Consultancy firm argues tax on multinationals’ shifted profits breaches OECD principles

The new tax on multinationals’ shifted profits, which waives deductibility for expenditures affiliated with four categories of services, above a 3% threshold, breaches the fiscal governance principles of the OECD that Romania seeks to join next year, tax consultancy firm BDO Romania warned in a note cited by Economica.net.

The firm’s representatives also claim the new tax breaches other provisions of the Fiscal Code.

The new tax is part of a new series of tax reforms to be introduced in the second package of reforms, likely to be legislated next week.

The terms used by BDO Romania officials are rather radical and hardly technical in nature.

"We note that the Government is about to make a fundamental mistake. It is replacing the minimum tax on income [IMCA], the scourge that hit the business environment, with a much worse rule that even contradicts the Fiscal Code. I still hope that it will not take another two years until the Ministry of Finance realises that it is making a mistake. Let's look, first of all, at the problem that comes from the definition of affiliated entities. The new rule defines affiliated entities according to accounting rules, a different definition than the one that targets tax-affiliated parties," said Dan Bărăscu, Partner, Head of Tax BDO Romania.

Bărăscu noted that, for example, in some situations, companies owned by relatives up to the third degree are not accounting affiliates, but are considered tax affiliates.

Furthermore, because the accounting definition refers to “affiliated entities,” individuals are excluded because they are not “entities,” he explained.

Therefore, the restrictions [on expenditures] do not apply to relationships between an individual and the companies with which they are tax affiliates, simply because the definition does not cover this situation.

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