Romania implemented the EU Country-by-Country Reporting Directive

4 April 2023

In 2021, the growing interest and support for increased tax transparency, coupled with a heightened public interest regarding this matter, have urged the European Union (EU) to accelerate the implementation of the Public Country-by-Country Reporting (Public CbCR), through the (EU) Directive 2021/2101.

With a view of ensuring tax fairness, the Public CbCR is intended to serve as an instrument for enabling the public to assess the extent to which multinational groups are committed to ensuring that profits are paid where genuine economic value is generated.

To curb tax avoidance and enhance tax transparency, the Public CbCR requires both EU and non-EU-headquartered multinational groups with a consolidated annual turnover of over €750m in the last two consecutive financial years to publicly report their income tax information.

Although the new Public CbCR shares a similar technical outlook with the current non-public CbCR, as per (EU) Directive 2016/881, the various stakeholders’ demand for public transparency and openness may give rise to challenges of a different nature for multinational groups.

The growing public concern regarding tax fairness and tax avoidance means this type of public tax reporting, proposed under the Public CbCR tool, will become a priority on the corporate social responsibility agenda of multinational groups.

The timing of introducing the Public CbCR coincides with a volatile economic climate, marked by uncertainty, supply chain disruptions, and the growing pressure on governments to increase taxable revenue.

In this context, the public expects multinational groups to operate in the spirit of ESG values (environmental, social, and governance).

Careful consideration should be given as to whether the technical tax information to be included in the Public CbCR must be first reviewed from a Public Relations and Communication perspective, as such information may be misinterpreted by the public, in light of corporate social governance expectations.

Since 1 September 2022, Romania is the first EU country to transpose the (EU) Directive 2021/2101 into national law, through Order No. 2048.

The particularity of Romania’s implementation of the Public CbCR is that the Romanian lawmakers opted for an earlier entry into force of the rules, namely starting with 1 January 2023. At this point, other EU Member States have implemented or envisaged to implement the Public CbCR obligations beginning after 21 June 2024.

Provided that no other EU Member States will also adopt 1 January 2023 as the first reporting year, this time lag means that, in scope, multinational groups carrying out business in Romania will have to publish the CbCR data for the first time before:

  • the Ultimate Parent or other subsidiaries;
  • other industry competitors that are not operating in Romania but in other EU Member States.

The obligation to publish the CbCR data on the website of the Romanian medium-sized or large subsidiaries by the end of 31 December 2024 for calendar reporting FY, with one-two years before the Ultimate Parent and other group subsidiaries are required, must be taken into consideration by multinational groups with a presence in Romania.

There will be instances where competitors without operations in Romania, but in another EU Member State, will publish the CbCR information one-two years later than peer multinational groups operating in Romania. The question arises where a competitive disadvantage at the level of multinational groups operating in Romania might be considered.

In light of the above, it is advisable for multinational groups operating subsidiaries in Romania to carefully assess the potential implications of this new legislation.