THE OBLIGATION OF MULTINATIONAL COMPANIES TO REPORT IN THEIR STATE OF TAX RESIDENCE

Multinational groups are required by European law to report in their State of tax residence. This obligation, introduced at European level by Directive no. 2016/881, amending Directive no. 2011/16/EU has just been transposed into Romanian national law by Government Emergency Ordinance no. 42/9 June 2017, published in Official Journal no. 438/13.06.2017. This Ordinance amends Law no. 207/2015 on the Code of Tax Procedure.

Every year, multinational groups must provide well-defined tax information to each tax jurisdiction in which they operate. They must also identify each of the group's entities operating in a given tax jurisdiction and, for each of them, indicate the nature of those activities.

The reporting obligation applies to multinational groups with an annual consolidated total income of more than 750 million Euros or the lei equivalent.

A multinational group is a group which includes two or more companies whose tax residence is located in different jurisdictions or which includes a company having its tax residence in another tax jurisdiction, but which is subject to payment of tax in another jurisdiction for the activity carried out through a permanent seat.

LEGAL CONTEXT
Directive (EU) 2016/881, amending Directive 2011/16/EU on administrative cooperation in the field of taxation requires multinational groups to provide the tax authorities of the Member States with information on their structure, transfer pricing policy and internal transactions within and outside the Union. The purpose of this information is to enable tax authorities to respond to harmful tax practices and to determine whether companies engage in practices that artificially transfer large amounts of income in tax-advantaged environments.

Improving transparency for multinational groups has therefore been an essential element taken into account at European level, in order to combat the erosion of the tax base and the transfer of profits.
Multinational groups in the European Union and multinational groups outside the EU, having one or more entities in the European Union, are subject to the reporting requirement.

SCOPE OF APPLICATION AND CONDITIONS FOR THE AUTOMATIC EXCHANGE OF INFORMATION

According to Ordinance no. 42/9 June 2017, an ultimate parent company of a multinational group having its tax residence in Romania or another entity required to make the reporting must file a country-by-country report for each year within twelve months from the last day of the reporting year of the multinational group in question.
It should be noted, therefore, that the country-by-country report must be filed not only by the ultimate parent company of the multinational group of companies, but by any constituent entity resident in Romania, as defined by the Ordinance, if:

The ultimate parent company of the multinational group is not itself obliged to submit a country-by-country report in the jurisdiction where it is resident for tax purposes,

There is a dysfunction in the automatic exchange of information, which has been notified by the competent authority of Romania to the constituent entity which has its tax residence in Romania etc.
It should be noted that a constituent entity resident in Romania must ask the ultimate parent entity to provide it with all the necessary information in order to fulfill its obligations to submit a country-by-country report. If it does not receive all this information, it must still present a report, in which it must specify all the information at its disposal and, at the same time, it must notify the Romanian authorities of the parent company’s refusal to report.

Multinational groups that have more than one constituent entity with a tax residence in the EU, the group may, under certain conditions, designate one of these entities to present the country-by-country report.

The country-by-country report must contain, inter alia, information from the group of multinational enterprises concerning the amount of turnover, pre-tax earnings/losses, income tax paid, declared capital, non- distributed profit, the number of employees etc.
The report must be submitted within 15 months from the last day of the fiscal year of the multinational group referred to in the country-by-country report. The first report shall be submitted for the fiscal year of the multinational group which starts on or after 1 January 2016, within 18 months of the last day of the fiscal year in question.

Finally, a constituent entity of a multinational group of companies with its residence in Romania is required to notify the competent authorities of its role in relation to the reporting requirements: if it is an ultimate parent company or a substitute parent company or a constituent entity designated for the purpose of making the declaration.
Such notification must be made no later than the last reporting day of the group in question, but before the last day for filing the tax statement of the constituent entity in question for the previous tax year.

SANCTIONS

The penalties applied to infringements of the national provisions adopted pursuant to the European Directive are:

A fine between 30,000 lei and 50,000 lei for late transmission of the country-by-country report

A fine between 70,000 lei and 100,000 lei for failing to submit the country-by-country report.