Moreover, on June 9th, 2017, Romania adopted Law no. 124 through which it became an associate member of the OECD’s BEPS plan, thus becoming part of the group of countries aimed at discouraging aggressive tax practices and limitation to total elimination of the processes of erosion of the tax base and / or the artificial transfer of profits in jurisdictions with high levels of taxation, to jurisdictions where the level of taxes is more favorable or totally absent.
As a result of the aforementioned legislative updates, in the Official Gazette no. 438 of June 13th, 2017, Emergency Ordinance no. 42/2017 for amending and completing the Law no. 207/2015 regarding the Fiscal Procedure Code (GEO 42/2017). By this ordinance, the provisions of Directive 2016/881 amending the Directive 2011/16 / EU as regards the mandatory automatic exchange of information in the field of taxation by June 4th, 2017, are transposed into Romanian legislation.
In the note of foundation of the Ordinance is mentioned that the changes are made in the context of aggressive tax practised by the multinational enterprises group, which results in double deductions, both in the State of origin and in the State of residence, as well as the double non-taxation.
Thus, GEO 42/2017 amends the provisions of the Fiscal Procedure Code in order to discourage aggressive planning practices by multinationals, introducing the Country-by-Country Report for every country.
GEO 42/2017 adds provisions regarding the area of expertise and conditions of mandatory automatic data sharing on the Country by Country Report, thereby altering the definition of automatic information exchange to include this report, the conditions and the forms through which are transmitted such information as well as contraventions and sanctions regarding non-fulfillment of reporting obligations. In addition, a new annexis introduced, Annex no. 3, regulating reporting rules for multinational enterprises groups.
The area of expertise and the conditions of the mandatory automatic data sharing regarding the report for every country (Art. 291^3).
The Country by Country report is presented, for every reporting fiscal year, by the ultimate parent-company of a multinational enterprises group that has its tax domicile in Romania or another reporting entity, within 12 months of the last day of tax reporting year of the multinational enterprises group.
An entity in Romania, a part of a multinational enterprises group, can qualify as a reporting entity in one of the following cases:
- It has the quality of the ultimate parent company;
- Has the status of a surrogate parent company (the constituent entity of the multinational enterprises group, that has been designated by that group of multinationals as the sole substitute for the ultimate parent company);
- the ultimate parent company of the multinational enterprises group is not obliged to present a Country-by-Country report for every country in the jurisdictions in which it has its tax residence;
- the jurisdiction in which the parent company has its final residence is part of an existing international agreement to which Romania is a party, but is not a party to an agreement regarding the establishment of the competent authority in force to which Romania is a party, until the fulfillment of 12 months after the end of the reporting fiscal year of the multinational enterprises group, for the submission of the Country-by-Country report for the reporting fiscal year;
- in the jurisdiction where the parent company has its tax residence, produced a systemic failure that was notified by the competent authority from Romania, to the entity that has its tax residence in Romania.
In case that none of the criteria above mentioned is not fulfilled, the Romanian entity has the obligation to notify the competent authority from Romania regarding the identity and tax residence of the reporting entity until last day of presenting fiscal statement of that entity from Romania, regarding the previous fiscal year.
The Country by Country report must contain the following information on the multinational enterprises group:
- integral information regarding the amount of income, revenue / losses before income taxation, contribution on the paid income, contribution on amassed capital, declared capital, non-distributed profit, number of employees and tangible assets, other than cash or cash equivalents for each jurisdiction where the multinational enterprises group is operating;
- the identification of each constituent entity of the multinational enterprises group, specifying the jurisdiction where the constituent entity has its tax residence and, if different from that tax jurisdiction of fiscal residence, the jurisdiction according the law under which the constituent entity is organized and the nature of the main economic activities of that constituent entity.
Transmission takes place within 15 months of the last day of the fiscal year of the multinational enterprises group that the country-by-country report refers. The first country-by-country report shall be transmitted for the fiscal year of the multinational enterprises group starting on or after 1 January 2016 within 18 months of the last day of that fiscal year.
The fine for late submission of the Country-by-Country Report or the transmission of incomplete / incorrect information is sanctioned by a fine of RON 30,000 to RON 50,000.
Non-submission of the Country by Country Report is sanctioned by a fine from RON 70,000 to RON 100,000.
The information communicated by the member states to one another as a result of the Country by Country Report is used to assess the high-risks associated with transfer pricing and the risks of tax base erosion and the transfer of profits, including the assessment of non-compliance risk by the members of multinational enterprises group to the applicable transfer pricing rules and, where appropriate, for economic and statistical analyzes.
The adjustment of the transfer prices by the tax authorities of the recipient member state is not based on the information covered by the Country by Country Report.
The competent authority from Romania may use the information received from the other competent authorities of the member states as the basis for carrying out additional research into the transfer pricing arrangements of the multinational enterprises group or other fiscal aspects during a tax audit and yet, appropriate adjustments to the chargeable income of the constituent entity may be done.
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