Romania to change tax rules to prevent companies exporting profits

Romania wants to amend its tax on turnover to limit exemptions and prevent multinationals from exporting profits, Finance Minister Alexandru Nazare said on Wednesday, as the country looks to cut its fiscal deficit.

He said the new formula was inspired by the U.S. base erosion tax that limits the ability of multinationals to shift profits to units in low-tax countries.

Romania's tax on corporate profits is currently 16%, with a minimum levy for companies with an annual turnover higher than 50 million euros of 0.5%, which would be abolished.

Nazare said that the minimum turnover tax had been expected to collect 5-7 billion lei, but had only brought in 1.2 billion lei - proof it was not working.

The new rules would be enforced from 2026 under a draft bill that includes measures to raise revenue and cut spending. The broad coalition government has yet to agree the bill.

Nazare said the tax authority would look at affiliate fees, management fees and transfers, and there will be a threshold on tax-deductible spending, with everything over that taxed at 16%, he said.

Romania's new government has been tasked with tackling the European Union's biggest fiscal gap, which reached above 9% of economic output last year.

The ruling coalition has sought tax hikes and spending cuts to bring down the deficit, which must fall below the EU's 3% threshold by 2030.

A first round of tax hikes was enough to prompt Standard % Poor's to keep Romania's rating on the last rung of investment grade in July. Fitch will review Romania on August 15 and Nazare said he hoped it too would keep the rating unchanged.

($1 = 4.3191 lei)