Romania

Market overview

Political discord and public protests have troubled Romania over the past couple of years. The ruling Social Democratic Party ousted Sorin Grindeanu in June 2017, following a vote of no-confidence after only six months of serving as the country's prime minister. Once in office, incumbent Prime Minister Mihai Tudose quickly shelved an unpopular business tax reform of replacing a flat corporate tax of 16% with a tax on turnover. However, he did warn that the tax authority would keep a close eye on companies that haven't declared any profit for decades.

"With the recent elections, transfer pricing has become a key point in politicians' political agendas," said Angela Rosca, managing partner of Taxhouse, Taxand. "There are increasingly aggressive attitudes towards multinationals, and the words politicians use [when discussing multinationals] are pretty offensive to be honest. They scare people away."

"We will see more adjustments with regards to multinationals, who will be under more attack than local companies and this trend will continue. Litigation will become more and more important in terms of consultant activity," Rosca said.

Despite concerns over the country's political stability, Romania has experienced significant economic growth, with GDP growth projected at 4.3% for 2017 by the European Commission. The country is also steadfastly going through the motions of adopting the OECD's guidelines on BEPS.

Country-by-country reporting (CbCR) was legislated in June 2017. Entities which are obliged to submit CbCR are those with total revenues equal to or higher than €750 million ($884 million) in the last financial reporting year from January 2016.

Corporations must report the following information: turnover, income and loss before corporate tax, income tax paid and accumulated, declared capital, undistributed profit, number of employees, tangible fixed assets, and details of integral entities of the group including jurisdiction of tax residence and principal economic motions conducted.

The deadline for TP documentation is in line with the Romanian corporate income tax declaration date on March 25.

"There is more pressure on our team to deliver TP filing on an urgent basis," said Rosca. "Unfortunately, although all consultants have tried to educate the market to prepare these in advance, many taxpayers have not done that. It is tough, especially keeping to the deadlines. Not all corporations complied with the [previous deadline] on March 25."

Entities and taxpayers whose transactions do not satisfy the minimum threshold are not required to prepare documentation annually, but may have to do so upon written request from authorities with a timeframe between 30 to 60 days, with a potential 30-day extension if they request it.


Tax authorities

The Ministry of Public Finance
Strada Apolodor nr. 17, sector 5, Bucharest 050741
Tel: +40 21 319 9759
Fax: +40 21 312 2509
Email: publicinfo@mfinante.gov.ro
Website: www.mfinante.ro


Tax rates at a glance

(As of July 2017)

Corporate tax 16%
Capital gains tax 0/16% (a)
Branch tax 16%
 
Withholding tax
Dividends 5% (b)
Interest 16% (c)
Royalties from patents and licences 16% (c)
Branch remittance tax n.a.
 
Net operating losses (years)
Carryback Not allowed
Carryforward 7 years (d)

  1. Capital gains obtained by corporate entities are included in their regular profits subject to corporate income tax at 16%; capital gains obtained by resident legal entities from disposal of Romanian entities or entities resident in a treaty-country are exempt from corporate income tax as long as two conditions are simultaneously observed: there is a minimum holding of at least 10% of the share capital of the investee, held for a minimum uninterrupted one-year period at the time of the disposal (Minimum Holding Requirements); capital gains obtained by individuals are taxed at 16% as investment income irrespective of the holding period and type of securities traded.
  2. The 0% rate applies for payments qualifying under the conditions of the EU Parent-Subsidiary Directive for EU tax resident legal entities (based on inter-alia the Minimum Holding Requirements mentioned above subject to specific documentation requirements); 0% also applies to dividends paid under the Agreement between the European Community and the Swiss Confederation to Swiss tax resident parent companies holding at least 25% of the share capital of the Romanian dividend payer for a minimum two-year period at the time of dividend payment; else, as of January 1 2016, a 5% rate applies to dividends paid to all other non-residents and resident legal entities (assuming the Minimum Holding Requirements are not met, otherwise 0% applies to resident legal entities) or individuals, unless a more beneficial rate applies under a double tax treaty or a specific domestic exemption (for example, dividends paid to EU/EEA pension funds are exempt from Romanian withholding tax).
  3. The 0% rate applies for payments qualifying under the EU Interest & Royalties Directive to beneficial owners being EU tax resident legal entities which are affiliated with the Romanian payer by a direct minimum holding of at least 25% maintained for two uninterrupted years at the time of payment (the exemption applies also in case both the Romanian payer and the EU qualifying beneficial owner are held by a third company which at the same time has a minimum direct holding of 25% both in the capital of the first company and in the capital of the second company for at least two uninterrupted years at the time of payment); 0% also applies to payments made under the Agreement between the European Community and the Swiss Confederation to Swiss tax resident companies qualifying under specified conditions. The domestic law increases the withholding tax rate to 50% in case of, for example, interest and royalties paid towards accounts in countries with which Romania does not have in place exchange of information mechanisms and if the said payments are made within transactions qualified as "artificial" under the Romanian tax legislation. Dividends are excluded from this treatment as of January 1 2016.
  4. The seven-year period applies starting with the loss related to fiscal year 2009 (losses incurred before 2009 can only be carried forward for five years).

Source: Taxhouse, Taxand Romania and Deloitte