Executive summary

The Romanian Government published legislation to implement the EU Public CbCR Directive in the Official Gazette on 7 September 2022. While EU Member States must transpose the EU Public CbCR Directive into national legislation by 22 June 2023 and the first financial year of reporting will be the year starting on or after 22 June 2024 at the latest, Romania has elected for an earlier adoption date as the rules will enter into force on 1 January 2023. Therefore, Romanian headquartered groups and non-EU groups with significant operations in Romania may become subject to the rules for financial years starting after this date.

In accordance with the EU Public CbCR Directive (see EY Global Tax Alert, EU Public CbCR Directive enters into force on 21 December 2021, dated 2 December 2021 for further information), the Romanian law requires both Romanian-based multinational enterprises (MNEs) and non-EU based MNEs doing business in Romania through a branch or subsidiary with total consolidated revenue of more than LEI 3,700 million (equivalent to approx. €747,474,740) in each of the last two consecutive financial years to disclose publicly the income taxes paid and other tax-related information such as a breakdown of profits, revenues and employees per country. However, Romania chose to allow in-scope groups to defer in certain conditions the disclosure of commercially sensitive information for up to five years. Furthermore, Romania opted to exempt companies from the requirement to publish the CbC reports on their website, provided that they are made available free of charge on the website of the relevant Chamber of Commerce.

Detailed discussion

Background

On 1 December 2021, the EU Public CbCR directive (the Directive) was published (pdf) in the Official Journal of the EU. Following its entry into force on 21 December 2021, the concrete timeline for the Directive is as follows:

• EU Member States will have to transpose the directive into national law by 22 June 2023.

• The first financial year of reporting on income tax information will be the year starting on or after 22 June 2024 at the latest, i.e., EU Member States may also choose to apply the rules earlier.

• The publication is required within 12 months from the date of the balance sheet of the financial year in question.

Romania has become the first EU Member State to formally choose to apply the rules earlier, which means that the first financial year of reporting on income tax information will be the year starting on or after 1 January 2023.¹ 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).

General rules under Romanian domestic law

In general, the Romanian Law has adhered to the general rules in the EU Public CbCR Directive.

However, Romania made use of the so-called “safeguard clause,” under which EU Member States can choose to allow in-scope groups to defer in certain conditions the disclosure of commercially sensitive information for up to five years. Sensitive information should be understood as information that, if made publicly available, would be seriously prejudicial to the commercial position of the MNE to which the report relates. Any omission shall be clearly indicated in the report, together with a duly reasoned explanation.

Romania also opted to exempt companies from the requirement to publish the CbC reports on their website, provided that they are made available free of charge on the website of the relevant Chamber of Commerce.

In addition, according to the current wording of the Romanian legislation, 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. It is nevertheless expected that this expanded scope will be revised through a subsequent update of the legislation.

Persons required to report

• Romanian-based (headquartered) MNEs with total (global) consolidated revenue exceeding LEI3,700 million (equivalent to approx. €747,474,740) for each of the last two financial years and that is active in more than one jurisdiction.
• Non Romanian-based MNEs with total (global) consolidated revenue exceeding LEI3,700 million for each of the last two financial years and controlling: (i) a "medium-sized" or "large" subsidiary "governed by the national laws" of Romania; or (ii) a qualifying branch in Romania.²
• Financial institutions established in Romania are already required to publish CbC reports under Directive 2013/36/EU. Where these are MNEs which fall within the scope of public CbCR, they will be exempted from reporting.

Information to be reported

• Information to be disclosed includes:
• Name of the ultimate parent undertaking or the standalone undertaking, the financial year concerned and the currency used
• Nature of the activities
• Number of employees
• Total net turnover made
• Profit made before tax
• Amount of income tax due in the country by reason of the profits made in the current year in that country
• Amount of tax actually paid during that year
• Accumulated earnings
• Such information is to be disclosed separately for:
• All 27 EU Member States
• All jurisdictions included as of 1 March of the financial year subject to reporting in the Annex I of the Council conclusions on the EU list of non-cooperative jurisdictions for tax purposes (so-called EU black list)
• All jurisdictions included as of 1 March of the financial year subject to reporting, as well as in the previous year, in the Annex II of the Council conclusions on the EU list of non-cooperative jurisdictions for tax purposes (so-called EU grey list)

• For all other jurisdictions, it is sufficient for aggregated data to be disclosed.

• The information shall be reported using a template and a common electronic reporting format.

• The information may be reported based on the reporting instructions provided in the local legislation transposing the provisions of section III part B and C from annex III to Directive 2011/16/EU.

Publication of the report

The report should be made accessible on: (i) the public registry of the relevant Member State; and (ii) on the company website free of charge for a minimum of five consecutive years or on the website of the local Chamber of Commerce (if made available free of charge).

Time frame for publication

The report is to be published within 12 months after the balance sheet date and made available for five years.

Deferral

Romania allows for one or more specific items of information to be omitted when its disclosure would be seriously prejudicial to the commercial position of the group. Any omission shall be clearly indicated in the report, together with a duly reasoned explanation.

Any information omitted shall be made public in a later report within no more than five years from the date of its original omission.

Information concerning tax jurisdictions listed on the EU list of non-cooperative jurisdictions may never be omitted.

Penalties

No specific non-compliance 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.

Audit requirement

The statutory auditor of an (EU based) undertaking that is required to produce audited financial statements shall state in the audit report whether the undertaking was required to publish a report on income tax information, and if so, whether this report was published.

The audit can only perform a factual check of publication of the report, and not on its content.

Implications

The timing of the implementation of the Directive by an individual Member State is particularly relevant for MNE groups headquartered in that State or for non-EU MNEs that have significant operations there. This means for an MNE, 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 for 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, prepare for the first public reporting and consider their broader public tax reporting strategy.

It is expected that the extension of the scope compared to the Directive related to medium-sized or large subsidiaries in Romania of EU MNE groups will be revised through a subsequent update of the legislation; however, timing is unknown. MNE groups that are impacted by this expansion should request confirmation from the Romanian authorities of their public CbC reporting obligations.

In addition to Romania, businesses should closely monitor the progress on the transposition of the Directive by other Member States as recently, Germany, Hungary and the Netherlands also published draft legislation.

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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

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Endnotes

The Netherlands government has submitted a draft bill to parliament with the proposed requirement to the existing financial reporting rules in the civil code. The draft bill proposes early application, i.e., for financial years starting on or after 1 January 2024.

The subsidiaries will be classified as “medium-sized” or “large” entities in accordance with the Romanian accounting rules if, at balance sheet date, at least 2 of the 3 criteria are exceeded (a) total assets: 17,500,000 lei; net turnover: 35,000,000 lei; c) average number of employees during the financial year: 50.

A branch shall be subject to the public CbCR rules only if the following criteria are met:

(a) the entity which has opened the branch is either an affiliated entity of a group whose ultimate parent company is not governed by the law of a EU Member State and whose consolidated net turnover has exceeded, at the date of its balance sheet, for each of the last two consecutive financial years, the amount of 3,700,000.000 lei, or an autonomous entity whose net turnover has exceeded at its balance sheet date, for each of the last two consecutive financial years, the amount of 3,700,000,000 lei; and

(b) the ultimate parent company referred to in point (a) does not have a medium-sized or large subsidiary.

The reporting obligation shall be applicable to such branches only in case the turnover reported by the branch in Romania exceeds 35,000,000 lei for each of the last two consecutive financial years.