Romania plans to introduce rules in the EU Anti-Tax
Avoidance Directive (ATAD) two years before the EU's required
Draft legislation was submitted to the Romanian Chamber of
Deputies, lower house of parliament, in October 2016 to
transpose the ATAD into domestic law, which is proposed to be
effective from January 1 2017.
The EU ATAD (2016/1164 of July 12 2016) establishes rules
against tax avoidance practices that directly affect the
functioning of the internal market. Most of the measures in the
ATAD have to be transposed by the EU member states by December
31 2018 and apply from January 1 2019. Romania's potential
adoption of the draft law would, in principle, lead to the
transposition of the ATAD in Romania two years before the
deadline mentioned by the EU law.
Although the early implementation of the ATAD through the
draft law is only a mere possibility at this stage, it should
be noted that the proposals do not appear to amend the Romanian
Tax Code in the same way as previous tax-related EU Directives
that have been transposed into the Romanian tax law. Instead,
the proposals in the draft law would create a separate law that
may need to be read in conjunction with the Romanian Tax Code.
This, of course, may lead to various difficulties, both at the
level of the Romanian taxpayers and of the Romanian tax
ATAD's impact on the Romanian tax environment
The transposition into domestic law of the five measures
against tax avoidance laid down by the ATAD will have, to a
higher or lower extent (as briefly touched upon in the
following), an impact on the way Romanian tax is governed.
Probably the most significant change that the ATAD brings to
the Romanian tax law is the interest limitation rule.
In this respect, Romanian tax law already contains certain
specific limitation rules for interest deductibility that are
entirely different from the ones provided for by the ATAD.
Since the domestic interest limitation rules are not based on
the earnings before interest, tax, depreciation and
amortisation (EBITDA) concept, as mentioned in the ATAD, it
remains to be seen whether they will be abolished or whether
they will continue to be applicable in parallel with the new
interest limitation rules to be introduced as per the ATAD. It
also remains to be seen whether these new rules would determine
a major change in the financing of Romanian companies that are
part of multinational groups, which heavily rely on
As a side note, the application of the new interest
limitation rules in the ATAD also raises questions at the level
of the Romanian authorities that publicly said that additional
clarifications and also numerical examples would be required in
order to clearly indicate the computation mechanism to be used
when applying this rule.
Furthermore, as regards the exit taxation rules provided in
the ATAD, it is important to note that no such rules exist in
Romanian tax legislation. At this stage, transfer pricing rules
(in line with OECD guidelines) are to be considered for
transfers between affiliates, including permanent
establishments (PEs). Therefore, the exit taxation rules
included in the ATAD would need to be transposed into the
Romanian tax law. Such rules may be of a significant importance
for domestic companies who, in the last period, expanded their
business activities in other EU member states where they
operate via PEs.
As for hybrid mismatches provisions included in the ATAD,
these will also need to be transposed into the domestic law
because the only rules mentioned in the Romanian tax
legislation relate to the transposition of the EU
Parent-Subsidiary Directive (i.e. the linking rule). However,
considering the limited use of such types of arrangements in
Romania, one would expect that these provisions would have a
rather reduced impact.
Separately, considering that the Romanian tax law does not
contain any controlled foreign company (CFC) rules, these
provisions will need to be implemented in domestic legislation.
However, it remains to be seen which form these may take since
member states have several options on how the rules are
applied. While Romania is mainly an inbound destination, the
estimated impact of the CFC rules could be limited, but not
Finally, as regards the general anti-abuse rule (GAAR), the
Romanian tax law already contains several general anti-abuse
provisions. On a related note, Romanian legislators are
expected to develop certain business purpose tests for the
application of such rules, but it remains to be seen in which
form and how these will be applied.
In conclusion, it is very important for taxpayers to
consider the impact that the ATAD transposition may have on
their Romanian business and at the same time to monitor the
developments on the approval process of the draft law and any
communications from the Romanian Ministry of Public Finance in
Claudia Chiran and Alexandru Mandru (firstname.lastname@example.org)
Tel: +41 21 402 4000