Economic substance: a transaction’s story should be verifiable

Transaction records should explain both what the parties agreed and what actually happened. Contracts, invoices and evidence of performance are more useful when they provide a coherent explanation of the economic purpose.

1. Why economic purpose matters

Article 11 of the Romanian Fiscal Code allows the tax authority to adjust the effects of a transaction without an economic purpose or reclassify its form to reflect its economic content. The decision must explain the relevant facts and evidence. A contract alone does not settle this assessment.

For a business, the practical questions are straightforward: what need justified the transaction, what benefit was intended, and how was it carried out? Answers should describe the actual circumstances, without standard explanations that do not fit the activity.

2. Build the records as work progresses

Article 6 of the Accounting Law requires transactions to be recorded in supporting documents when they occur. In practice, organised records may bring together approvals, relevant correspondence, deliverables, acceptance records and information about the people involved.

For a consultancy service, for example, a report and the recipient’s comments may explain performance better than a generic invoice description. Useful evidence varies by transaction; no universal file guarantees deductibility or a particular tax treatment.

3. A checklist for a coherent explanation

• Record the commercial need and intended outcome before performance begins.
• Identify the parties, responsibilities and resources actually used.
• Keep dated evidence of performance, delivery and acceptance.
• Check the connection between the contract, invoice, accounting entries and payment.
• Explain genuine project changes and differences from the original plan.
• Organise access to records without fabricating or backdating evidence.

A periodic review can reveal gaps while information remains easy to retrieve. The aim is to make the facts traceable and the transaction understandable; its tax assessment still depends on all relevant circumstances.

This article provides general information, not individual tax or legal advice. Documentation and tax treatment must be assessed for each situation under the applicable legislation.