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Executive summary

The Romanian Government published further guidance to implement the EU Public CbCR Directive in the Official Gazette on 21 June 2023; this Alert provides a short summary of the new guidance.

In September 2022, Romania became one of the first EU Member States to implement the EU Public Country-by-Country Reporting Directive (referred to as EU Public CbCR Directive) with early application as of 1 January 2023. (For more information, see EY Global Tax Alert, Romania implements EU Country-by-Country Reporting Directive with early application as of 1 January 2023, dated 3 November 2022 and EU Public CbCR Directive enters into force on 21 December 2021, dated 2 December 2021.)

Although the Romanian Law has adhered to the general rules in the EU Public CbCR Directive, there are some particularities to take into account regarding the early implementation, such as: the so-called "safeguard clause"; details on publishing of country-by-country (CbC) reports; and obligations for medium-sized or large subsidiaries of multinational entity (MNE) groups doing business in Romania irrespective of whether these are non-EU or EU-headquartered.

Detailed discussion

Background

The EU Public CbCR directive (the Directive) was published in the Official Journal of the EU on 1 December 2021. The Romanian Government published legislation to implement the Directive in the Official Gazette on 7 September 2022.

Although the Romanian Law has adhered to the general rules in the EU Public CbCR Directive, particularities that should be considered include the following:

• Early implementation. The first financial year of reporting on income tax information will be the year starting on or after 1 January 2023 and the first publication will take place within 12 months from the date of the balance sheet of the first financial year (first publication will take place no later than 31 December 2024, for a financial year ended 31 December 2023).
• "Safeguard clause." Romania made use of the so-called "safeguard clause," under which EU Member States can choose to allow in-scope groups to defer the disclosure of commercially sensitive information under certain conditions for up to five years.
• Publishing of CbC reports. Romania also opted to exempt companies from the requirement to publish the CbC reports on their websites, provided the reports are made available free of charge on the website of the relevant Chamber of Commerce.
• Medium-sized or large subsidiaries of MNE groups doing business in Romania. MNE groups that have a medium-sized or large subsidiary in Romania are subject to public CbCR in Romania, irrespective whether these are non-EU- or EU-headquartered groups. This represents an expansion of the scope with respect to the Directive and further clarification from the Romanian Government was expected.

Further clarification on general rules under Romanian domestic law

Although most general rules remain the same, the new guidance to implement the EU Public CbCR Directive published in the Official Gazette on 21 June 2023 provides clarification with respect to: medium-sized or large subsidiaries of MNE groups doing business in Romania; information to be reported; how to proceed in case of application of the so-called "safeguard clause"; and time considerations.

Medium-sized or large subsidiaries of MNE groups doing business in Romania

The new guidance clarifies that MNE groups whose ultimate parent is not subject to the law of any EU Member State¹ that have a medium-sized or large subsidiary in Romania are subject to public CbCR in Romania. Note that this would only apply to MNE groups when the consolidated income exceeded RON ² 3,700 million (equivalent to approx. €747,474,740) for the last two consecutive financial years. In that case, the obligation to publish the CbC report may be fulfilled by any affiliated entity within the MNE group falling within the scope of the current regulations.

Because the Public CbC regulations were implemented as an amendment to the Accounting Reporting Directive, the regulations were transposed in Romania as amendments to the specific legal norms providing the accounting regulations applicable for different types of entities. Thus, based on the wording in the recently published legislation, if an MNE group has different qualifying affiliated entities in Romania applying different Romanian accounting regulations, at least one affiliated entity within the group falling in the scope of each specific accounting regulations must publish the CbC report.

Information to be reported in the CbC report

The new guidance provides the following clarifications:

1. If the "net turnover" indicator is not defined in the applicable financial reporting framework, the revenue disclosed should follow the International Financial Reporting Standards/financial reporting framework, depending on what the company follows to prepare their annual financial statements (with the exception of value adjustment and dividends received from affiliates).
2. The amount of accumulated earnings of an entity that opened the branch should be attributed to the tax jurisdiction in which that entity is established.
3. If multiple affiliates are in the same tax jurisdiction, their information must be aggregated.
4. Consider the place from which an activity is led to determine a particular activity for which information needs to be disclosed in the public CbC report.

"Safeguard clause"

Romania made use of the so-called "safeguard clause," under which EU Member States can choose to allow in-scope groups to defer the disclosure of commercially sensitive information for up to five years, under certain conditions. The new guidance indicates that if an entity chooses to defer the disclosure of commercially sensitive information, the report that resumes the disclosure should contain information corresponding to the current and previous financial years for which the information was not published.

Time considerations for publishing

The new guidance also clarifies some time considerations regarding the first financial year of reporting and the deadline for publishing. In general, when a reporting entity has a financial year other than the calendar year, the financial year of the CbC report shall correspond to the financial year of the consolidated annual financial statements. The new guidance provides some examples of how this rule should operate:

The new guidance also clarifies that if a reporting subsidiary has a different financial year than the ultimate parent company, the CbC report should correspond to the financial year of the ultimate parent company.

For a detailed discussion on general rules under Romanian domestic law that were not impacted by the new guidance, please see EY Global Tax Alert, Romania implements EU Country-by-Country Reporting Directive with early application as of 1 January 2023, dated 3 November 2022.

Penalties

No specific noncompliance penalties have been introduced to date in the Romanian legislation. It is expected that such penalties will be introduced through an update to the Romanian accountancy law, following specific legislative process.

European Economic Area

The new guidance provides that "EU entities" shall refer to entities registered in the European Economic Area and entities established in a country of the European Economic Area shall be regarded as having their seat in a Member State and not in a third country. The public CbC reports shall present information at the level of European Economic Area states.

Implications

An EU Member State's timing in implementing the Directive is particularly relevant for MNE groups headquartered in that State or for non-EU MNEs that have significant operations there. For an MNE, this means the first publication date depends on the location of their ultimate parent entity and relevant group entities.

The earlier entry-into-force of the rules in Romania (as of 1 January 2023) effectively accelerates the public CbCR obligations by at least one year and in many cases by two years. This results in various questions and potential difficulties for Romanian-based MNEs and non-EU-/EU-based MNEs doing business in Romania. Businesses should assess the impact of the Romanian Law on their business considering this update, prepare for the first public reporting and consider their broader public tax reporting strategy.

Businesses should also continue closely monitoring the progress on the transposition of the Public CbCR Directive by other Member States. Hungary, Slovakia, and Spain have already incorporated Public CbCR provisions into their domestic legislation. Additionally, draft legislation has been published by Czechia, Germany, Lithuania, Luxembourg, the Netherlands, Sweden, and other Member States.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young Accounting Services SRL, Bucharest

• Diana Lupu | diana.lupu@ro.ey.com

Ernst & Young SRL, Bucharest

• Adrian Rus | adrian.rus@ro.ey.com

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

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ENDNOTES

¹ See comment below on European Economic Area

² Romanian New Leu (RON) currency