. proc. civ., so that, on the basis of Art. 208 para. (2) C. proc. civ. The Court found that this party is deprived of the right to propose further evidence and to invoke exceptions other than those of public policy.

In the reasoning of the decision given by the appealed decision, the first instance held that, according to the evidence on file x, the statement of defence should have been filed by the defendant General Directorate for the Administration of Large Taxpayers by 09.05.2017, but it was filed on 15.05.2017, therefore in view of the provisions of art. 208 para. (2) C. proc. civ., the Court finds that this defendant is deprived of the right to propose further evidence and invoke exceptions other than those of public policy. It is also noted that the defendant raised a plea of public policy in the grounds of its statement of defence, namely the plea of lack of locus standi of the DGAMC in respect of heads of claim 2, 3 and 5 of the action initiating proceedings, and the Court granted leave to speak on that plea.

The defendant-appellant DGAMC submitted that the application was communicated to the appellant on 14.04.2017, according to the date stamped on the post office stamp, and that the statement of defence formulated by DGAMC was submitted to the post office on 10.05.2017, in compliance with the legal time limit of 25 days provided for in Article 201 of the Civil Procedure Code. Consequently, the appellant submits, the statement of defence formulated by DGAMC was submitted within the legal time limit.

The High Court finds that the appellant-respondent does not in fact indicate what harm was caused by the finding of that disqualification, since that party did not raise any relative objections or request additional evidence (the administrative documentation does not fall within the scope of that disqualification, since it is evidence to be administered ex officio under Article 13 of Law No 554/2004). Consequently, even a wrong finding of that disqualification would not be of any practical benefit to the appellant.

On the other hand, a search of the documents relied on by the first instance in resolving this procedural issue reveals that on page x of Volume III of the case-file there is the response lodged by the appellant-respondent, which was received on 15. 05.05.2017from the registry office; also, the attached envelope bears the same mention, while the holographic writing on the envelope bearing the mention of 10.05.2017, not having been certified by a stamp of the post office, cannot be taken into account by the appeal court. Therefore, the first instance correctly held that the defendant had exceeded the time limit for filing the statement of defence; thus, this ground of appeal is unfounded, and it cannot be held that the first instance misapplied Article 201 of the Civil Procedure Code.

As regards the ground of appeal relating to the erroneous rejection of the plea of lack of locus standi of the defendant, the Directorate General for the Administration of Large Taxpayers

By the judgment of the Court of First Instance of the same date, the Court of First Instance rejected the plea of lack of locus standi of the DGAMC in respect of heads of claim 2, 3 and 5 of the action brought by the DGAMC in the grounds of its statement of defence, holding that, as the issuer of the decision to resolve the appeal No. 3/31.01.2017, in the light of the subject-matter of the application before the Court, which seeks both the annulment of that act and of the acts which were the subject of the challenge settled by that decision, the defendant DGAMC is the holder of the dispute report before the Court and therefore has locus standi.

The defendant-appellant submits that the court misapplied the provisions of Article 1(1)(b) of Regulation No 40/94. (1) of Law 554/2004 and pointed out that the decisions which the administrative court may give are pronounced in contradiction with the public authorities issuing the administrative acts challenged, namely, on heads of claim 2, 3 and 5 concerning the annulment of the acts issued by the DGRFP Iasi, the DGRFP Iasi, and not the appellant, has standing to bring proceedings.

The High Court cannot find that the Court of First Instance misapplied the law in that regard.

In the case of a complex action brought before a court, which includes a challenge to several administrative acts issued by separate administrative bodies, the existence of the defendants' locus standi is to be examined in relation to the entirety of the legal remedy brought, and not in relation to each head of claim in isolation, since such an analysis would be formal and devoid of legal finality; even if the first instance had accepted the appellant's plea of lack of locus standi on a particular head of claim (that relating to the annulment of the acts issued by the other defendant), it would still have remained in the proceedings as the issuer of the decision to rule on the appeal, in relation to which it has locus standi. Consequently, the purpose of allowing the objection, namely that of being removed from the proceedings, would not be achieved.

