The explanatory memorandum of the Solidarity Act: the taxation of large businesses and fortunes, deductions for families and the fiscal regime of offshore gas.

The full text of the draft: The Solidarity Act — the taxation of large businesses and fortunes

Full translation of the memorandum. The Romanian text remains the authoritative one.

EXPLANATORY MEMORANDUM

Section 1 – Title of the draft normative act

“The Act of national solidarity and of the taxation of large businesses and fortunes”

Section 2 – Grounds for issuing the normative act

Description of the present situation

In recent years, as a result of the negative impact on the economy caused by the freezing of activity in numerous sectors during the pandemic, and also of the slowdown in economic growth caused by the uncertainties and fears produced by the outbreak of war on the country’s borders, major budgetary imbalances have arisen, caused by the increase in budgetary expenditure incurred for the acquisition of numerous pharmaceutical products as well as for the provision of humanitarian and military support in accordance with Romania’s foreign policy. The situation described has aggravated both the budgetary problems already existing and the social problems which our country was facing at the end of 2019, which is why the State must urgently take measures to increase budgetary revenues and also to protect the persons most severely affected by social problems, namely taxpayers who have several dependants — this latter measure being also such as to encourage the birth rate, a major and priority problem of the Romanian State.

This situation calls for urgent measures to increase social solidarity between the natural and legal persons whose material position is solid and consolidated and the disadvantaged strata — the most sorely tried over the past 4 years — whose material situation continues to deteriorate. At the same time, these measures will be correlated with measures to encourage the large contributors and with certain fiscal measures designed to simplify the collection of taxes and to make it more predictable and more transparent, thus avoiding both possible abuses or acts of corruption on the part of the fiscal authorities and eliminating the possibility for large taxpayers to carry out “fiscal optimisations” disloyal to the Romanian State.

2. Envisaged changes

The Act of national solidarity and of the taxation of large businesses and fortunes brings targeted amendments to Act 227/2015 on the Fiscal Code and to Act 256/2018 on certain measures necessary for the implementation of petroleum operations by holders of petroleum agreements relating to offshore petroleum blocks, whose purpose is to increase budgetary revenues by taxing large taxpayers, legal and natural persons, at fixed percentage rates established by thresholds of revenue and, respectively, of wealth held, in order to bear the fiscal deductions granted to taxpayers who have several dependants. Thus:

I. Amendments to Act 227/2015 on the Fiscal Code:

→ the text of the article Article 1 adds, after article 18 of the Fiscal Code, three new articles which introduce a special regime of taxation for certain categories of legal-person taxpayers whose annual revenues exceed EUR 10,000,000. To this end, after article 18 there are inserted articles 18¹, 18² and 18³, which govern the regime of taxation by thresholds of turnover and by the nature of the activity of the large legal-person taxpayers of Romania. This measure is such as to encourage the activity of large taxpayers and to increase the degree of economic competitiveness. In essence, the provision introduces thresholds of taxation on turnover for large taxpayers similar to those already existing in Title III of the Fiscal Code, where the regime of taxation on turnover for Romanian micro-enterprises is governed.

Starting from the success of the regime taxing turnover at low rates — a major factor in the development of the national economy in recent years, and also a factor of attractiveness for many foreign economic operators who chose Romania precisely for this manner of taxation — the introduction, by symmetry, of the same manner of taxation for large taxpayers as well is a measure encouraging their economic development and attracting large capital and companies to our country, thus turning Romania into an important player in hosting and encouraging large businesses in Europe and in the world.

It is likewise evident that setting rates of taxation on turnover is such as to increase the predictability of fiscal rules for the economic operator and, at the same time, facilitates the establishment and payment of the taxes owed by large taxpayers to the Romanian State. This latter effect is intended to avoid the possible errors arising, under the current rules, when the taxpayer calculates taxable profit, and to limit the interaction of economic operators with the agents of the Romanian tax authority during fiscal inspections — a fact such as to make the activity of the tax authority more efficient and to reduce the staff charged with the fiscal control of large taxpayers.

