Noerr: Country-by-Country public reporting implemented by Romania starting 1 January 2023

By Order no. 2.048/2022 amending accounting regulations applicable to economic operators (“the Order”), published in Official Gazette no. 878/07.09.2022, the Romanian authorities have transposed into national law the provisions of EU Directive 2021/2101 of the European Parliament and of the Council of 24 November 2021 (“the EU Directive”) amending Directive 2013/34/EU as regards the disclosure of income tax information by certain undertakings and branches.

The provisions of the Order entered into force on 1 January 2023. Although the Directive requires EU Member States to transpose it into national legislation by 22 June 2023, with the first financial year of reporting being the year starting on or after 22 June 2024 at the latest, Romania elected for an earlier adoption date. Therefore, the new rules entered into force on 1 January 2023, and the first report will need to be filed in 2024 for the financial statements corresponding to the 2023 financial year.

Controversies regarding early implementation

The early implementation of the EU Directive in Romania has raised some concerns in the business environment in Romania due to:

• A possible negative impact on the capital market – investors believe that reputational risks arising from public scrutiny and competitive disadvantages outweigh the potential benefits of an extended information environment or more sustainable corporate tax strategies[1];
• Lack of time to implement the new reporting requirements – the electronic reporting templates and the accompanying instructions are set to be published by the European Commission in the third trimester of 2024, whilst the first report for some Romanian companies would be 31 December 2024, which would leave Romanian companies very little time to ensure proper implementation;
• A possible commercial and competitive disadvantage – immediate disclosure of the data to be included in the report could, in certain cases, be seriously prejudicial to the commercial position of Romanian reporting companies[2], as commercially sensitive information will be made available to competitors and business partners in other jurisdictions where such disclosure is not yet enforced.  The public disclosure could also negatively affect companies’ future profitability due to reputational damage resulting from public discussions about low effective tax rates. Alternatively, firms may adjust legal tax arrangements to avoid public scrutiny1.

Romanian companies subject to reporting obligations

1. Romanian ultimate parent companies and standalone companies with a consolidated turnover in their balance sheet exceeding a total of RON 3.7 billion (the equivalent of €747,474,740 at the exchange rate published in the Official Journal of the European Union on 21 December 2021) for each of the previous two consecutive financial years, as reflected in their consolidated financial statements;
2. Romanian medium-sized and large subsidiaries controlled by an ultimate non-EU parent company, with consolidated turnover in their balance sheet exceeding a total of RON 3.7 billion for each of the previous two consecutive financial years, as reflected in their consolidated financial statements;
3. Romanian branches opened by non-EU companies with net turnover exceeding the threshold of RON 37 billion for each of the previous two consecutive financial years.

If the total consolidated revenue in their balance sheet falls below RON 3.7 billion for each of the previous two consecutive financial years as reflected in their consolidated financial statements, the aforementioned companies are no longer required to submit the CbC report.

Content of the CbC public report

The CbC public report includes information on all the companies’ activities, including those of all affiliated entities consolidated in the financial statements for the relevant financial year.

The report consists of:

• the name of the ultimate parent/standalone company, the financial year concerned, the currency used for the report and, where applicable, a list of all subsidiaries consolidated in the financial statements of the ultimate parent company for the relevant financial year established in the EU or in tax jurisdictions included in Annexes I and II to the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes (so called “black list” and “grey list”)[3];
• a brief description of the nature of their activities;
• the number of employees on a full-time-equivalent basis;
• revenue, which is to be calculated as the sum of net turnover, other operating income, income from participating interests, excluding dividends received from affiliated companies, income from other investments and loans forming part of the fixed assets, other interest receivable and similar income;
• the amount of gross profit or loss;
• the amount of income tax accrued during the relevant financial year, which is to be calculated as the current tax expense recognised on taxable profits or losses of the financial year by companies and branches in the relevant tax jurisdiction;
• the amount of income tax paid on a cash basis, which is to be calculated as the amount of income tax paid during the relevant financial year by companies in the relevant tax jurisdiction; and
• the amount of accumulated earnings at the end of the relevant financial year.

Romania allows for one or more specific items of information to be temporarily omitted from the report if their disclosure would be seriously prejudicial to the commercial position of the companies to which the report relates. Any omission is to be clearly indicated in the report, together with a duly reasoned explanation. However, all omitted information is made public in a later report, within no more than five years of its original omission.

Publication methods

The CbC reporting is to be made accessible to the public free of charge on the website of the reporting companies in at least one of the official languages of the EU no later than 12 months after the close of the financial year for which the report is drawn up.

If the report is simultaneously made accessible to the public on the website of the Romanian Trade Registry, the website of the reporting companies must contain a reference to the website of the Romanian Trade Registry where the report can be accessed.

The report must remain accessible on the website for a minimum of five consecutive years.

Conclusions

The early adoption of CbC public reporting has created a stir in the Romanian business environment for the reasons detailed above, but also due to the fact that many companies are still struggling to implement SAF-T reporting[4] and to comply with e-invoicing requirements in their ERP/accounting systems. Lately it seems that all that Romanian companies do is prepare one new report after another. And if that were not enough, there is ever-increasing frustration that the Romanian authorities still do not have the IT infrastructure and capacity to correlate all the data they receive by electronic means, and thus it cannot be properly reviewed and processed. This means that the effort that goes into complying with all the new requirements will not reduce tax evasion and profit shifting, but rather put pressure on compliant companies.

[1] Discussion Paper no. 79/March 2022 – How do investors value the publication of tax information? Evidence from the European Public Country-by-Country Reporting (How Do Investors Value the Publication of Tax Information? Evidence From the European Public Country-By-Country Reporting by Raphael Müller, Christoph Spengel, Stefan Weck :: SSRN)

[2] Point 18 of the EU Directive

[3] Common EU list of third country jurisdictions for tax purposes (europa.eu)

[4] Standard Audit File for Tax (SAF-T) – standardized XML file used for exporting the accounting information of a company to the tax authorities (more information can be found on www.oecd.org)