The new tax on shifted profit proposed by the government is significantly impacting the attractiveness of Romania as a destination for foreign investments, and it is far more restrictive than the similar regulation in Poland, mentioned by the authorities as a source of inspiration, according to a report drafted by PwC.
The consultancy firm salutes the authorities’ plans to terminate the minimum tax on turnover, but notes that “a new obstacle is emerging in the path of Romania’s fiscal competitiveness, already affected by the recent increase in taxation.”
The Romanian regulations allow the deductibility of 3% of only the expenditures in the targeted categories (versus 3% of total expenditures in Poland), include the contracts with local subsidiaries (excluded by the Polish regulations), and allow for no exceptions, while the foreign affiliated contractors of Polish companies that meet some criteria are excepted.
Also, the deductibility rule in Poland includes a “safe harbor” mechanism which assumes that it does not apply if the respective expenses are recorded for the benefit of an affiliated entity subject to tax on global income in the EU/EEA, assuming that that entity carries out real and material economic activity, an aspect quantified by the share of income obtained from its actual economic activity compared to the total income.
Therefore, it is observed that the Polish model, which served as inspiration for the Romanian rules, does not contain equally restrictive provisions but is intended to cover situations in which these service providers are created in jurisdictions with a lower tax rate than in Poland, the purpose being to transfer profits. However, the rules proposed for implementation in Romania do not capture these aspects, but rather propose a general denial of deductibility, without taking into account the economic substance or international norms in the field, PwC concludes.
iulian@romania-insider.com
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