To this end, the introduction of art. 18¹ into the Fiscal Code brings three thresholds of taxation for large taxpayers:

Paragraph 1 provides for a rate of 1% applied to the revenues recorded in each fiscal year for “Taxpayers who have recorded revenues exceeding the equivalent in lei of EUR 10,000,000 (ten million euro)”; paragraph 2 introduces a rate of 2% applied to the revenues of taxpayers who have recorded revenues exceeding the equivalent in lei of EUR 100,000,000 (one hundred million euro); and paragraph 3 establishes a rate of 3% of the revenues of taxpayers who have recorded revenues exceeding the equivalent in lei of EUR 1,000,000,000 (one billion euro). The exchange rate for determining the equivalent in euro is that in force at the close of the financial year in which the revenues were recorded.

As may be observed, the introduction of taxation thresholds from 1% to 3% applied to the revenues of large taxpayers is similar and symmetrical to the regime of taxation of micro-enterprises, a fact such as to encourage large taxpayers too in a manner similar and symmetrical to that applied to small entrepreneurs, thus applying without discrimination one of the fiscal solutions most appreciated nationally and internationally.

→ the text of the article Article 18² introduces into the Fiscal Code a first exception to the rule established in the preceding article for large taxpayers, introducing a new rate of 5% applied to the revenues recorded for large taxpayers carrying out activities in the nature of refining or marketing petroleum products and their derivatives and whose annual revenues exceed EUR 10,000,000. This increased rate is similar to the existing one governing the “Special regime for taxpayers carrying out activities in the nature of night bars, night clubs, discotheques and casinos”, and takes into account, on the one hand, the exceptional situation statistically demonstrated according to which, whatever the difficulties encountered by the national economy — pandemic, state of war on the country’s borders — the profitability of the companies carrying out activity in the fields mentioned above is increasing, and, on the other hand, the success and proliferation of businesses in a field of activity already taxed at 5% applied to the revenues recorded annually.

Similarly and for the same reasons, Articles 18³–18⁴ introduce into the Fiscal Code exceptions similar to that provided for in art. 18², for taxpayers carrying out activities in the nature of the extraction of crude oil and natural gas, and for taxpayers carrying out activities in the nature of the transport and distribution of electricity.

Likewise, art. 18⁵ introduces a further exception, applied this time to taxpayers carrying out activities in the nature of financial intermediation, namely — and without limitation — activities of monetary intermediation, which include activities carried out by banks, savings banks, credit cooperatives, or activities of the credit transfer system through the post and postal activities of savings banks; the granting of credit for the purchase of housing by specialised institutions (housing banks); monetary activities by postal order (payment orders); or activities of holding companies, of mutual funds and other similar financial entities; financial leasing; or other credit activities such as financial service activities relating primarily to the taking out of loans by institutions not involved in monetary intermediation, where the granting of credit may take a variety of forms, such as loans, mortgages, credit cards and so on.

The measure, similarly to that provided for in art. 18², took into account the recording by these taxpayers of significant increases in revenue in periods difficult from an economic and social point of view, together with an inexplicable simultaneous stagnation of profitability caused by rising expenditure.

All these reasons justify the introduction of a special taxation threshold of 5% of the annual revenues obtained by large taxpayers carrying out activities in the fields mentioned above, namely for large taxpayers carrying out activities in the nature of the extraction, refining or marketing of petroleum products, and for large taxpayers carrying out activities in the nature of financial intermediation and whose annual revenues exceed EUR 10,000,000.

→ the text of the article Article 2 amends paragraph 2 of Act 227/2015 on the Fiscal Code and establishes a taxation of special pensions, introducing a rate of taxation of 90% of the monthly taxable income from that part of the pension which exceeds 11 gross minimum national wages.

In setting this rate and this taxation threshold, account was taken of the fact that under Act 153/2017 the President of Romania has a legal allowance of 12 gross minimum national wages, and of the fact that, as a matter of principle, no one should receive from the consolidated general budget of the State sums greater than those received by the highest dignitary of the Romanian State, the President of Romania.

For these reasons and starting from this principle, a rate of taxation was established of 90% of the monthly taxable income from that part of the pension which exceeds 11 gross minimum national wages, so that all sums deriving from pensions which exceed 11 gross minimum national wages are taxed at 90%.

