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Public CbCR law in Romania provides limited lead time for planning

Despite the short notice, businesses like Valentino and EveryMatrix claim that early adoption of EU public CbCR rules could increase transparency of domestic and foreign MNEs.

According to tax directors, the EU Public Country-By-Country Reporting Directive, which is scheduled to take effect in Romania on January 1 2023, could increase tax transparency there.

The directive will go into effect in Romania six months ahead of schedule on June 22, 2023, making it the first EU member state to do so. It demonstrates both its dedication to public CbCR and how the nation is starting to pay more attention to tax transparency.

According to Claudia Matei, group head of tax at software business EveryMatrix in Romania, "This move is necessary from the perspective of shedding some light for the tax authorities around the world on the operational structure of large multinational enterprises. This is a required level of transparency to tackle the issue of MNEs’ avoidance of tax." 

The decision, which was approved on September 7 by the minister of public finance, would be applied to both domestic and international MNEs with total consolidated revenues surpassing 3.7 billion lei ($777 million) for each of the two fiscal years before.

Name of the ultimate parent company, financial year, currency, type of business, total net turnover, gross profit, number of employees, and amount of taxes paid are among the details that must be provided. Additionally, information like the company's location is needed.

The disclosure requirements, according to Alina Andrei, TP partner at Bucharest-based consulting firm Cabot Transfer Pricing, are intended to identify MNEs that will be subject to the worldwide minimum effective corporation tax rate.

"This is in line with the OECD’s transparency and disclosure objectives for MNEs and actually it is the first step in the implementation of the global minimum effective corporate tax rate of 15% for large MNEs and the reallocation of taxing rights to market jurisdictions," she continues.

Florin Moroz, senior tax manager at the Bucharest office of the law firm DLA Piper, concurs that the action is required from a BEPS perspective because it supports the EU's anti-tax avoidance strategy.

According to Moroz, the early adoption of the EU directive might also encourage businesses to have a better understanding of their positions and give tax authorities some advice when conducting risk analyses for audits.

The public CbCR mandate may present a chance for corporations to enhance their data consolidation.

According to Milan-based luxury company Valentino's head of group tax, Aaron Meneghin, NGOs frequently accuse major corporations of moving earnings overseas.

According to Meneghin, the EU directive might make it easier for businesses to justify why they have unified their data across all of the nations and regions in which they do business.

Tax authorities' and businesses' priorities have been moving more and more toward tax transparency.

"As a group and company, we are working on different projects that are going in the direction of tax transparency. There is a project to sign more bilateral advance pricing agreements with other jurisdictions like the US ," according to Meneghin.

"Next year, we have a project of opening other bilateral APAs. These are all instruments and activities that go to tax transparency ," he continues.

The EU's uniform and understandable reporting rules are also advantageous to businesses. Data are frequently mixed up when tax transparency procedures are not consistent.

Multinationals will need to be aware of all the criteria when the rule takes effect in January.

Meneghin emphasizes how crucial it is to thoroughly research the rules, comprehend the requested data, know where your data is located in your organization, and give all of your workers worldwide clear instructions.

"The second point relates to structure. The ERP has to supply the data in a faster and correct way. We spend time to ensure all the data required would have been available," he continues.

Meneghin claims that although tax authorities rarely ask for CbCR data from luxury company Valentino, this could change once the information is made available.

"There is a possibility that third parties check. You will be keen to understand and analyse the data, as well as anticipate the question from third parties ," he predicts.

According to Roxana Popel, head of the tax division at Bucharest-based law firm CMS Cameron McKenna, the rule will not only help to unify data but also mandate that businesses prepare documents carefully.

On the other hand, she adds, "it’s a directive which imposes tax to be performed on the companies and not on the tax authority’s side."

The burden of compliance for firms may rise with the implementation of the public CbCR regulations.

According to Andrei at Cabot TP, information revealed should be incorporated in the notes to financial statements, which could result in more compliance at a higher expense.

The data also contains details on business operations, profit and loss, and income taxes paid. This will significantly lessen the MNEs' compliance burden.

Overall, MNEs must be mindful of the potential cost rise and make sure they comprehend all the information needed, particularly given the impending deadline.

"We may draw the conclusion that the government’s early adoption of the directive in line with the EU legislative requirements regarding transparency is also due to the high-volume tax amendments expected to happen in Romania in the following years," according to Andrei.

"This was also the case with the first Anti-Tax Avoidance Directive, Romania being one of the first countries to implement it back in 2018," she author continues.

The order arrives too soon for some people.

The time frame is too short, according to a senior manager of global tax policy at a telecoms company in London, for taxpayers to embrace the public CbCR standards.

The tax manager claims that "The particular issue here is that they have fast-tracked it."

Regardless, Romanian businesses do not have much time to get ready for the new CbCR regulations. They had better get ready quickly.



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