Corporate Tax 2010 - BMR Advisors

Pachiu & Associates
Romania
Romania
3.2 Would there be any withholding tax on royalties paid by a
local company to a non-resident
Royalties paid by Romania legal entities to legal entities registered
in an EU or European Free Trade Association (EFTA) Member
State to legal entities registered in an EU or EFTA Member State or
to the EU or EFTA permanent establishments of such legal entities
are:
a) subject to a 10% withholding tax, provided that the receiver
of the royalties has held at least 25% of the Romanian
dividend payer’s share capital for at least 2 years ending at
interest/royalties payment date; or
b) exempt from withholding tax in Romania as of January 1st,
2011, provided that the receiver of the royalties has held at
least 25% of the Romanian dividend payer’s share capital for
at least 2 years ending at dividend distribution date.
Royalties paid by a Romanian legal entity to foreign legal entities,
other than legal entities registered in a EU or EFTA Member State
or the EU or EFTA permanent establishments of such legal entities,
are subject to a 16% withholding tax, unless a more favourable tax
rate is provided under a relevant income tax treaty.
3.6 Would any such “thin capitalisation” rules extend to debt
advanced by a third party but guaranteed by a parent
company
Save for the debt deriving from loans or credit facilities received by
the company from banks, credit institutions and any other legal
entities that, based on authorisation, act as professional financing
institutions, the “thin capitalisation” rules extend to the entire longterm
debt of the company, irrespective of whether such debt is being
guaranteed by the company’s parent entity or not.
3.7 Are there any restrictions on tax relief for interest
payments by a local company to a non-resident in addition
to any thin capitalisation rules mentioned in questions
3.4-3.6 above
Under the Romanian Fiscal Code, there are no further restrictions
on tax relief for interest payments paid by a local company to a nonresident,
in addition to the thin capitalisation rules described above
at question 3.4.
3.3 Would there be any withholding tax on interest paid by a
local company to a non-resident
The tax treatment applicable to interest paid by a Romanian company
to a foreign legal entity is identical to the tax treatment applicable to
royalties paid by a Romanian company to a foreign legal entity. In this
regard please see the answer to question 3.3 above.
3.4 Would relief for interest so paid be restricted by reference
to “thin capitalisation” rules
According to the “thin capitalisation” rules applicable in Romania,
interest paid by a Romanian company is fully deductable, unless the
ratio between the long term debt of the company (> 1 year) and the
total equity of the company is higher than 3. In case the ratio
between the long term debt of the company (> 1 year) and the total
equity of the company is higher than 3, the interest paid by the
Romanian legal entity shall not be deductable during the relevant
fiscal year but may be carried forward to the following fiscal years,
until fully deducted. Such “thin capitalisation” rules shall not be
applicable as regards interest paid for funds obtained from banks,
credit institutions as well as any other legal entities that, based on
authorisation, act as professional financing institutions.
3.5 If so, is there a “safe harbour” by reference to which tax
relief is assured
3.8 Does Romania have transfer pricing rules
The Romanian Fiscal Code enables the Romanian fiscal authorities
to apply the “arm’s length principle” to the transactions between
related parties. If transfer prices are not set at arm’s length, the
Romanian tax authorities have the right to adjust the taxpayer’s
revenues or expenses, so as to reflect the market value.
Romanian tax authorities may use certain methods for setting
transfer prices as follows:
Comparable Uncontrolled Prices, whereby the market price
is established based upon the prices paid to other persons
who sell comparable goods or services towards unrelated
persons.
Cost-Plus Method, whereby the market price is established
based upon the costs of the good or service provided through
the transaction. An appropriate gross margin (“cost-plus
mark-up”) is then added to such cost, to make an appropriate
profit in light of the functions performed and the market
conditions. The result of adding the cost-plus mark-up to the
costs may be regarded as an “arm’s length price” of the
original controlled transaction and shall be subject to
taxation.
Resale Price Method, whereby the market price is based
upon the resale price of the good/service sold afterwards to
unrelated persons, after the costs deduction of such resale,
other costs of the taxpayer and a profit margin.
Any other methods that are in line with the OECD Transfer
Pricing Guidelines
202
As set out under question 3.4 above, the current paid interest is a
fully deductable expense as long as the debt/equity ratio in the
interest paying company is lower than 3. Furthermore, the
deductibility of interest paid by Romanian companies for funds
obtained from legal entities, other than banks, credit institutions as
well as any other legal entities which are authorised and act as
professional financing institutions, is limited to the following
ceilings: (i) for funds obtained in Romanian lei (RON), the
reference interest rate of the National Bank of Romania, as
published in the last month of each quarter; and (ii) for foreign
currency, a maximum percentage whose value is yearly established
by Government’s Resolution (e.g. 8% in 2009).
4 Tax on Business Operations: General
4.1 What is the headline rate of tax on corporate profits
The standard profit tax rate in Romania is 16%. Investors in
underprivileged areas, which have been incorporated prior to July
1st 2003, shall be exempted from profit tax on profits derived from
new investments in such underprivileged areas for as long as the
areas remain underprivileged. In case of night clubs, night bars,
discotheques, casinos and businesses performing gambling
activities, including those legal entities obtaining such through
partnerships, the companies deriving income from such activities
have to pay the higher amount between the value represented by the
16% profit tax and the value represented by 5% income tax. As of
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