→ the text of the article Article 3 introduces a new title into the Fiscal Code: after TITLE X, TITLE X¹ is introduced, which will bear the heading “THE TAX ON LARGE FORTUNES”, the provision introducing for the first time in Romania a tax owed by natural-person taxpayers holding fortunes greater than EUR 10,000,000 (ten million euro).

The provision introduces into Romanian taxation the notion of a “large fortune” for the Romanian natural-person taxpayer, the lower threshold of large fortunes being set at ten million euro, unlike that laid down in other States of the European Union where, as in the case of France, the tax on large fortunes is owed once a fortune of 1.2 million euro is exceeded.

In setting this high threshold for the taxation of large fortunes, account was taken of the need to increase the wealth of Romanian citizens and their ability to develop businesses in order to increase general well-being, and also of the obligation of those whose fortune has exceeded the threshold of EUR 10,000,000 to contribute in a special, personal and direct manner to raising the general standard of living and to the development of the country in which they live and make their profits, this special contribution being made in both a personal and a general interest.

TITLE X¹ introduces three taxation thresholds, as follows:

a solidarity tax of 1% per year of the total value of the fortune, for natural-person taxpayers whose revenues, cumulated with the value of the gains, of the movable assets and of the buildings existing in their patrimony on 31 December of the preceding year, exceed EUR 10,000,000 (ten million euro);

a solidarity tax of 2% per year of the total value of the fortune, for natural-person taxpayers whose revenues, cumulated with the value of the gains, of the movable assets and of the buildings existing in their patrimony on 31 December of the preceding year, exceed EUR 100,000,000 (one hundred million euro);

a solidarity tax of 3% per year of the total value of the fortune, for natural-person taxpayers whose revenues, cumulated with the value of the gains, of the movable assets and of the buildings existing in their patrimony on 31 December of the preceding year, exceed EUR 1,000,000,000 (one billion euro);

The solidarity tax will be calculated on the entire declared fortune and will be owed at the level established by law until the fortune falls below the legally established threshold, so that no person whose fortune does not exceed EUR 10,000,000 will be taxed, whatever the fortune previously held.

For the purpose of establishing the solidarity tax owed, natural persons whose estimated fortune exceeds EUR 10,000,000 are required to draw up annually a declaration of wealth as laid down in Annex I, the annual declaration of wealth for the last fiscal year having to be submitted by 25 March inclusive of the following year.

The exchange rate for determining the equivalent in euro of the fortune is that in force at the close of the financial year in which the revenues and gains were recorded.

The solidarity tax is the means by which the holders of large fortunes show their solidarity towards their fellow citizens and, at the same time, represents the manner in which they help the development of the State which created for them the conditions for achieving significant material accumulations.

→ the text of the article Article 4 amends the third sub-paragraph of article 77 of the Fiscal Code and extends the scope of personal deductions for taxpayers who have one or more dependants and who earn revenues between the limit laid down in paragraph 2, namely 3,600 lei, and the limit of 25,000 lei, as follows:

“(i) for taxpayers with one dependant — 20% of the income tax due;

(ii) for taxpayers with two dependants — 30% of the income tax due;

(iii) for taxpayers with three dependants — 40% of the income tax due;

(iv) for taxpayers with four or more dependants — 50% of the income tax due.

No personal deduction is granted to taxpayers with gross monthly salary revenues exceeding 25,000 lei.”

The deductions are granted in respect of any kind of revenue, no longer being addressed exclusively to salary revenues, so that as wide a range of taxpayers as possible may benefit from these fiscal facilities.

The purpose of the deductions from income tax is to support taxpayers who care for several persons (children, parents, spouses) and, at the same time, to encourage active persons with average incomes to have children, the State assuming indirectly (through the personal deductions governed by this law) and directly (through the statutory child allowances) a part of the expenditure on raising children, as part of the national policy of increasing the birth rate.

The present fiscal provision is such as to encourage work and constitutes a direct measure for halting demographic decline and for encouraging the return to the country of Romanians in the diaspora.

