8 January 2021
Romania has introduced measures for a consolidated tax group regime and several other tax-related changes as part of Law No. 296 of 18 December 2020, which generally applies from 1 January 2021.
Under the new regime, a consolidated tax group may be formed by:
The consolidated tax group regime is optional and applies for five fiscal years, calculated starting with the first year of application of the regime. Applications for tax consolidation must be submitted at least 60 days before the start of the period for which tax consolidation is requested. Tax consolidation will apply starting with the fiscal year following the submission of the application.
To apply for the regime, the following conditions must be met on the date of submission of the application:
After the initial five-year period, the consolidated tax group may be renewed, with an application for renewal to be submitted at least 60 days before the beginning of the period for which the application of the fiscal consolidation system is requested to continue.
Additional group members may also join a consolidated tax group starting with the fiscal year following the fulfillment of the conditions, subject to request. If an existing member no longer meets the conditions, it will leave the group starting from the quarter following the one in which the conditions are no longer met. Additions must be requested at least 60 days before the fiscal year and removal from a group must be notified with 15 days of the conditions no longer being met.
With respect to tax compliance when forming a consolidated tax group, one of the group members must be designated as the responsible legal person to determine the consolidated tax result of the tax group, file the tax return, and make tax payments on behalf of the group. Every member of a consolidated tax group must also prepare a transfer pricing file that includes both the transactions carried out with the members of the tax group and with the affiliated entities outside the tax group.
Lastly, an anti-abuse provision is included, which provides that the consolidated tax group regime is not available where applying the regime is aimed at tax fraud and evasion.
In addition to the tax consolidation regime, Law No. 226/2020 also provides for several other changes, summarized as follows:
Several changes are also made to the place of effective management and residence rules. This includes a revised definition of place of effective management, which means the place where, unless otherwise proven, a foreign legal entity carries out operations corresponding to real and substantive economic purposes and where at least one of the following conditions is met:
Along with the revised definition, new rules are introduced providing that the Romanian tax authorities are able to establish, either on their own initiative or at the request of another authority, the place of effective management for a foreign legal entity in Romania. If a foreign legal entity is found to have their place of effective management in Romania, they will become subject to several obligations, including the obligation to:
New rules are introduced for the determination of residence in Romania, including that the residence of a foreign legal entity may be established on the basis of a questionnaire and the submission of relevant documents. It is also provided that if a foreign legal entity is considered resident in both Romania and a signatory state of a tax treaty to which Romania is a party, the residence will be established according to the provisions of the tax treaty. Lastly, an anti-abuse provision is included, which provides that the establishment of residence in Romania by a foreign legal entity should not be based on artificial arrangements for the purpose of reducing taxes that should have been paid in a foreign state and should not create opportunities for non-taxation or lower taxation in Romania.
We’re here to answer any questions you have about the Orbitax products and services.
We’re committed to providing high value, low cost tax research and management solutions.
Our Twitter account is where you can find latest information, news updates, offers and lots more.