Reorganization operations are a hot topic in the context of the new tax changes, as companies are increasingly interested in consolidating their operations and optimizing their structure. But each operation has its own advantages and consequences, fiscal and financial, and should be very well justified from an economic point of view, and not carried out with the main purpose of obtaining certain fiscal advantages. Anda Rojanski, Partner at D&B David si Baias, Cristina Peduraru, Partner at D&B David si Baias, and Cristina Fuioaga, Tax Director, discussed these topics and important aspects related to the legal and fiscal implications of a reorganization, merger or division process. PwC Romania, in the new edition of the PwC Tax Talks podcast.

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Key statements:

• Reorganization operations, such as mergers, demergers, benefit from fiscal neutrality under certain conditions both at the level of companies and at the level of shareholders/associates of the companies involved. Neutrality is effectively deferring the payment of taxes until the profit is actually realized. In practice, the tax legislation provides us with such a favorable regime, beneficial, of course, under certain conditions, the first is the criterion of economic substance, and the second is the preservation of fiscal values, assets and liabilities transferred through reorganization, as if the operation had not taken place.

• A company should not conduct a reorganization operation just for the sake of tax relief. For example, we do not implement a merger for which there is no reason other than to benefit from tax losses.

• We also have a situation where the transaction may have tax implications. A simple transfer of assets that does not qualify, for example, as a transfer of a business, at least from a corporate tax point of view, will result in additional tax and, in most cases, also a cash outflow, since most of the time such transactions are between related parties, and then there must be price and cash exchange. Therefore, before starting such an operation, we must also pay attention to the taxation regime and the conditions required by the tax legislation to obtain a favorable regime.

• The reorganization procedure is effective only to the extent that, on the effective date, the company taking over the activity has been successfully carrying it out from day one. If we look strictly at the legal formalities, at the deadlines in the Companies Act that we have to meet in order to reach this effective date, we arrive at a calendar of two to three months of implementation, which is quite short when we think about what the transfer actually entails property, including permits, real estate, commercial contracts, financial contracts, etc.

• The key to successfully completing the reorganization is the preliminary stage of analyzing the legal formalities, where we consider what assets are transferred, how they can be transferred and what the actual implementation schedule is.

• Company law on mergers and divisions has recently undergone changes to make the process more efficient. Now the Trade Register is the only one that has the right to approve merger and reorganization processes. But we have an element of novelty that comes from the foreign direct investment legislation, and we have to see to what extent the reorganization process, be it intra-group, has to go through the approval of the Competition Council to be implemented. Unfortunately, if we now look at the legislation as it was transposed in Romania, the answer is unclear. The unofficial message given during the discussions with the authorities was that the reorganization within the group would require the approval of the Competition Council.

• Preparation and focus are equally important, and previous experience can make the difference between a successful process and one that is fraught with difficulties.

The article was signed by Anda Rojanski, Partner at D&B David si Baias, Cristina Păduraru, Partner at D&B David si Baias, Cristina Fuioagă, Tax Director, PwC Romania

Article supported by PwC Romania