Tax obligations and regulations for loans between affiliated companies in Romania

Loans between affiliated companies in Romania, especially when they involve international transactions, come with a series of tax and reporting obligations. In Romania, companies that grant loans to foreign affiliates must comply with regulations related to reporting income from collected interest and preparing the transfer pricing documentation to demonstrate compliance with the arm’s length principle.

We aim to detail the tax obligations involved, presenting a concrete example:

A Romanian company converts its recorded receivables into a short-term loan granted to a company in the United Kingdom, which is the parent company and sole shareholder. According to the contract established between the two entities, the Romanian company charges interest to the British company.

In this relationship, the Romanian company acts as the creditor, while the UK company is the debtor, benefiting from the loan.

The Romanian company’s declarative obligations include:

• Declaration 100 and 101: The Romanian company must report the income from the interest received as part of taxable income, which will affect the total taxable profit, subject to a 16% profit tax.
• Transfer Pricing File: Given that this transaction occurs between affiliated entities, the Romanian company is required to prepare a transfer pricing file to demonstrate that the interest charged complies with the arm’s length principle, where applicable.

It is crucial for the applied interest to align with the arm’s length principle as regulated by Romanian transfer pricing legislation, respectively to consider the interest rates typically practiced between independent parties as stipulated by Article 11, paragraph 4 of the Fiscal Code. The interest rate must reflect market conditions, taking into account factors such as the risk, the currency, and the loan duration. Although ANAF (the National Agency for Fiscal Administration) does not set a minimum value, the interest must be justifiable in relation to market conditions (e.g., BNR reference rates, European bank rates, or commercial interest rates). If this principle is not adhered to, tax authorities can adjust these transactions, having the ability to estimate the tax situation of the involved parties.

With regards to the reporting to the National Bank of Romania (BNR), when a Romanian company provides a loan to a non-resident company, this loan does not require reporting to BNR. The BNR Regulation no. 4/2021 mainly concerns the reporting of external debts and capital flows related to loans received by residents from non-residents and does not apply to loans provided.

In conclusion, in this context, the British company pays interest to the Romanian company without benefiting from a tax credit regarding the interest paid. The tax residence certificate for the British company is useful only to benefit from the provisions of the double taxation avoidance convention if there were an obligation to withhold tax in Romania.

Thus, the British company does not need documents to request a tax credit, as it is the payer of the interest to the Romanian company, and the only relevant document would be the tax residence certificate, exclusively in the case of imposing tax obligations in Romania.

We hope the example provided has offered clarity regarding the tax obligations and regulations applicable to loans between affiliated companies in Romania. A proper understanding of these aspects is essential to ensure compliance with the law and to avoid potential tax adjustments. Careful management of these transactions can facilitate their execution under transparent and secure conditions. The Romanian Accace team is happy to help you with all your concerns regarding this subject.

Eugen Bursuc

Accounting Director | Accace Romania

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