Law 431/2023 was published on December 29, 2023 on ensuring a global minimum level of taxation of multinational enterprise groups and large national groups.

The draft law involves the implementation of EU Council Directive 2022/2523 of 14 December 2022, which aims to establish a global minimum level of taxation for multinational enterprise groups and large national groups. This directive was published in the Official Journal of the European Union on December 22, 2022, and the deadline for its implementation by the member states was set for December 31, 2023.

The Organization for Economic Co-operation and Development (OECD) formulated a plan to combat base erosion and profit shifting, known as BEPS (Base Erosion and Profit Shifting). In the context of this plan, Romania (like most European countries) introduced a tax reform based on two pillars. The first pillar involves the partial reallocation of taxing rights to the states where the income is generated, with a particular focus on large technology companies that can adjust their place of taxation to reduce their tax liabilities. The second pillar consists in the establishment of a global minimum tax on profit at the level of 15%. Through these measures, Romania aims to address the problems related to the erosion of the taxable base and the incorrect transfer of profits at the international level, thus contributing to the global efforts to combat harmful tax practices.

Multinational or national companies that are part of groups that have registered a turnover of more than EUR 750 million in at least two years from 2020-2023 will be obliged, starting January 1, 2024, to pay an effective profit tax of minimum 15%. Thus, multinational companies with an effective profit tax rate of less than 15% in Romania will be subject to an additional tax, thus contributing to the national budget with the difference up to this threshold. These legislative changes enter into force from 2024, and the first reporting date is set for June 2026.

There are exceptions to the new rules imposed by Law 431/2023. For example, companies that are part of a group and report a turnover below EUR 10 million and an accounting profit below EUR 1 million in Romania will not be subject to the additional tax. Also, companies belonging to groups that already prepare CbCR reports (country-by-country reporting) will benefit from a simplified process regarding the calculation of the additional tax.

Law 431/2023 establishes measures for the effective minimum taxation of multinational enterprise groups and large national groups through provisions such as the revenue inclusion rule (IRR), the undertaxed profits rule (UTPR), respectively the additional national tax (QDMTT).

According to the IRR, a parent company of a multinational enterprise group or a large national group is required to calculate and pay a proportional share of the additional tax for the constituent entities of the group that are taxed at a reduced level. The provisions of this rule will apply starting from January 1, 2024.

The UTPR provides that a constituent entity of a multinational enterprise group owes a tax recorded as an additional expense, equal to its share of the additional tax not collected under IIR at the parent company level, for the constituent entities of the group taxed at a reduced level. The provisions of this rule will apply starting from January 1, 2025.

According to the QDMTT, for the constituent entities of the multinational enterprise group or the large national group, the law introduces a national additional tax according to OECD rules. This is calculated before the IIR and UTPR rules apply and may in some cases reduce the additional tax due under the IIR and UTPR in other jurisdictions to zero. The provisions of this rule will apply starting from January 1, 2024.

Regarding the deadline for reporting the additional tax, for the year 2024, the deadline is set at 18 months from the last day of the reporting financial year. In the following years, this term will be reduced to 15 months. The same period of 15 months also applies to the payment of the additional tax.

The additional tax reporting process will be carried out by the relevant constituent entity by submitting an informative declaration to the competent tax administration. This declaration must comply with a standard model approved by order issued by the president of the National Tax Administration Agency (ANAF). The respective order will be issued within 12 months from the date of entry into force of Law no. 431/2023. This standardized document will provide guidelines and requirements for relevant entities in order to report correctly and in accordance with the legislative provisions.

Therefore, the changes provided for by Law 431/2023 will not have a significant impact in Romania, considering the small number of companies that are part of multinational groups and that register an annual consolidated turnover exceeding EUR 750 million. The business environment in Romania will not be significantly affected by these legislative changes, but it is estimated that at the level of the affected companies the compliance impact is significant.