On the contrary, the Court of First Instance correctly held that, in view of the complexity of the action, the defendant DGAMC has locus standi, and that ground of appeal is unfounded.

As regards the judgment under appeal, the appellants-respondents AJFP Vaslui and DGRFP Iași submitted that, in substantiating their convictions, the court relied on the conclusions of the accounting expert's report carried out in the case, which it took up in its entirety over three pages, and which in practice constituted a large part of the grounds of the judgment; that submission falls within the ground for annulment laid down in Article 488(2) of the EC Treaty. (1), point 6 of the Civil Procedure Code.

On this point, the High Court finds that the obligation of the court to state the reasons for its judgment, enshrined in Article 425 of the Civil Procedure Code, is to set out in the grounds of the judgment the factual situation set out in detail, the legal framework, an examination of the parties' arguments and the court's view of each relevant argument, and, last but not least, the logical and legal reasoning on which the decision was based. These legal requirements are imposed by the very essence of the administration of justice, and the persuasive force of a court's judgment resides in the clearly explained logical and legal reasoning based on considerations of law.

At the same time, the failure of the first instance to provide a statement of reasons, in accordance with Article 425 of the Civil Procedure Code, in the aspects set out above, amounts to a failure to rule on the action, since it is not possible to establish a logical association between the operative part and the grounds, as essential and binding components of the judgment.

The High Court also points out that, in accordance with Article 22(2)(b) of the Rules of Procedure of the Court of First Instance, the Court of First Instance has not (2) of the Code of Civil Procedure, it is for the trial judge, in deciding the application, to establish the specific factual situation of the case and to apply the relevant legal rules accordingly.

However, the court of first instance expressly stated the reasons for its decision; the High Court considers that the civil judgment under appeal complies with Article 22(2)(b) of the Rules of Procedure. (Thus, the first instance has set out the logical and legal syllogism underlying the decision rendered, and the reasons considered by the court are clear. Moreover, it is noted that the arguments put forward by the appellant on this appeal essentially allege a possible misinterpretation and misapplication of the law, aspects which will be verified in the context of the ground for annulment provided for in Article 488(2) of the Civil Code. (1), point 8, of the Civil Procedure Code, which is raised in the appeal, but the failure to provide an adequate statement of reasons cannot be upheld in relation to the judgment under appeal.

The fact that the court considered a particular piece of evidence in preference to the other evidence adduced in the case is a matter for the assessment of the evidence, which is the exclusive prerogative of the first instance, and not for the inadequate reasoning of the judgment.

Consequently, the ground for reversal provided for in Article 488(2) of the EC Treaty is not applicable. (1), point 6 of the Civil Procedure Code is unfounded.

With regard to the claims in the two appeals on the merits of the case, relating to the misapplication of the law (the ground for annulment under Article 488(1)(b) of the Civil Procedure Code), the Court of First Instance held that the Court of First Instance had not applied the law correctly. (1)(8) of the Code of Civil Procedure).

The appellants criticised the judgment under appeal, arguing that the court did not demonstrate the arguments that led to the rejection of its defences and, implicitly, to the adoption of the conclusions of the accounting expert's report in its entirety, even though the accounting expert did not contest the data mentioned in the tax inspection report for most of the objectives.

As a matter of law, the legal provisions incident to the present case are as follows:

- Article 21 para. (4) letter m) of the Tax Code;

'Expenditure on management, consultancy, assistance or other services for which taxpayers cannot justify the need to provide them for the purposes of their own activity and for which no contracts have been concluded is not deductible';

- point 48 of H.G. No 44/2004;

"In order to deduct expenditure on management, consultancy, assistance or other services, the following conditions must be met cumulatively:

- the services must actually be provided, they must be performed on the basis of a contract concluded between the parties or on the basis of any other contractual form provided for by law; the justification for the actual provision of the services must be provided by: statements of work, acceptance reports, work reports, feasibility studies, market studies or any other appropriate material;

- the taxpayer must prove the necessity of the expenditure through the specific activities carried out.

