Multinational companies with a presence in Romania, which register revenues of over 750 million euros, have the obligation to publish a detailed report on the profit tax paid in each member state of the European Union. This obligation is the result of the transposition into national legislation of a European directive aimed at increasing fiscal transparency at the international level. The first reports will have to be published by the end of 2024, and the Ministry of Finance recently issued recommendations regarding the reporting method, given that Romania implemented this report much earlier than the European Commission recommended and before the Brussels authorities issued a standard format for its preparation.

Romania has imposed on multinationals, starting from the fiscal year 2023, the obligation to publish a detailed report on the profit tax, well before the deadline recommended by the European Commission, which provided for the implementation of the obligation only after the first half of 2024. As a consequence, until at the end of this year, multinational companies operating on the local market are obliged to publish such information for the first time, and Romania’s decision to adopt this measure earlier has created additional challenges for companies, especially due to the absence of a standardized format at the level European.

The report for the year 2023 must be published by December 31, 2024, so the Ministry of Finance has issued temporary recommendations to support companies in the reporting process.

According to the MF, companies can follow the EC’s general instructions or establish their own reporting format, which includes all the information required by the European directive. It is essential that the report contains relevant financial data for each jurisdiction in which the company operates and is prepared in a format that is easy to access and read electronically.

According to current regulations, companies must prepare a detailed report that includes information on the activities of the ultimate parent entity or autonomous entities and affiliates. Among the information to be reported are revenue, gross profit or loss, accrued income tax and actual tax paid, number of employees and other relevant data. The report will have to be published online, in Romanian, and remain available for free, on the company’s website, for at least five years.

Where companies operate in jurisdictions deemed to be non-cooperative from a tax point of view, they must provide additional details of activities and payments made in these areas.

Among the essential data to be included in the report are:

• Total revenues generated in each jurisdiction;
• Recorded profit or loss;
• Accumulated profit tax and actual tax paid;
• The number of employees and the nature of the activities carried out in each country.

Which companies are covered by this reporting?

The directive applies to all multinational companies and autonomous enterprises that achieve revenues of more than €750 million in each of the last two consecutive financial years. In Romania, these rules were transposed by MF Order no. 2048/2022 and applies from January 1, 2023. The companies covered by this transparency obligation are:

• The final parent companies, whose consolidated net turnover on the date of their balance sheet, for each of the last two consecutive financial years, exceeded the amount of 3,700,000,000 lei (the equivalent of 747,474,740 euros at the exchange rate published in the Official Journal of the Union European Union on December 21, 2021), as reflected in their consolidated annual financial statements;
• Autonomous entities whose net turnover on their balance sheet date exceeded, for each of the last two consecutive financial years, the amount of 3,700,000,000 lei, as reflected in their individual annual financial statements;
• Medium and large subsidiaries, which are controlled by an ultimate parent company that is not subject to these regulations, when the consolidated net turnover on its balance sheet date exceeded, for each of the last two consecutive financial years, the amount of 3,700. 000,000 lei, as reflected in its consolidated financial statements;
• Branches in Romania, established by entities that do not fall under the legislation of a member state, must provide data on the ultimate parent company or autonomous entity.

The reporting obligation aims to bring greater tax transparency and reduce the practice of tax avoidance through transfers between various jurisdictions. The publication of this information will allow both tax authorities and the public to monitor the tax contributions of large companies and ensure that they comply with their tax obligations in each country in which they operate.

What’s next for companies?

Multinationals must be prepared to implement these reporting requirements and allocate the necessary resources to collect and present the relevant data. Companies should also stay in touch with the MF and follow legislative developments, especially in the context of the standardized format of the report being published in the second half of 2024. In addition, adjustments to internal systems may be required accounting and reporting to facilitate data collection in a consistent and accurate manner.

Article published in TaxNews.ro