Romania: Tax Consolidation Within the Group Beginning With 2022

Beginning with 2022, Romanian companies may be part of corporate tax groups for 5 tax years and reduce their income tax by deducting the fiscal loss of certain members. Such groups consist of at least 2 members linked either by a common direct or indirect participation of 75% or by similar voting rights. For details on the different combinations, check here:

https://stalfort.ro/wp-content/uploads/2021/05/20210524_CV_Group_consolidation-as_of_2022_corporate_tax_groups.pdf

How/when to apply?

The application for such tax group is made beforehand, at least 60 days before the envisaged consolidation period. The member must be corporate tax payers (no special tax payers like HORECA, microenterprises) applying similar tax conditions, i.e. same fiscal year, same regularity of paying taxes. They are not allowed to be part of another tax group for income tax purposes and should have existed continuously for at least one year with no plans of dissolution/liquidation.

How does the group work?

The tax group appoints a responsible person who determines the consolidated tax result and pays the corporate income tax. All computations (including deductions) are made both on the level of each individual member and on the level of the group.

Any changes to the group are communicated by the responsible person to the fiscal authorities. New entries into the group occur only at the beginning of a fiscal year. If a member of the group does not fulfill the legal requirements anymore, it will leave the group starting with the next quarter. This can have an impact on the consolidated tax, as its income tax must be re-computed additionally to delay charge and interest. Correction tax returns must be submitted for the entire group.

The group can opt for another period of 5 consolidated years if its members still fulfill the requirements.

Conclusion

The possibility to deduct from the corporate income tax fiscal losses of sister-companies may sound attractive to different groups. However, given the pandemic and economic uncertainty, the risks connected to a premature exit of a member is high when it comes to plan for 5 years ahead.

The long-awaited law still needs some clarification in Romania, but will represent an interesting tool to adjust the corporate income tax.