II. Amendments to Act 256/2018 on certain measures necessary for the implementation of petroleum operations by holders of petroleum agreements relating to offshore petroleum blocks

The energy sector, and in particular that of offshore natural gas, represents a central pillar of the national economy. The present context, marked by price fluctuations and by the need to ensure energy security, has brought into discussion the need to revise the legislative framework governing taxation in the field. To this end, the draft amendment of ACT no. 256/2018 brings a series of adjustments aimed at increasing taxation for the holders of petroleum agreements as regards the operation of offshore petroleum blocks. Increased taxation is often viewed with scepticism; in the present case, however, the arguments in favour are multiple and well founded.

In the first place, correct and efficient taxation can contribute to the State budget, thus providing additional resources which can be invested in critical infrastructure, education or health. Moreover, in a sector as profitable as that of natural gas extraction, a higher tax can discourage speculation and can encourage long-term investment, striking a balance between the profit of companies and collective well-being.

In order to understand the necessity of the draft amendment of the legislation, it is essential to understand the formula for calculating the tax on supplementary offshore revenues. This formula is adjusted according to the weighted average price of the natural gas sold (PMPC), also taking into account the consumer price index (CPI). Taxation thus adapts to market conditions, maintaining an equitable level of taxation correlated with economic realities.

This method of calculating taxes ensures a fair contribution by the petroleum companies to the national budget, without discouraging investment in exploration and development. In addition, emphasis is placed on fiscal transparency and predictability, giving operators the possibility of planning their activities over the medium and long term.

Setting out the calculation formula in detail, we observe that it is structured on three levels of natural gas prices, each with a specific manner of applying taxation. In the case of a PMPC less than or equal to 85 lei/MWh, a basic formula is used which includes the calculated supplementary revenue and the value of the deductible investments. This approach encourages the reinvestment of profits and supports the development of the sector.

In order to illustrate the way in which this mechanism works, let us consider a gas price of 85 lei/MWh or less. The tax on supplementary offshore revenues (IVST) is calculated by deducting the value of the deductible investments (VID) from the total calculated tax (IVSC). When the price rises to between 85 and 100 lei/MWh, the rate of taxation becomes progressive, reflecting a greater contribution to the State budget while still maintaining an incentive to invest.

When the weighted average price of gas exceeds the threshold of 100 lei/MWh, the calculation formula becomes still more complex, underlining the need to divide the supplementary revenues into price bands. This means that, for each price segment above 100 lei, a different rate of taxation applies, thus increasing the degree of fiscal contribution as market prices rise. This approach ensures fiscal equity and recognises market performance, while allowing the holders of petroleum agreements to benefit from a stable and predictable fiscal framework.

Likewise, the value of the deductible investments in the upstream segment is an important point, because it encourages reinvestment and the continued development of the infrastructure needed for the extraction and processing of natural gas. This policy not only stimulates economic growth but also helps to create new jobs, thus contributing to the reduction of unemployment and to long-term economic prosperity. Another crucial aspect of the draft law is the way in which it treats the cumulated values of investments. By allowing a monthly reduction of the value of the deductible investments, a mechanism is created for recognising companies’ efforts to update and improve their operations. This may have a positive impact on energy efficiency and on the reduction of greenhouse gas emissions, aligning the offshore energy sector with the country’s sustainability and environmental objectives.

For these reasons, in the present economic and social context, global economic and ecological pressures require a re-evaluation of the way in which natural resources are exploited and, by implication, taxed. ACT no. 256/2018 on certain measures necessary for the implementation of petroleum operations by holders of petroleum agreements relating to offshore petroleum blocks lies at the centre of a heated debate, with solid arguments supporting the need to increase and to amend that taxation.

Arguments for increasing taxation:

1. Fiscal equity: One of the fundamental principles of a sound fiscal system is equity. In the case of offshore exploitation, the resources exploited are a public good, and the benefits must extend to the whole of society. By increasing taxation, the State would be able to ensure a fairer distribution of the benefits of natural gas extraction, thus contributing to the development of infrastructure, health and education.

