Romania adopts anti-avoidance measures

The Romanian government has adopted anti-avoidance measures to bring the domestic legislation in line with EU Directive 2016/1164 on rules against tax avoidance practices. The new measures will be effective as of 1 January 2018.

Thin capitalization rules.

The current thin capitalization rules regarding interest deductibility will be replaced by a new regime that broadens the definition of debt-related costs to cover – inter alia – interest incurred on finance lease payments, interest that is capitalized to increase the accounting value of an asset, and payments made under profit participating loans.

According to the new regime, the tax deductibility of debt-related costs exceeding interest revenues by more than EUR 200,000 is capped at 10 % of EBITDA. If EBITDA is nil or negative, the excess of the debt-related costs will not be tax deductible for the corresponding tax period. However, such costs may be carried forward to subsequent tax periods without any time limitation.

Loans from independent entities (those that are not part of a consolidated group for financial accounting purposes and have no associated entities and no permanent establishment) do not fall under the scope of the above-mentioned limitations, so that such debt-related costs will still be fully tax deductible.

Exit Tax.

The new measures also introduce exit taxation. Capital gains resulting from the disposal of assets, the change of tax residency or the transfer of business carried out through a permanent establishment to another jurisdiction, will be subject to exit tax at a flat rate of 16 % when the taxation rights concerning those assets are no longer allocated to Romania. If such a transfer results in a loss, the loss may be credited against gains of a similar nature. If the transfer is made to an EU or EEA member state, the exit tax may be deferred for a period of 5 years under the conditions laid down by the Tax Procedure Code. The conditions that a company must be fulfill in order to apply the deferral are the following:

  • To be fully compliant with the submission of the tax returns;
  • To be able to perform payments during the deferral period;
  • Not to be in insolvency or liquidation procedure;
  • The insolvency liability was not settled yet. However, if the insolvency liability was settled but already paid, the condition is fulfilled;
  • To have the guarantee of payment prepared. The guarantee refers to cash, insurance or mortgage contracts in the favour of the state and has to cover the deferred amount, any interest, and a mark-up of up to 16%, depending on the deferral period (maximum 5 years).

CFC rules.

Starting with 1 January 2018, Romanian corporate income tax payers that control a foreign company will have to include in their taxable base certain income of this controlled foreign company (CFC). In this respect, a CFC is an entity or permanent establishment that cumulatively meets the conditions:

  • The corporate income tax payer directly or indirectly holds at least 50% of the foreign company capital or has the right to receive at least 50% of its profits;
  • The corporate income tax effectively paid by the foreign entity is less than the corporate income tax that would have been imposed in Romania as per the Romanian tax rules.

General anti-abuse rule.

Finally, under a new general anti-abuse rule, tax authorities are entitled to disregard artificial arrangements that have been put into place with the sole aim of obtaining a tax advantage.

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Barbara Behrendt-Krüglstein

Barbara Behrendt-Krüglstein

Manager | Deloitte Tax Telefon: +43 1 537 00 7112 Mail: bbehrendt-krueglstein@deloitte.at

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