Pillar 2 Directive

Taking into account the proximity of the year end closing 2024, please find below relevant information related to the potential impact of the Law no. 431/2023, which introduces a 15% minimum effective tax rate for multinational enterprise groups and large-scale domestic groups. This legislation transposes Directive (EU) 2022/2523, known as the Pillar 2 Directive, into Romanian law, aligning with OECD global tax initiatives.

We recommend analyzing the provisions of the above-mentioned legislative act and take all the appropriate measures in order to comply with this piece of legislation. The provisions of Law no. 431/2023 take effect for financial exercises beginning on or after December 31, 2023.

APPLICABILITY

Law no. 431/2023 mirrors the framework of the OECD Model Rules and the Pillar 2 Directive targeting:

Multinational enterprise groups with consolidated annual revenues of at least EUR 750 million in at least two of the four preceding financial years;
Large-scale domestic groups operating exclusively in Romania, provided they meet the same revenue threshold.

MINIMUM GLOBAL TAX REGIME

The global minimum tax is determined using a detailed framework of interconnected rules, known as the GloBE rules, which include:

Income Inclusion Rule (IIR) - requires the parent company of a group to calculate and pay its allocated part of the top-up tax for constituent entities with low-taxed income. Effective from 1 January 2024.
Undertaxed Profit Rule (UTPR) - applies if the top-up tax was not charged at the parent company level under the IIR. Under this rule, a constituent entity of a multinational enterprise group must pay a tax, treated as an additional expense, corresponding to its proportionate share of the top-up tax not applied under the IIR. Effective from 1 January 2025.
Qualified Domestic Minimum Top-Up Tax (QDMTT) - calculated in accordance with the provisions of the OECD model rules and with priority, taking precedence over the above rules, and may eliminate the top-up tax liability under the IIR and UTPR rules in other jurisdictions. Effective from 1 January 2024.

CALCULATION PROCEDURE

The top-up tax applies to constituent entities operating in jurisdictions where the effective tax rate (ETR) falls below the minimum threshold of 15%.
The effective tax rate is calculated for each financial year and for each jurisdiction, based on the adjusted covered taxes of the constituent entities in that jurisdiction divided by their net qualifying income (i.e. profit).
During the 2024–2026 period, the Country-by-Country Reporting (CbCR) Safe Harbour regime allows constituent entities to declare zero top-up tax if certain conditions are met.

REPORTING AND PAYMENTS

The relevant constituent entity should submit an informative statement and if the case, pay the top-up tax to the tax authorities (i.e. ANAF):

deadline: 15 months from the last day of the reporting financial exercise;
exception for the transition year 2024: 18 months from the last day of the reporting financial exercise.

IMPLICATIONS FOR BUSINESSES

The introduction of Law no. 431/2023 is expected to significantly impact both multinational and domestic groups operating in Romania. Key actions include:

QDMTT is expected to be the most commonly applied rule for Romanian entities, making them primarily responsible for calculating, declaring, and paying the top-up tax.
Despite the extended reporting deadlines, an early qualitative and quantitative analysis is essential to evaluate the effects of the Pillar 2 rules. This analysis should support integration into the 2024’s financial reports.
Adequate resources must be allocated to ensure efficient data extraction, analysis, and processing from accounting systems for accurate tax calculation and reporting under the new rules.

EXPERT ASSISTANCE

Roedl & Partner Romania offers comprehensive tax and accounting support to help you navigate the obligations associated with the new top-up tax. Our team is ready to provide detailed insights on this topic, assess its implications for your business and assist with the following:

Impact Analysis & Eligibility: assess the impact and determine eligibility for the CbCR Safe Harbour regime.
Tax Calculations: estimation of the effective tax rate and the additional top-up tax based on Law no. 431/2023.
QDMTT Reporting: assistance with calculating and reporting QDMTT.

Contact

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Liviu Plescan

Head of Accounting, CPA, Auditor, Tax Consultant

Partner

+40 21 98 05

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