2. Environmental sustainability: Offshore extraction activities have a significant impact on marine ecosystems. Higher taxes can discourage harmful practices and can finance environmental protection projects, partly compensating for the damage caused.

3. Investment in green technologies: Encouraging the transition towards clean energy sources is essential. Supplementary taxes on offshore exploitation can be a source of financing for the research and development of new sustainable technologies.

4. Energy security: Increasing taxes can stimulate energy efficiency and reduce dependence on imports of fossil fuels, at the same time diversifying the country’s energy sources and promoting energy independence.

The amendment of ACT no. 256/2018 is an immediate necessity, given that the revision and updating of the law are required not only by the fluctuating economic and ecological context but also by the dynamics of the energy market and by technological progress. The proposed amendments aim not only at fairer and more sustainable taxation but also at increased adaptability to market conditions, so that future challenges can be met effectively. Annex – Formula for calculating the tax on supplementary offshore revenues. The calculation formula set out in the annex to the law is essential for understanding the taxation mechanism and for ensuring transparency in the application of the taxes. It establishes the way in which supplementary revenues are calculated according to fluctuations in natural gas prices.

It is a progressive system, designed to reflect both the variable costs of gas production and the volatility of prices on the international market. A direct correlation is thus ensured between the profitability of offshore exploitation and the contribution of the holders of petroleum agreements to the State budget. The detailed formula is included in the annex in order to facilitate the understanding and the calculation of the tax. It takes into account several factors, such as the weighted average price of natural gas (PMPC), the 2012 purchase price adjusted annually by the inflation index (PRC) and the volumes of gas sold (VGC). In addition, special attention is given to the deductible investments in the upstream segment (VID), which stimulate additional investment in exploration and production, essential for maintaining and increasing natural gas extraction capacity.

Technical details of the taxation of supplementary offshore revenues: in order to illustrate the application of the formula, let us assume that the weighted average price of natural gas is 90 lei/MWh. Under the formula, the supplementary revenue from offshore blocks (VS) will be calculated as the difference between PMPC and a reference price (PRC), multiplied by the volume of gas sold (VGC). The tax due (IVST) will be the result of deducting the value of the deductible investments (VID) from the total calculated tax (IVSC). In this way the formula ensures that taxation is proportionate to the supplementary revenues generated, thus offering a fair and stimulating fiscal framework for the holders of petroleum agreements. Moreover, it ensures that any increase in profitability, owing to a rise in natural gas prices, is correspondingly reflected in contributions to the State budget.

The arguments in favour of increasing taxation and of amending ACT no. 256/2018 are multiple and varied, resting on principles of fiscal equity, ecological sustainability and the promotion of energy security. By rethinking the legislative framework and adapting the formula for calculating the tax on supplementary offshore revenues, Romania can ensure a fairer distribution of the benefits of the extraction of natural resources, protecting the environment and stimulating innovation in the field of renewable energy.

In short, the proposed amendments not only answer the immediate needs of the market and ecological requirements, but also prepare the ground for a more resilient economy, less dependent on fossil fuels. Such an approach is vital in order to navigate a changing global energy landscape and to position Romania as a responsible and progressive player on the international energy stage. In conclusion, increasing taxation and amending ACT no. 256/2018 are necessary steps for aligning national interests with global dynamics and for building a sustainable future. These changes will reflect not only Romania’s commitment to the principles of equity and sustainability, but will also serve as a catalyst for innovation and progress in the energy sector. Likewise, through these adjustments, the aim is to align national legislation with the European directives and with the international agreements on combating climate change and reducing CO2 emissions. It is a step forward towards a circular economy and a more efficient use of resources, in which the impact on the environment is minimised and the economic advantages maximised.

Another important aspect of the fiscal reform is the encouragement of transparency and accountability in the petroleum industry. By establishing a clear and detailed framework for the calculation of taxes, companies are motivated to report their revenues accurately and to contribute equitably to the State budget.

This may lead to an increase in public confidence in the way natural resources are managed and in the benefits they bring to society as a whole. In addition, the proposed legislative amendments will contribute to creating a more predictable and stable business environment for investors in the energy sector. A fair and transparent fiscal regime is essential for attracting and maintaining long-term investment, elements vital to the sustainable economic development of Romania.

