The European Commission (EC) has asked Romania to amend its tax law on foreign companies operating in the country. The EC published the request yesterday (February 21 ) in its round up of infringements across the EU for the month. Pension payments to Greek citizens that worked in Romania prior to its EU accession also made it onto the EC's naughty list.

Foreign companies currently face discriminatory taxation in Romania, according to the EC. The problem is the separate taxation of each establishment any single foreign company has in Romania, despite their legal status as a single entity. This means that a company cannot pay a single unified rate of corporation tax for its Romanian business. “The impossibility for a foreign taxpayer to consolidate the results of all its establishments in Romania amounts to a cash-flow disadvantage or higher taxation for the foreign legal entity,” stated the EC. Romania has two months to make changes before facing the possibility of court action.

The second infringement concerns pension payments to Greek citizens who worked in Romania before EU accession in 2007. Under a bilateral treaty with Greece agreed in 1996, Romania made a fixed USD 15 million payment to the Greek authorities to cover pensions. The EC judges that EU law trumps this agreement and that Greek workers cannot be denied their rights, despite having worked in Romania before accession. Again, Romania has two months to show the EC a solution before facing the possibility of legal action.

The EC has is taking action against neighboring Hungary in European Court of Justice over the exemption of palinka from tax. Palinka is a ferociously strong spirit distilled from fruit juice, generally plums, and is also traditionally stilled and drunk in Romania. Hungary currently exempts palinka from excise duties when it is produced for personal use up to a maximum volume of 50 liters a year.

In total, infringements in 21 countries were included in the EC's February list. Out of the 151 decisions taken by the EC yesterday there were 13 referrals for court action and two financial penalties. The worst offenders were Belgium and Poland, with five infringements each.

Liam Lever, liam@romania-insider.com