-paragraph 49 of H.G. No 44/2004;

"For management, consultancy and technical assistance services provided by non-residents affiliated to the taxpayer, the principles of the commentary to Article 9 on the taxation of associated enterprises of the Model Convention on Income and Capital Taxes must also be taken into account when analysing transactions for the purpose of determining the deductibility of expenses. The analysis should take into account: (i) the parties involved; (ii) the nature of the services rendered; (iii) the elements of recognition of expenses and income based on supporting documents attesting the provision of these services".

The reasoning behind the administrative and fiscal acts challenged in the present case was that expenses for which taxpayers cannot justify the need to provide them on the basis of statements of work, acceptance reports, work reports, feasibility studies, market studies or any other appropriate material cannot be deductible, but which are drawn up in such a way as to provide documents and information of probative value to the tax inspectorate, and it is the tax authority which, in the exercise of its tax audit activity, is entitled to assess, within the limits of its powers and competences, the relevance of the tax facts and to adopt the solution permitted by law, based on complete findings of all the circumstances which are relevant to the case. Furthermore, the Tax Code, in its implementing rules, specifically regulates the costs of services provided by affiliated companies, since, according to the Code, costs of that nature cannot be deducted by a subsidiary which uses those services, taking into account the legal relationship between them, solely on its own terms, bearing in mind that it would not have used those services if it had been an independent person. In that regard, it is held that the existence of a contract for the provision of services concluded between the parties and the possession of invoices and e-mails are not sufficient to entitle the company to deduct the costs of the services specified in the contract if the company does not justify the need to provide those services for the purposes of the activity carried out and does not prove that those services were actually provided, which legal requirements can be satisfied by the company only by submitting documents such as statements of work, acceptance reports, work reports, feasibility studies, market studies or any other appropriate material.

There are thus two separate considerations underlying the imposition of the penalty on the applicant: on the one hand, the failure to prove that the services were actually provided; on the other hand, beyond that proof, the failure to prove that the services provided were necessary in relation to the relationship with the affiliated companies.

As regards the actual provision of the services

In the present case, the purchases of services were made on the basis of the Management Services Contract of 01.03.2013 concluded with C. S.A., the production service contract concluded on 01.03.2013, the logistics service contract concluded on 01.03.2013, the product management service contract concluded on 01.03.2013 and the service contract concluded on 01.01.2009 with B..

In the course of the tax inspection, the tax inspection bodies repeatedly requested, on 15.10.2015, 04.12.2015, 29.12.2015, 09.02.2016, documents justifying the contracts in question, and the only criterion for the analysis of these documents was their probative value in relation to the services registered by the company. Shortly before the control was completed, the company's representatives sent approximately 300 files, according to the e-mail dated 22.03.2016.

The tax inspection bodies did not take into account these documents, which were submitted by the representative of the company shortly before the completion of the tax inspection, for several reasons: they are drawn up in English, they represent mathematical calculations without explanations, without specifying who drew up such statements and for whom they are intended, they were not attached to the e-mails previously transmitted by the company and which represent, according to the representative of the company, supporting documents for the above-mentioned services.

Subsequently, by a further request, they asked the applicant to submit appropriate materials to justify the provision of services, the content of which was previously exemplified by types of documents, which could prove the factual provision of the aforementioned services. The applicant issued a new reply on 23.03.2016, in which it claimed that in remote management activities carried out by electronic means, the justification of the provision of services can be made by e-mails, transmitted documentation, e-mails addressed to business partners or specialists to whom solutions and guidance are reported or requested, which have the evidentiary value of documents, stating that although it does not agree with the view of the tax inspection bodies, however for transparency, in the e-mail dated 22. 03.2016, the company sent additional documents supporting that the activities described in the emails in October 2015 were performed.

