The applicable tax framework for large companies in Romania is becoming increasingly complex. In addition to the provisions related to the turnover tax included in the law for which the Government recently assumed responsibility in Parliament, the Ministry of Finance published another legislative project on October 4, 2023, aimed at implementing the rules set by the Organization for Economic Cooperation and Development (OECD) regarding the global minimum profit tax in Romania, starting from January 1, 2024.

What are the main provisions?

This introduces a national supplementary tax. It will apply to national and multinational groups of companies with a consolidated turnover of over 750 million euros per year. In these conditions, given that there is already a European directive, the authorities in Romania have published a legislative project aimed at implementing the minimum global profit tax starting from January 1, 2024.

In recent years, with the accelerated development of the global economy, there has been intense competition among states to attract investments, including through a tax component, such as providing tax incentives and reducing profit tax rates. In this context, the OECD initiative was developed to ensure global tax fairness so that the profits of large corporations are taxed in the countries where they are earned.

Over a decade ago, the OECD proposed a plan to combat base erosion and profit shifting (BEPS), and countries, including Romania, committed to implementing a tax reform based on two pillars (Pillar I - partial reallocation of taxing rights to the countries where the income is generated, especially for technology giants, which stagnate, and Pillar II - the application of a global minimum profit tax of 15%, which is currently being implemented).

Specifically, Pillar II of this reform aims to ensure fair competition between countries and companies by ensuring the collection of a minimum 15% tax in each country where a group operates.

An important step in implementing this reform is the adoption by the European Union of Directive 2022/2523 on December 14, 2022, to ensure a minimum level of global taxation for multinational business groups and large national groups in the Union, which must be transposed by all member states.

Additionally, other countries, such as the United Kingdom, Switzerland, Canada, or Japan, have chosen to move in this direction, and many other countries are discussing this topic at the level of their authorities.

According to the project, multinational companies will be required to pay a minimum of 15% tax in each country where they conduct business. The difference between the minimum tax and the actual tax paid in branch jurisdictions is to be collected by their resident state. This is where the national supplementary tax comes into play.

What does the project entail for Romania?

The legislative project published on October 4, 2023, in the transparency decision-making process by Romanian authorities is in line with European directive provisions and contains specific references to the documents issued by the OECD for interpreting these new, highly complex rules.

As a result, the volume of information that targeted taxpayers, as well as Romanian authorities, need to familiarize themselves with in the coming period is considerable, so mobilization is needed to be ready for implementation.

Specifically, multinational or national companies that are part of groups that have recorded a turnover of over 750 million euros in at least two years between 2020-2023 will owe, starting from January 1, 2024, an actual profit tax of at least 15%. Therefore, multinational companies with an effective profit tax rate of less than 15% in Romania will contribute the difference to the national budget.

The first calculation year is 2024, and the first reporting date is in June 2026.

Even though the tax rate in our country is 16%, due to additional deductions (such as deductions for research and development activities, tax exemption for reinvested profits, tax credits for sponsorship or tax credits for cash register purchases), the effective rate can fall below the minimum 15%.

It is important to mention that companies that experience a fiscal loss in 2024 may still have an impact from the perspective of the global minimum tax owed. Therefore, a specific analysis at the level of each eligible company is necessary.

The rules for determining the effective tax rate are very complex and start from the accounting profit in the consolidated financial statements.

There are also certain exceptions, such as companies in a group that have a turnover in Romania of less than ten million euros and an accounting profit of less than one million euros, which will not owe an additional tax. Additionally, branches in groups that are already preparing country-by-country reporting will have a simplified process.

In conclusion, the global minimum profit tax (Pillar Two) represents a significant change in the international tax landscape, with a major impact on how companies manage their tax obligations and business models.

Companies in Romania that are part of multinational groups must adapt to this new tax reality and ensure compliance with these complex new requirements.