Recategorization by the National Agency for Fiscal Administration (ANAF) of certain personal income as taxable income – restrictions and amnesties
Because it is a relatively calm period, in awaiting of the political decision after intense debates on the possible changes to the Tax Code, potentially applicable starting fall 2023 and, respectively, beginning of 2024, it worth reminding about some important changes that will affect the taxpayers starting 2024, and for which companies need to take measures to be ready to apply them.
Recategorization by the National Agency for Fiscal Administration (ANAF) of certain personal income as taxable income – restrictions and amnesties
The EU Directive 2021/2101 for the EU public Country-by-Country (CbC) Reporting requires European MNE with global revenues exceeding €750 million a year have to publish key information on where they make their profits and where they pay their tax on a country-by-country basis (CBCR). The same rules would apply to non-European multinationals doing business across the EU. In addition, companies would have to publish an aggregate figure for total taxes paid outside the European Union.
Romania was among the firsts to implement the Directive, commencing early adoption on January 1, 2023. The transposition of the Directive into the domestic legislation was made through the Minister of Finance Order 2048/2022, recently modified by the Order 1730/2023.
The first reporting year is the one starting with or after 1st January 2023, with the deadline for reporting being 31 December 2024 or 12 months from the date of the consolidated financial statements of the Group. A reporting subsidiary whose financial year is different from that of the ultimate parent entity is obliged to prepare a report by reference to the financial year of the parent entity, with deadline for submission being 12 months from the date to which the consolidated annual financial statements are referred to.
The rules will apply to groups with a consolidated net turnover exceeding RON 3.7 billion (the equivalent of EUR 747.5 million computed based on the exchange rate applicable as of December 21, 2021), for two consecutive financial years starting on or after 1 January 2023. A MNE group with subsidiaries in Romania, having the calendar year as its reporting year for consolidation purposes, has to observe this threshold for 2022 and 2023. If, however, the financial year of the ultimate parent is not the calendar year, the financial years considered for the assessment of the threshold are the one starting in 2023 and the previous one.
The qualifying Romanian large and medium-sized subsidiaries are the companies, part of a group, that exceed the limits of at least two of the following three criteria at the balance sheet’s date: total assets RON 17,500,000 (equivalent to EUR 3,946,953); net turnover RON 35,000,000 (the equivalent of EUR 7,893,906); average number of employees during the financial year 50.
The report will contain information regarding: the name of the ultimate parent undertaking, and information on all members of the group (i.e., including non-EU members) within seven key areas: brief description of activities, number of employees, net turnover (including related party turnover), profit or loss before tax, tax accrued and paid, the amount of accumulated earnings.
The Romanian Government has recently issued additional guidelines (Order 1730/2023) regarding, among others, the entities affected and the “safeguard clause”.
The updated guidance clarifies that MNE groups without an ultimate parent entity subject to the law of any EU Member State and possessing a medium-sized or large subsidiary in Romania are obligated to publish the report in Romania. “EU entities” pertain to entities registered within the European Economic Area. Consequently, public CbC reports must present information pertaining to European Economic Area states.
Romania employed the “safeguard clause,” allowing eligible groups to postpone disclosing commercially sensitive information for up to five years, under certain conditions. The updated guidance clarifies that if an entity opts to delay such information disclosure, the report ultimately resuming the disclosure must encompass data corresponding to the present and preceding financial years in which information was not published.
The responsibility for the report stays with the members of the administrative, management and supervisory bodies of the ultimate parent undertakings or the standalone undertakings, acting within the competences assigned to them under national law. The auditors have also responsibilities to disclose certain facts in the audit reports.
15% minimum corporate income tax under Pilar II EU Directive, applicable starting January 2024
Pillar 2 of BEPS 2.0 of OECD encompasses regulations designed to diminish the chances of base erosion and profit shifting, ensuring that major MNE pay a minimum effective corporate tax rate of 15%. These rules have been formally incorporated into the Council Directive (EU) 2022/2523 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union.
The Directive requires Member States to transpose the rules into domestic law by 31 December 2023. The main rule of the Directive (Income Inclusion Rule or IIR) will become effective on or after 31 December 2023, while the backstop rule (Undertaxed Profits Rule or UTPR) will become effective on or after 31 December 2024.
The scope of the EU Directive includes the MNE groups that meet the revenue threshold test of EUR 750 million and the large-scale domestic groups that meet the revenue threshold test of EUR 750 million.
The Directive provides the option for Member States to implement a qualified domestic top-up tax (QDMTT) that operates to increase the domestic tax liability of in-scope MNE groups within a jurisdiction to the minimum effective tax rate of 15% of profits.
The Directive is not yet transposed in the Romanian legislation, however, the due date for the transposition is 31 December 2023, as it will apply with January 2024. An optional deferral of the adoption to 31 December 2029 is provide for those Member States in which no more than 12 ultimate parent entities of in-scope MNE groups are based.
Generalized e-invoicing for B2B commercial relationship, starting January 2024
Romania submitted with the European Commission a request for derogation to be authorised to implement an obligation to issue electronic invoices for transactions between taxable persons established in Romania and recently received such approval (Council Implementing Decision (EU) 2023/1553 of 25 July 2023).
Romania has now derogation to apply mandatory generalised RO e-Invoice system starting 2024 and domestic legislation must be enforced directing the types of taxpayers and the starting date for each category of taxpayer for this new compliance obligation.
The main objectives pursued by the implementation of the mandatory electronic invoicing system are to combat tax fraud and evasion, to make collection more efficient, particularly in the area of VAT, to improve the competitiveness of economic operators and to reduce administrative costs for both taxpayers and the tax administration.
The RO e-Invoice system put in place by Romania in November 2021 for B2G invoicing and for B2B invoicing for risky products will be used as the basis for the implementation of the mandatory e-invoicing system for transactions between taxable persons. The use of the RO e-Invoice system will remain optional for non-established economic operators.
Article 218 of the VAT Directive provides for an obligation for Member States to accept all documents or messages both in paper and electronic form as invoices. Romania obtained a derogation from the above-mentioned Article of the VAT Directive, so that only documents in electronic form can be considered as invoices by the Romanian tax administration.
Article 232 of the VAT Directive requires that the use of an electronic invoice shall be subject to acceptance by the recipient. Romania obtained a derogation from this Article so that the issuer of the invoice no longer has to obtain the consent of the recipient to send an invoice in a paperless format.
The Decision shall apply from 1 January 2024 until the earlier of the following two dates:
- 31 December 2026; or
- the date from which Member States are to apply any national provisions that they are required to adopt in the event that a directive is adopted amending Directive 2006/112/EC as regards VAT rules for the digital age, in particular Articles 218 and 232 of that Directive.
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This information does not constitute tax or accounting advice. NOA Tax & Training SRL does not undertake responsibility for the application of tax provisions to the specific cases of each individual taxpayer. This information is not provided with the intention of aiding the illegal avoidance or reduction of taxes, fees or related obligations imposed by authorities.
For personalized advice or customized training proposal, you can contact us via email at nadia.oanea@taxandtraining.com or by phone at 0749239343.
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