In view of this approach of the company, the view of the tax inspection was in the sense that the documents submitted subsequent to its requests may be supporting documents, but it would result that the services were no longer provided by electronic means, as claimed by the representative of the company from the beginning of the tax inspection until the date of sending these documents, and as a result the connection should be made between the documents submitted by: travel tickets, special proxies, travel orders and other documents presented above.

The High Court, by way of a general remark, holds that the proof (evidence) of the actual provision of services and the need to purchase them depend on the nature of the service provided, the specific nature of the activity, which is why no particular type of supporting document was provided for, leaving it to the taxpayer (provider) to determine which documents should be drawn up.

It also agrees with the appellants' contention that the evidence (proof) provided by the taxpayer must be of a certain degree of accuracy and detail in order to enable a concrete identification of the services rendered in relation to the service provided and the specific nature of the activity carried out.

On the other hand, in view of the wide margin of discretion enjoyed by the tax authority, in the absence of specific details in the law, the tax authority's assessment must not go beyond what is necessary and must not impose an excessive burden on the taxpayer.

By taking the evidence of the tax expert in the case, the Court of First Instance correctly established the factual situation at issue, since that evidence is essential to the fair resolution of the case.

The expert analysed the contracts in question and the documentation considered by the tax authority when issuing the contested documents, including the documents sent by the taxpayer in the replies issued on 22 and 23 March 2016, documents which had not been examined by the tax authority because of formal grounds for refusal.

Thus, the expert analysed:

- the contract for the provision of management services concluded between A. and B. and noted that for each month during which this contract was in force, the Company provided Activity Reports, from which the actual provision of services was shown in order to meet the requirement of justifying the actual provision;

- The contract for the provision of services relating to product management consultancy dated 01.03.2013 concluded between A. and C. SAU and held, from the analysis of the correspondence between the parties and other documents made available namely studies and briefings, that the applicant was assisted and received guidance from the persons at product management level within G. in order to adapt the applicant's products to the customers' requirements;

- The contract for the provision of production services dated 01.02.2013 concluded between A. and C. SAU and held that the supplier had assigned employees and other external experts to its premises to carry out certain activities;

- The logistics consultancy services contract dated 01.03.2013 concluded between the Company and C. SAU;

- The contract for the provision of management consultancy services concluded with C..

The expert also analysed the e-mails submitted and analysed by the tax inspection team, the content of which has the value of genuine activity reports, production plans, minutes of commissioning of technological equipment, sales reports, minutes of working meetings, presentations, studies and from which he concluded that the provision of services resulted. Consequently, the High Court finds that the Court of First Instance correctly and correctly applied the law in holding that the services covered by those contracts were actually provided.

As regards the necessity of providing the services

The High Court finds that the expert held, with regard to that aspect, that by the contracts concluded, C. S.A. and B. undertook to carry out for the applicant multiple and complex activities requiring the allocation of a large amount of time and human resources, the strategic decisions concerning the development of the product range, the most appropriate technology to be used, the identification of sources of financing for the acquisition of that technology, the quantities to be manufactured, the market segment to which they were addressed, the innovation part, the software part, being taken by the members of the management on the basis of the services provided by the business partners C. S.A. and B..

The expert stated that A. produced the product range developed by the product managers of C. S.A. in the quantities and at the request of the customers identified through the services provided by B. respectively C. SAU, using the manufacturing technology identified by B. for the plaintiff without any overlap between the services provided by B. respectively C. SAU with those provided by other suppliers or by the company's own staff.

The High Court finds that the manner in which the first instance assessed the evidence cannot be criticised in the context of the ground for annulment in Article 488(8) of the EC Treaty. (The appellants have not proved the existence of a misapplication of the law by the first instance when the expert evidence was administered or when its conclusions were assessed.

