Why Romanian companies should consider creating a group for the consolidation of the profit tax?

2022 is the first year for which the consolidation of the income tax is applied to tax groups in the field of corporate tax. What are the rules, advantages, and disadvantages and how do we fill in the statement 101 Tax Group, whose deadline is 25 June 2023?

The tax group in the field of corporate tax consists of at least two of the following entities, hereinafter referred to as members:

• a Romanian legal entity/legal entity with a registered office in Romania established according to the European legislation and one or more Romanian legal entities/legal entities with a registered office in Romania established under the European legislation in which it has, directly or indirectly, at least 75% of the value/number of participating securities or their voting rights,
• at least two Romanian legal entities in which a Romanian individual has, directly or indirectly, at least 75% of the value/number of participating securities or voting rights,
• at least two Romanian legal entities, directly or indirectly, held at least 75% of the value/number of participating securities or voting rights, by a legal entity/individual, resident in a state with which Romania has concluded a double taxation agreement (“DTA”) or in a state with which an information exchange agreement has been concluded,
• at least a Romanian legal entity held, directly or indirectly, at least 75% of the value/number of participating securities or voting rights, by a legal entity resident in a state with which Romania has concluded a DTA or in a state with which an information exchange agreement has been concluded and the permanent establishment/permanent establishment designated in Romania of this foreign legal entity.

When the request is submitted and during the period of the tax group, the members must cumulatively fulfil the following conditions:

• Minimum holding of 75%: must be met for a continuous period of one year before the start of the fiscal consolidation period.
• The members are taxpayers who pay profit tax, applying the same corporate income tax payment system (quarterly computation and payment, or annual computation, with quarterly anticipated payments).
• The members have the same fiscal year.
• The members are not part of any other tax group in the field of corporate income tax.
• The members do not pay micro-enterprise income tax or do not simultaneously pay profit tax and specific tax for HoReCa industry.
• The members do not have bar and nightclub activity.
• The members are not in dissolution/liquidation according to the law.

The tax group must appoint a responsible legal entity, which is the Romanian legal entity/legal entity with a registered office in Romania established under the European legislation, member of a tax group in the field of corporate tax, appointed:

• to determine the consolidated taxable result (profit or loss) of the tax group,
• to submit the corporate income tax return and
• to pay the corporate income tax in the name of the group.

The Tax Code regulates the following rules on the consolidated taxable profit calculation:

1. Each member of the tax group calculates its taxable profit / loss.
2. The consolidated taxable profit or loss of the tax group is determined by algebraic summation of tax outcomes individually determined by each tax group member.
3. The consolidated positive tax result represents taxable profit, and the negative consolidated tax result represents tax loss.
4. The tax group’s consolidated tax result is calculated on a quarterly/annual basis, by considering the cumulated expenses and revenues from the beginning of the tax year.
5. The tax losses of the members after the group has been established may be subtracted from the consolidated tax result.
6. The corporate tax is calculated by applying the 16% tax rate to the taxable profit of the group.
7. The amounts calculated by each member are subtracted from the Group’s corporate tax for:

• External tax credit
• Exempt reinvested profit
• Tax credit for sponsorship
• Tax credit for electronic cash register machines
• Discounts for capital increases.

8. Where it is not possible to subtract in full the amounts calculated by each member from the Group’s corporate tax, the amounts are apportioned to each member in proportion to the amount passed on by the member in the total amounts passed on (express provision in the Tax Code only for exempt reinvested profit).

Thus, the tax group’s corporate tax might be lower than the corporate tax calculated by each member, and this is the main potential advantage of creating a tax group.

Tax losses of a group member during the period in which the tax consolidation system is applied are recovered from the consolidated tax outcome of the group. In case of dissolution of the group after the minimum period of 5 years, losses incurred and not recovered during the fiscal consolidation period will be recovered by the responsible legal entity.

However, the tax losses incurred by a group member before applying the tax consolidation system in the field of corporate tax are recovered, in chronological order, for a period of 7 years, by that member, only from its taxable profits.

From this perspective, a merger between an entity obtaining tax profit and one which has reported tax losses has more favourable tax effects than creating a tax group between the two entities (assuming that they would meet the conditions provided by law). During the merger, the acquiring entity is entitled to carry forward the tax losses of the entity being acquired. The merger is, however, a complex legal procedure involving the Trade Register Office, while the establishment of the tax group only assumes a tax procedure conducted through the tax bodies.

To determine the tax group’s consolidated tax outcome, the responsible legal entity is required to record in the profit tax register the individual tax results determined by each member, and the amounts which are subtracted from the corporate tax due to the group, including those of the responsible legal entity.

The responsible legal entity is required to submit an annual consolidated corporate tax return reporting the taxable profit / loss of the entire tax group and is responsible for paying the corporate tax calculated for the entire tax group.

If at least one of the members of the tax group is subject to the provisions of Article I of GEO 153/2020, during the period in which those provisions are applied, the responsible legal entity is obliged to file the consolidated annual return by 25 June of the following year or by the 25th of the sixth month following the end of the amended tax year, as the case may be.

Statement 101 Tax group “Consolidated statement on corporate tax determined by the tax group” was approved by NAFA President Order 310/2023. The statement essentially includes the tax outcome of the group (i.e. the consolidated taxable profit or tax loss resulting from the offsetting of taxable profits against the tax losses of the members), and the amounts to be subtracted from the tax to arrive at the annual tax payable by the group.

The same Order amended the form 101 “Corporate Tax Return”, so that it can also be filled in by members of a tax group who are not responsible legal entities., by ticking the box “Statement submitted by a member of a tax group in the field of corporate tax”. Each member of the tax group fills in its statement. The electronically signed statement will be sent to the responsible legal entity of the tax group in the field of corporate tax, in electronic format.

The responsible legal entity is also required to submit an informative statement on the recipients of sponsorship/patronage/private scholarships made by group members.

How is the tax group’s profit tax accounted for? Order no. 4291/2022 regulating certain accounting issues introduces account 694 “Profit tax expenses resulting from settlements within the tax group in the field of corporate tax” and account 794 “Profit tax revenues resulting from settlements within the tax group in the field of corporate tax”.

Each member of the tax group is required to prepare the transfer pricing file, including both the transactions performed with the tax group’s members and the affiliated entities outside the tax group. The transfer pricing files prepared by each member of the tax group will be presented by the responsible legal entity.

In conclusion, the tax group in the field of corporate tax may help the Romanian companies, majority-owned by the same shareholder manage their corporate tax liability more efficiently, but it also comes with additional procedural restrictions and obligations.

For both individual and consolidated corporate tax calculations, the intervention of a tax consultant, either in a tax compliance assignment (i.e., tax computation and preparation of the tax returns) or in a review or certification assignment of the annual corporate tax return, can bring a higher degree of tax compliance, with lower risks in future tax audits.

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This information does not represent tax advisory. NOA Tax &Training SRL does not assume responsibility for the application of the tax provisions in the individual cases of each taxpayer. This information is not provided to help avoid or illegally reduce the taxes, duties, or additional costs which might be imposed by the authorities.

For personalised tax advice or for requesting a training offer, you can contact us by email at nadia.oanea@taxandtraining.com or at telephone number 0749239343.

www.taxandtraining.com

Nadia Oanea | CCFR, CECCAR, ADIT