LAW no. 431/2023 for ensuring a global minimum taxation level for multinational enterprises groups and large-scale domestic groups

On 5 January 2024 the Law no. 431/2023 for ensuring a global minimum taxation level for multinational enterprises groups and large-scale domestic groups has been published in the Official Gazette no. 8.

The Law transposes the provisions of the EU Council Directive 2022/2523 regarding the global minimum taxation level for multinational enterprises groups and large-scale domestic groups.

In line with the provisions of the Directive, Romania established two main common measures for ensuring the minimum effective taxation of 15% for multinational and national groups of enterprises having an annual income of minimum EUR 750 mil. recorded in at least two of the preeceding four financial exercises, specifically:

1. The income inclusion rule (IIR) – whereby a parent company of a group of multinational enterprises or large-scale domestic groups is obligated to calculate and pay its allocable share of the supplimentary tax for constituent entities of the group that are taxed at a reduced level;

2. The undertaxed profits rule (UTPR) – whereby a constituent entity of a multinational enterprises owes tax that is recorded as an additional expense equal to its share of the additional tax not levied under the IIR at parent level for constituent entities of the group that are taxed at a reduced rate.

Moreover, the Law regulates also the establishment of a national additional tax which is to be determined at the level of the subsidiaries which are lower taxed in Romania, of the multinational and national enterprises groups that fall under the law.

The Law includes the agreed transitional CbC Reporting Safe Harbour. In order to qualify for the CbC Reporting Safe Harbour, the constituent entities based in Romania must meet at least one of the following tests:

• The de minimis test: assumes for a financial year total revenues of less than 10,000,000 EUR and a profit/loss before tax of less than 1,000,000 EUR
• The simplified effective tax rate test: assumes an effective simplified tax rate equal to or higher than the transitional rates for a financial year
• The routine profits test: assumes that the profit/loss before taxation is equal to or lower than the value of excluded profits based on economic substance

The Law shall produce effects with respect to the financial years beggining on 31 December 2023, except for the provisions relating to the UTPR rule which shall apply in respect of the financial years starting 31 December 2024.

For the transition year, which represents the first financial year in which a group of multinational enterprises or a large national group falls under the scope of this law, the obligation to submit the informative statement regarding the additional tax and the notifications provided by Law 431/2023 should be performed in no more than 18 months from the last day of the reporting financial year.

Considering the latest developments on this topic at both domestic and international level, we recommend enterprise groups falling under the minimum taxation rules to proactively simulate the impact that the new rules may have on the business, both in Romania and in the other jurisdictions in which they operate.

The EY team is available for further details on the above.