On the other hand, the tax authority takes a contradictory position: it held as grounds for refusing the deductibility of expenses both the lack of proof of actual provision and the lack of proof of the necessity of the services; however, in the appeal, it is stated that the tax inspection authorities did not mention in the contested act that the intra-group management/consultancy services are not necessary for the activity which the company S.C. A. carries out, and as proof, of the total intra-group services of 64,781. 915 RON, recorded by the company in the period 2009-2014, the tax inspection bodies granted the right to deduct expenses in the total amount of 44,725,484 RON related to intra-group services of the nature specified by the company, which the company justified with documents, and did not grant the right to deduct expenses in the total amount of 20,056,431 RON related to intra-group services for which the company did not submit supporting documents showing that they were performed for the benefit of the contested company.

The tax authority also certainly imputed to the applicant the lack of necessity of those services, but in the light of the analysis carried out by the tax authority, the first instance correctly rejected that criticism.

With regard to the provisions of the OECD Guidelines (OECD Transfer Pricing Guidelines), the tax inspection authorities state in the Transfer Pricing File that the audited company does not demonstrate that "the transactions relating to management services and consultancy services have a real economic justification and that they would have been decided on the same conditions as between independent enterprises, within the framework of free competition".

It was argued that the cost-plus method is not appropriate for assessing compliance with the market value principle in the case of the provision of management services between B. and A., on the one hand, and in the case of the provision of consultancy services between C. and A., on the other, because the comparability of gross margins depends on the similarity of the functions performed, the risks assumed and the contractual terms, and the application of the net margin method is the most appropriate for assessing compliance with the market value principle of the costs incurred by A. in the purchase of management and consultancy services. However, no additional information was requested from S.C. A. on this point because, following the tax inspection, it was found that the audited company did not submit supporting documents showing that management, consultancy, assistance, production management, product management and logistics services in the amount of RON 20,056,430.90 were performed.

The High Court finds that, according to the expert's report, the price paid by the Company to the affiliates for the purchased services met the conditions to be considered within the market price range, in accordance with the transfer pricing legislation. Furthermore, in view of the provisions of paragraph 2.39 of Chapter II, lit. D).1 of the OECD Guidelines, which states that the cost plus method is probably most useful when semi-finished products are traded between affiliated companies, when affiliated companies have entered into joint arrangements for certain facilities or long-term sale and purchase agreements or when the transaction consists of the provision of services, the tax expert considered that the use of the cost plus method in respect of management services was justified.

He also pointed out that the legislation does not stipulate a minimum percentage for the mark-up to be applied, but only that it exists, so that invoicing at cost plus a 10% mark-up is justified. As the respondent-claimant rightly pointed out, the cost-plus method was selected only in respect of management services, and the method of pricing for consultancy services was cost-plus billing with a 10% profit margin. Thus, in relation to consultancy services an additional analysis was necessary from the perspective of compliance with the market price principle of a 10 % profit margin.

With regard to paragraph 41(a) of General Order No 44/2004, the Court of First Instance correctly held that that legal provision did not apply in the present case, since the legal basis for the provision of the services in question was not the specific relationship between the group, but the individual contractual relationship represented by the contract for the provision of services itself, which is subject to tax analysis, and which includes technical and specific tasks, and, on the other hand, according to the transfer pricing file, the price for the services purchased is justified.

In conclusion, with the correct application of the law, the first instance held that the services contracted with the members of the group were in fact provided, were necessary for the carrying out of the applicant company's activity and did not fall within the express and limitative exclusions provided for in Article 21(1)(b) of the VAT Directive. (4) letter m) of the Tax Code.

For those expenses incurred by the applicant in connection with the contracts concluded with B. respectively C. OR contracts were concluded, the applicant has justified the necessity of their provision for the purpose of its own business and has provided evidence that the services contracted with the members of the group were in fact provided, given that the law does not impose restrictions of form or content on the means of proof in respect of the contracts referred to in Article 21(1)(b). (4) letter m) of the Tax Code.

