European Directive on Minimum Profit Tax – a Major Change in International Taxation and Its Impact on Romania

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

Opinion piece by Ana Petrescu-Mujdei, Senior Manager, Direct Taxation, Deloitte Romania

Thus, a national additional tax is introduced. This will apply to national and multinational groups of companies with a consolidated turnover of more than 750 million euros per year. In these conditions, with a European directive already in place, the Romanian authorities have published a legislative project aimed at applying the minimum global profit tax starting from January 1, 2024. What are the main provisions?

In recent years, with the rapid development of the global economy, fierce competition has arisen among states to attract investments, including through a fiscal component, such as granting tax incentives and reducing corporate tax rates. In this context, the OECD initiative was developed, aiming to ensure global tax fairness, so that the profits of large companies are taxed in the countries where they are generated.

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More than ten years 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 taxation rights to the countries where the income is generated, especially for technology giants, which are stagnant, and Pillar II – the application of a minimum global profit tax of 15%, which is currently being implemented).

Specifically, Pillar II of this reform has the main objective of fair competition between states and companies by ensuring the collection of a minimum tax of 15% 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 of December 14, 2022, on ensuring a minimum level of global taxation for multinational groups of enterprises and for national groups of large size in the Union, which must be transposed by all Member States. In addition, 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 matter at the level of authorities.

According to the project, multinational companies will be required to pay a minimum tax of 15% in each country where they operate. The difference between the minimum tax and the tax actually paid in the jurisdictions of the subsidiaries is to be collected by their tax residence country. Thus, this national additional tax is introduced.

What does the project provide for Romania?

The legislative project published on October 4, 2023, in the decision-making transparency by the Romanian authorities is in line with the provisions of the European directive and contains specific references to the documents issued by the OECD for the interpretation of these new, highly complex rules. Consequently, the volume of information that targeted taxpayers, but also the Romanian authorities, must assimilate in the coming period is considerable, so mobilization is needed to be ready in time for implementation.

Specifically, multinational or national companies that are part of groups that have recorded a turnover of more than 750 million euros in at least two years during the 2020-2023 period will owe, starting January 1, 2024, an actual profit tax of at least 15%. Thus, multinational companies with an effective profit tax rate lower than 15% in Romania will contribute to the national budget with the difference up to this threshold.

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

Even if the tax rate in our country is 16%, due to additional deductions (such as deductions for research and development activities, exemption from tax on reinvested profits, tax credit for sponsorship, or tax credit for the purchase of cash registers), the effective rate can drop even below the minimum threshold of 15%. It is important to mention that even for companies that record a tax loss in 2024, there may be an impact from the perspective of the minimum global tax due, therefore a specific analysis is required at the level of each eligible company.

The rules on which the effective tax rate is determined are very complex and start from the accounting profit in the consolidated financial statements.

At the same time, certain exceptions are provided, such as companies in a group that record in Romania a turnover of less than ten million euros and an accounting profit of less than one million euros, which will not owe an additional tax. Also, subsidiaries in groups that already prepare country-by-country reporting (CbCR) will have a simplified process.

In conclusion, the minimum global 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. Romanian companies that are part of multinational groups need to adapt to this new tax reality and ensure compliance with the new, not-so-simple requirements.