What does practice show now, after more than a year of fiscal consolidation in the field of income tax? The history of this issue in Romania is relatively new, as the measure has been applied since last year, January 1, 2022 to be exact. The practice of these 15 months that have passed since the entry into force of the relevant legislation shows that the measure is not widely used, although in Romania this possibility has been long awaited and it provides a number of advantages to groups of companies that have decided to report corporate income tax at a consolidated level , to the detriment of individual reporting.

How can a fiscal group be created in the field of income tax and what are the advantages of its application? The main conditions that taxpayers – corporate tax payers in Romania – must bear in mind in order to benefit from the system of fiscal consolidation in relation to corporate tax are as follows: companies must be part of a group and have a direct or indirect ownership of at least 75% with continuity of 12 months before the beginning of the period of fiscal consolidation; have the same tax payment system, as well as the same fiscal year; be payers of income tax only; not belong to another tax group in the field of income tax taxation and not be in dissolution or liquidation procedures.

The benefit can be applied for 5 years with the possibility of extension, during which one of the members of the tax group – determined by the responsible legal entity – consolidates the tax result at the group level, completes the calculation and submission of the income tax return and makes its payment.

One of the advantages of creating a tax group for corporate tax purposes is the reduction of bureaucracy, at least in terms of the corporate tax return and payment procedure for ANAF, since only the group leader is responsible for submitting the consolidated tax return for income tax and making the tax payment, reporting the results of the whole tax group.

In anticipation of the first reporting deadline for tax groups already established in Romania (namely the income tax return for the 2022 financial year by June 26, 2023), ANAF has also recently published a new version of Declaration 101 regarding income taxes. The main innovation, in addition to the update of the standard form 101, is the publication of the Group Tax Return 101, with the help of which heads of tax groups will be able to declare the tax result of the entire group and the associated consolidated income tax for 2022.

Another element of novelty brought by the publication of the Tax Group’s Form 101, which was probably not received openly by members of the groups, concerns their obligation to continue to file separate Income Tax Form 101s – which they do not. must be sent to ANAF, but sent to the team leader in an electronically signed format.

In addition to the newly clarified and mentioned above, there are still other points that still need to be clarified to ensure the proper implementation of tax groups, such as compensation between group members of tax paid / tax losses, the principle of reporting and declaring quarterly tax, etc.

Perhaps the most important advantage that fiscal consolidation can bring to groups of companies, and which is often found in practice, was the decisive factor in the introduction of the corporate tax group. This is about the potential to optimize cash flow both by reducing the tax payable with any tax losses booked within the group and by recovering tax losses more quickly, implicitly reducing the risk of them ending before they are utilised.

Thus, although the behavior of Romanian taxpayers is still timid and in the process of adapting to the new rules, groups should carefully and proactively analyze all the prerequisites in the decision to create a corporate tax group, practical experience shows that the potential benefits obtained from the use of group reporting can overcome implementation difficulties.

The practice of the first year of the existence of corporate tax groups in Romania confirmed to us that, although the mechanism is not yet used on a large scale, Romanian taxpayers are not afraid to join the ranks of European taxpayers who have been enjoying for several years the advantages of fiscal consolidation, as in the field of corporate tax profit as well as VAT, as VAT tax groups have already been successfully used in Romania for several years.

The trend internationally is clearly to expand reporting at group level in most tax areas of interest, such as VAT, corporate income tax, transfer pricing and others.

In summary, it can be noted that the new clarifications have led to consolidated income tax reporting, as well as other legislative details (which still remain unclear, more than a year after the publication of the regulatory framework for fiscal consolidation) or even a simple element of novelty can prevent taxpayers from taking the step to create fiscal groups. However, groups of companies are advised to weigh all the advantages and disadvantages of using this tax benefit, without doubt, its advantages are significant.

The decision to create a corporate tax group, like any decision concerning the relationship of companies with tax authorities, should be preceded by a thorough analysis of the financial and fiscal situation of an individual and group in order to avoid as much as possible the risk of possible loss of tax benefits or credits (such as reinvested profits , external or sponsored tax credit) and maximize the potential benefits offered by this tax measure.

The article is signed by Andra Casu, Partner, Head of Direct Tax, EY Romania and Amelia Toader, Senior Manager, Direct Tax, EY Romania

Article supported by EY Romania