A working group has been formed at the level of the Ministry of Finance, which is intensively working on the preparation of the bill for the implementation of the Pillar II Directive, Florin Rizea, senior manager of PwC Romania, said on Friday.

In December 2022, EU member states reached an agreement in principle to implement at EU level the minimum taxation component, known as Pillar 2, of the OECD’s international tax reform. Member States’ ambassadors to the EU have decided to recommend the Council to adopt the second level Directive, and a written procedure for formal adoption will be launched.

Effective implementation of the directive will limit standardization to a lower level of corporate tax rates. The profits of large multinational and national groups or companies with a combined annual turnover of at least 750 million euros will be taxed at a minimum rate of 15%. The new rules will reduce the risk of base erosion and profit shifting and ensure that the largest multinational groups pay the minimum generally accepted corporate tax rate.

“This working group is intensively working on the preparation of the draft law on the introduction of this tax. As for the timing, Tier II is set to go into effect on January 1, 2024, so it will have about three months or so to succeed. to bring it into Romanian law,” said Florin Rizea at the Prepare for the New Financial Wave conference organized by PwC Romania.

The first reporting year will be 2024. “As for the reporting period, if we are talking about companies whose fiscal year coincides with the calendar year, then the reporting period will be June 30, 2026. Practically 18 months after the end of reporting. year. You must be wondering now how this will affect companies in Romania? If we take the example of a company in Romania, which is part of a group of companies with a worldwide turnover of more than €750 million, this company will clearly be affected by these new provisions of the Tier II Directive. The company will need to calculate and report any minimum tax. Even if this calculation will be done at the group level, the colleagues there, from the group, will still need to have a number of information from Romania,” said Florin Rizea.

He explained that Tier II is a very complex issue and will require taxpayers to do a very complex analysis.

“In fact, at first glance, we could say that the 16% tax rate in Romania will practically cover this threshold of 15% provided by the second component. In reality, it’s much more complicated than that and there are a few things we need to consider. First of all, this 15% threshold represents the effective tax rate, and it would be a bit unfair to compare it to the standard rate of 16%. The way this figure is calculated, the effective tax rate is the company’s profit tax relative to its accounting profit. And here I can say, what is the problem? We go to the income tax return, we take from there the income tax paid by the company in Romania, we basically relate it to its accounting result and we get this effective tax rate, because I’m sure many of you calculate this tax in your group reporting. Well, what actually happens is that component two introduces very specific rules that are significantly different, I would say, from the rules for calculating income tax in Romania,” said Florin Rizea.

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