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Romania Aligns Itself with International Standards with 50% WHT

Romania
In the context of the European and global trends regarding combating tax fraud and increasing tax transparency, Romania has recently introduced new stipulations containing general anti-avoidance provisions in respect of application of double tax treaties (DTTs).

In addition, payments made to foreign jurisdictions for which exchange of information cannot be performed are discouraged by the introduction of an increased withholding rate of 50%. Taxand Romania explores these new stipulations and their impact on businesses operating within Romania.

The Romanian Fiscal Code previously contained a general anti-avoidance provision regarding a substance over form approach; however, there was no reference to "artificial" transactions, a new term introduced by these recent amendments, for which the applicability of DTTs is disallowed.

A definition of artificial transactions is provided (namely, transactions, or a chain of transactions which do not have economic substance and cannot be used in the normal course of business, the main purpose of which is avoiding taxation or obtaining tax advantages that normally could not be granted). Despite this, the initiative has already raised various comments in the tax arena, since it contains many terms which are not defined in the Romanian tax legislation and consequently leaves room for heavy interpretations, putting taxpayers in an unfavourable position, while tax authorities have more space for challenging tax structures and / or transactions.

In addition to this, payments made to foreign jurisdictions for which exchange of information cannot be performed based on a DTT or tax information exchange agreement, are discouraged by the introduction of an increased withholding rate of 50%. It is to be noted that this is currently thought to be applicable, irrespective of the residence status of the beneficiary.


Your Taxand contacts for further queries are:
Angela Rosca
T. +40 21 316 06 45
E. angela.rosca@taxhouse.ro

Adriana Craciun
T. +40 21 316 06 45
E. adriana.craciun@taxhouse.ro

Taxand's Take


These recent developments indicate that Romanian tax legislation is slowly being aligned to international standards and practice, and, at the same time, is used as an instrument for gathering additional revenue for the state budget.

In this respect, multinational companies with operations in Romania should be aware of the recent changes, and ensure compliance in order to mitigate risks of incurring additional tax liabilities.

Taxand's Take Author

Angela Rosca
Romania