As regards the grounds of appeal relating to the costs awarded by the Court of First Instance

First, the appellants' criticisms relate to the disproportionate nature of the amount of those costs, requesting the Court of Appeal to reassess them and to apply the provisions of Article 451(1)(b) of the Rules of Procedure of the Court of First Instance. (2) of the Code of Civil Procedure as regards the costs awarded by the court on the merits.

On this point, the High Court has already held that Decision No 3/2020 delivered by the High Court of Cassation and Justice - Appeal in the interest of the law, in the interpretation and uniform application of Article 488(2) of the Civil Procedure Code, is applicable. (1) of the Code of Civil Procedure, which held that the ground of appeal criticising the manner in which the court of first instance ruled, in the light of the provisions of Article 451(1) of the Code of Civil Procedure, was not admissible. (2) of the Code of Civil Procedure on the proportionality of the costs of the proceedings, in the form of lawyers' fees, claimed by the successful party, does not fall within the grounds for annulment laid down in Article 488(2) of the Civil Procedure Code. (It will therefore not be possible for the Court of Appeal to examine these criticisms.

On the other hand, the appellants pleaded lack of procedural fault, lack of bad faith or negligent or abusive conduct which caused the other party to incur costs.

The High Court finds that those criticisms cannot be upheld either; as long as the action for annulment of the contested acts issued by the appellants-respondents is found to be well founded, there is a misapplication of the law and the existence of procedural fault through the failure to act.

In the present case, the fault of the appellant defendant manifested itself in its refusal to recognise the applicant's rights prior to the application for a writ of summons. More specifically, in order to obtain recognition of those rights, the applicant had to apply to the court, which confirmed the validity of her claim. Therefore, in order for a party to be ordered to pay the costs, what is relevant is not negligent or improper conduct on the part of that party, but the fact that it was at fault in the proceedings, a condition which has been satisfied in this case.

The High Court also finds that none of the appellants challenged the grounds of the judgment, which held that the tax inspection was unlawful because the time-limit for notification had not been complied with; that point was therefore not raised on appeal.

II.2.3. Procedural basis of the decision on appeal

For all these reasons, pursuant to Article 497 in conjunction with Article 488(2) of the EC Treaty, the Court of First Instance has (1) points 6 and 8 of the Civil Procedure Code, the High Court will dismiss the appeals as unfounded.

Pursuant to Article 451(1) of the Rules of Procedure of the Court of First Instance of the European Communities (2) in conjunction with Article 453 para. (1) of the Civil Procedure Code, the High Court shall order the appellants-respondents to pay to the respondent-claimant A. partial costs in the amount of RON 10,000 (in relation to the request for the award of costs on appeal in the amount of RON 27,625.85 according to the invoice x/31.08.2018 issued by H. SPRL and the statement of account issued by I. on 5.10.2018), in relation to the complexity of the case on appeal and the duration of its actual resolution.

FOR THESE REASONS

IN THE NAME OF THE LAW

D E C I D E

Dismisses the plea of nullity of the appeal filed by the defendant Directorate General for the Administration of Large Taxpayers, raised by the respondent-appellant A., as unfounded.

Dismisses the appeals filed by the defendants Direcția Generală de Administrare a Marilor Contribuabili and Administrația Județeană a Finanțelor Publice Vaslui, on their own behalf and on behalf of Direcția Generală Regională a Finanțelor Publice Iași, against civil judgment no. 72 of 3 May 2018, delivered by the Court of Appeal Brașov, Administrative and Tax Division, as unfounded.

Orders the appellants-respondents to pay to the respondent-claimant A. the partial costs in the amount of RON 10,000.

The judgment is final.

Delivered in open court today, 30 March 2021.