Romania Aligns with European Legislation, Reporting of High-Income Individuals by Banks Becomes Reality

According to Order No. 4/2023 issued by the National Bank of Romania (BNR), Romanian banks have submitted their first report on the income earned by individuals working in the financial sector whose total annual remuneration is at least 1 million euros. This required reporting is essentially the transposition of the European Union Directive for individuals in bank leadership positions who earned over this threshold in 2022. According to data from the European Banking Authority (EBA), Romania, Portugal, Hungary, and Slovenia had only three bankers each with annual incomes exceeding 1 million euros at the end of last year.

By Corina Mîndoiu, Partner, Income Tax and Social Contributions, EY Romania, and Alexandra Pătrăscioiu, Lawyer, Băncilă, Diaconu, and Associates SPRL

Through Order No. 4/2023 of the BNR (published in the Official Gazette No. 391 dated May 18, 2023), the provisions of the European Banking Authority (EBA) Guideline 06/2022 are incorporated into national legislation, whereby Romanian banks will report salaries to the BNR. The condition is that the banking institutions selected by the National Bank for reporting must cover at least 60% of the assets of the banking system in Romania. If this is not possible, the BNR will collect information from a maximum of 20 Romanian legal entities, excluding those for which reporting is done at the group level. This also includes banks with Romanian capital and banks or banking groups from the EU operating in Romania, which will also report information on compensation for all branches subject to prudential consolidation, including branches in other member states and third countries. The information will be reported based on figures recorded at the end of the financial year, with the first reporting referring to the year 2022.

Essential to note from the two orders (No. 4 and 5 BNR/2023) regarding the reporting required by the Romanian central bank, in accordance with European provisions (although there are differences in scope), is the fact that it practically expands the reporting of information on high incomes into the financial and banking services sector. This pertains to incomes exceeding the 1 million euro threshold, as stipulated in BNR Order 5/2023, which specifies the threshold for the personnel covered by reporting and the reporting format.

Local regulation falls under the broader scope of European banking regulations and directives, applying strictly to financial institutions under BNR supervision in Romania.

It can be appreciated that, although there is no direct link between the efforts of the Romanian Tax Authority (ANAF) to bring to the surface for taxation in accordance with national legislation the incomes earned in Romania and the BNR provisions for banks, it is evident that state authorities are acting in concert to increase tax compliance. On the one hand, this involves aligning with European financial and banking legislation by transposing regulations into Romanian law. On the other hand, it involves increasing transparency in income declarations for taxation, ensuring the accuracy of revenue collection for the state budget from taxes applied to individuals.

Looking from the perspective of tax compliance across all segments of society, both for individuals and legal entities, the efforts of the authorities in Romania to have a complete picture of earnings, including those exceeding the average earnings of the majority of employees at the national level, are evident.

It is worth mentioning that local legislation, created within the framework of the National Bank of Romania, aligns with and falls under European banking regulations and EU directives in this field, based on technical specifications provided by the European Banking Authority, according to Decision No. 355/2020 regarding the European centralized infrastructure for supervisory data (EUCLID) for reporting on high-income individuals.

Reporting is requested and will be submitted by financial institutions to the BNR, following a clearly established procedure and document structure, as outlined in Order No. 5/2023 regarding the reporting exercise of information on high-income individuals within credit institutions, which entered into force last month.

What Does the BNR Order Encompass?

BNR Order 5/2023 defines the notions of high-income individuals within the banking system, to which incomes the reporting refers, and the necessary reporting forms to be completed by selected commercial banks for reporting. Thus:

High-income individual means a staff member who benefits from high-level remuneration, specifically a total remuneration of at least 1 million euros in the reported financial year.
Remuneration range means the range of the total annual gross remuneration value of a high-income individual, defined in increments of 1 million euros and starting at 1 million euros. The total remuneration awarded to a staff member is determined and allocated based on the fixed and variable components of remuneration, in accordance with the provisions of Article 170 (2) and Article 171 of BNR Regulation No. 5/2013, taking into account the guidelines of the European Banking Authority and the instructions of the National Bank of Romania regarding sound remuneration policies.

In the context of seeking solutions for increasing state budget revenues, to reduce the budget deficit and, above all, to ensure the coverage of public sector expenses, fiscal authorities in Romania are pursuing at least two important objectives, subordinate to the above: increasing the personal income tax base and increasing compliance with the payment of taxes on earned income. A special category includes individuals with high wealth, as well as individuals (top managers) with very high incomes, including those in the banking system.

Given the continuous transformation of the economy and the novelty of financial services (fintech, crypto, new types of non-traditional financial institutions), new regulations regarding personal incomes earned in Romania are expected.

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