Romania ratifies the Multilateral Convention to Facilitate the Implementation of Pillar Two Subject to Tax Rule, adopted in Paris on 15 September 2023 and signed by Romania in Paris on 19 September 2024, through the Law no. 60 from 2026, published in the Official Gazette, no. 364 from 30 April 2026.

The Convention is a multilateral instrument that facilitates the implementation of the Subject to Tax Rule (STTR) in certain existing agreements for the avoidance of double taxation on income. It applies to and amends an agreement if each of the parties to the agreement has made a notification to the Secretary-General of the OECD mentioning the agreement, as well as any instruments amending or accompanying it as an agreement wishing to be covered by the convention.

The Subject to Tax Rule

Income from interest, royalties, payments made for the use or right to use distribution rights in respect of a product or service, insurance and reinsurance premiums, fees to provide a financial guarantee or other financing fees, rent or any other payment for the use of, or right to use industrial, commercial or scientific equipment or any income received in consideration for the provision of services ("covered income"), obtained between connected persons, may be taxed in the source state, if that income is subject to a tax rate below 9% in the contracting jurisdiction in which the person deriving that income is resident.

The tax rate is the difference between 9% and the tax rate applicable in that jurisdiction, for which any preferential adjustments (e.g. exemptions, deductions, tax credits, as defined in the multilateral instrument) will also be taken into account.

Tax levied in a contracting jurisdiction on covered income that originates in that jurisdiction and is earned by a resident of the other contracting jurisdiction in a tax year shall be determined after the end of that tax year.

Exclusions

The subject to tax rule does not apply to certain income, such as that paid by an individual or obtained by a resident of the other contracting jurisdiction which is: an individual; not connected to the payer; pension fund; pension scheme; NGO; international organisation; insurance company; the state and its agencies or certain investment vehicles.

Mark-up threshold

With the exception of interest and royalty income, the subject to tax rule shall not apply to covered income received by the beneficiary, if the gross amount of the covered income does not exceed the costs incurred by the person deriving the income and that are directly or indirectly attributable to earning the income plus a mark-up of 8,5% on these costs, with certain exceptions.

Connected persons

A person is considered to be connected to another person if one of them has control over the other or both are under the control of the same person or persons.

In any case, a person is considered to be connected to another person if: one of them holds, directly or indirectly, in the other person more than 50% of the rights in terms of benefits/voting rights/value of the company's shares/rights in terms of benefits related to participation titles held in the company; or another person holds, directly or indirectly, in each person more than 50% of the rights in terms of benefits/voting rights/value of the company's shares/rights in terms of benefits related to participation titles held in the company.

Materiality threshold

The taxability rule applies to covered income arising in a source state and paid to connected persons in the state of residence and which, cumulatively at the relevant tax year level:

• is equal to or greater than EUR 1 million; or
• is equal to or greater than EUR 250,000, when one of the contracting jurisdictions to this agreement has a GDP of less than EUR 40 billion.

The date of entry into force is calculated according to the date of deposit of the second instrument of ratification, acceptance or approval (plus three calendar months). The date of effect for Annex I Taxability Rule, Annex II Supplements to the Taxability Rule: Taxes calculated on an alternative basis, Annex IV Supplements to the Taxability Rule: Recognised Pension Fund, Annex V Supplements to the Taxability Rule: The provision on interruption is different from the date of entry into force and is calculated according to the notification of the completion of the internal procedures for effect (the following year after the expiry of the 30-day and 6-month period).

Disclaimer

The information contained in this newsletter is intended to give you an overview of new legislation; the newsletter does not contain a comprehensive analysis of each topic. For further information on the topics covered please contact us. No responsibility is accepted for decisions or omissions following the use of the content of this newsletter. All Crowe newsletters are available at the address www.crowe.ro.

Crowe România