The tax system that applies to large companies in Romania is becoming increasingly complex. In addition to the turnover tax provisions included in the law for which the government recently took responsibility in the parliament, the Ministry of Finance published on October 4, 2023 another draft law aimed at implementing in Romania the rules established at the level of the Organization for Economic Cooperation and Development (OECD) on the minimum income tax at the global level, starting from January 1, 2024. Thus, an additional national tax appears. It will apply to national and multinational groups of companies with a consolidated turnover of more than 750 million euros per year. Under these conditions, with a directive already in place at the European level, the Romanian authorities published a legislative project aimed at applying a minimum income tax worldwide from January 1, 2024. What are the main provisions?

In recent years, in the context of the accelerated development of the world economy, fierce competition has arisen between states to attract investments, including with the help of a fiscal component, such as the provision of tax benefits and reductions in income tax rates. In this context, the OECD initiative was developed, which aims to ensure fiscal justice at the global level, so that the profits of large companies are taxed in the countries from which they are obtained.

More than a decade ago, the OECD proposed a plan to combat base erosion and profit shifting (Base erosion and profit shifting – BEPS), and countries, including Romania, have committed to implementing a tax reform based on two pillars (Pillar I is a partial redistribution of tax rights to the countries from which revenues are obtained, especially for technology giants that are stagnating, and the second level is the application of the global minimum income tax of 15%, which is implemented).

Specifically, component II of this reform (Pillar two) has as its main objective fair competition between states and companies, ensuring the collection of a minimum tax of 15% in each country where the group operates.

An important step in the application of this reform is the adoption by the European Union of Directive 2022/2523 of 14 December 2022 on ensuring a minimum level of taxation at the global level for multinational enterprise groups and for large national groups in the Union, which must be transposed by all member states. In addition, other countries such as Great Britain, Switzerland, Canada or Japan have chosen to go in this direction, and in many other countries there are discussions at the government level about this.

According to the draft, multinational companies will be required to pay a minimum tax of 15% in each country in which they operate. The difference between the minimum tax and the actual tax paid in the subsidiary jurisdictions will be collected by the country of tax residence. So it looks additional state tax.

What does the project bring to Romania?

The legislative draft, published on October 4, 2023, in the framework of the transparency of decision-making by the Romanian authorities, complies with the provisions of the European directive and contains specific references to the documents issued by the OECD to interpret these new, extremely complex rules. Therefore, the amount of information that the relevant taxpayers as well as the Romanian authorities should receive in the near future is significant, so mobilization is needed to be ready in time for the application.

In particular, multinational or national companies that are part of groups whose turnover exceeds 750 million euros for at least two years in 2020-2023 will pay a profit tax of at least 15% starting January 1, 2024. Thus, multinational corporations that have an effective income tax rate in Romania of less than 15% will contribute to the national budget with the difference up to this threshold.

The first accounting year is 2024, and the first reporting date is June 2026

Even if the tax rate in our country is 16%, thanks to some additional deductions (such as the research and development deduction, the tax exemption on reinvested income, the sponsorship tax credit or the tax credit for the purchase of cash registers), the effective rate may fall even below the minimum level of 15%. It is important to note that even for companies that have registered a financial loss in 2024, there may be an impact in terms of the global minimum tax payable, so a specific analysis is required at the level of each relevant company.

The rules on which the effective tax rate is determined are very complex and start with the accounting profit from the consolidated financial statements.

At the same time, there are certain exceptions, for example, companies in the group that register in Romania a turnover of less than ten million euros and an accounting profit of less than one million euros, which will not have to pay additional tax. Also subsidiaries in groups that already prepare CbCR reports (reporting by country) they will have a simplified process.

In summary, the global minimum corporate tax (Pillar two) represents a significant change in the international tax landscape that has a major impact on how companies manage their tax obligations and business model. Companies in Romania that are part of transnational groups must adapt to this new fiscal reality and ensure that they comply with the new requirements, which are not easy.

Review by Ana Petrescu-Muzhdei, Senior Manager of Direct Taxation, Deloitte Romania