Romania: Corporate income tax consolidation of permanent establishments now possible
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Romania: Corporate income tax consolidation of permanent establishments now possible


Cristina Clujescu, EY

Until recently, a foreign legal entity that had several permanent establishments in Romania, with no distinct legal personality, was subject to corporate income tax on each of the permanent establishments separately, no consolidation being available. You might ask yourself why a foreign legal entity had to register several permanent establishments in Romania. This was because the tax authorities under whose supervision a permanent establishment was, were those in whose territorial area the permanent establishment existed.

On the other hand, Romanian legal entities that had several working points in Romania, could automatically consolidate their activities for corporate income tax purposes.

This situation was identified by the European Commission as contrary to the freedom of establishment set out in the EU treaties and a request was sent to Romania in February 2013 to review its taxation in this respect. The impossibility for a foreign legal entity to consolidate the results of all its permanent establishments in Romania could have led (and did lead) to a cash-flow disadvantage and/or higher effective taxation for the foreign legal entity.

This aspect had been discussed in various Romanian business and tax circles for several years.

Further to the above request from the Commission, the Romanian tax legislation was changed starting July 1 2013 to allow for corporate income tax consolidation of all permanent establishments a foreign legal entity would have in Romania.

Because of this change, in case a foreign legal entity had more permanent establishments in Romania, all these permanent establishments had to close their fiscal period as at June 30 2013.

Also, a lead permanent establishment had to be assigned starting with July 1 2013 to take over the responsibility to declare and pay the consolidated corporate income tax for all permanent establishments. For this purpose, the tax authorities asked that all foreign legal entities having permanent establishments in Romania perform a new registration for tax purposes, including the cases when a foreign legal entity had only one permanent establishment in Romania.

There still remain however, some additional aspects to consider. For example, application of the consolidation of the permanent establishments a foreign legal entity had in Romania even before July 1 2013. This could be tried for example for EU foreign legal entities at least starting January 1 2007 when Romania joined the EU. Also, for countries where Romania has double tax treaties with the country of the foreign legal entity, non-discrimination compared with Romanian residents could be invoked retrospectively.

It remains to be seen if taxpayers would have the interest to pursue such an opportunity, depending on certain considerations, such as:

  • The value of the tax impact;

  • The effort, fees and timeline related to such a pursuit, as it could take several years to win a case if the tax authorities do not agree from the start; and

  • Periods open for adjustments.

Cristina Clujescu ( )


Tel: +40 21 4024000


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