Not least, the role played by taxation in shaping economic behaviour must be emphasised. By adjusting taxes and duties, the State can influence the direction in which the energy industry moves, favouring innovative and ecological solutions over traditional ones which have a negative impact on the environment and on public health.

In conclusion, fiscal reform in the offshore energy sector is a necessity which cannot be postponed, representing a crucial step in aligning Romania with international standards and with the objectives of sustainable development. Increasing taxation and revising ACT no. 256/2018 are not merely opportunities to secure greater budgetary revenue, but also to promote responsible behaviour in the extractive industry, in accordance with the best global practices. The proposed legislative reform must be regarded as an investment in the future of the country, which can bring long-term benefits and can contribute to the prosperity of future generations. Through it, Romania can become an example of good practice in the management of natural resources and in the application of fiscal policies designed to support sustainable development and the protection of the environment.

Finally, it is essential to take account of the voice of the communities affected by extraction activities and of their involvement in the decision-making process. Thus, increased taxation and the amendment of the legislation must be accompanied by measures ensuring social equity and preventing any negative impact on local communities. Special attention must be given to compensation and benefits for the areas affected by the exploitation of resources, so that they benefit directly from the economic activities carried out within their territory.

Section 3 – Socio-economic impact of the draft amendment of ACT no. 227/2015 and of ACT 256/2018

1. Macroeconomic impact

The economic impact of the amendment of the fiscal legislation, namely of the Fiscal Code Act and of the Act on offshore petroleum operations: the economy of a country is directly influenced by the fiscal legislation which governs the way in which financial resources are collected and distributed. The amendments to Act 227/2015 on the Fiscal Code and to ACT no. 256/2018 will have a significant impact on the Romanian economy.

I. Amendment of the Fiscal Code Act

1. Introduction of Art. 18¹ and 18²: The first significant change proposed is the introduction of article 18¹ into Act 227/2015, which provides for a special regime of taxation for taxpayers exceeding certain revenue thresholds. This measure appears to be directed at large corporations, imposing a progressive rate of taxation of 1%, 2% or 3% according to the revenues recorded. Such a progressive fiscal approach is intended to ensure a fairer contribution to the State budget on the part of top companies. Article 18² introduces a special fiscal regime for companies in the petroleum sector, with a rate of taxation of 5% for annual revenues greater than 10 million euro. This change could discourage tax evasion and could stimulate transparency in a sector often criticised for the lack of adequate fiscal coverage. Nevertheless, it is important to assess whether this rate of taxation will not discourage investment in a field vital to Romania’s energy security.

2. Amendments to the taxation of large pensions: Another major amendment is the adjustment of article 101, which concerns the taxation of pensions. The new wording proposes a rate of 10% for the monthly taxable income from pensions and a rate of 90% for that part of the income which exceeds 11 gross minimum national wages. This measure has the potential to redistribute the fiscal burden, in line with the principles of fiscal equity.

3. Introduction of the tax on large fortunes: Another innovative aspect is the introduction of Title X¹, entitled “The tax on large fortunes”, which provides for the imposition of a solidarity tax on natural persons with considerable fortunes. The rates of the tax differ according to the total value of the fortune, being set at 1%, 2% or 3% for cumulated revenues exceeding certain thresholds. This measure comes in the context of global debates on inequality of income and wealth, being a step towards a more equitable distribution of fiscal burdens. It is essential, however, to analyse the impact it will have on the mobility of capital and on investment.

4. Adjustments to personal deductions: Article 77 brings into discussion the adjustment of personal deductions for taxpayers with gross monthly revenues between certain thresholds. This is a measure which could encourage consumption and could have a positive effect on the economy by stimulating the purchasing power of the population. In this way, the fiscal effort of those who have family responsibilities is recognised and rewarded, offering them financial support through tax reliefs proportionate to the number of dependants.

II. Amendment of ACT no. 256/2018 on offshore petroleum operations

The amendments to Act no. 256/2018 are essential for understanding how the energy sector, and especially that of offshore petroleum operations, will evolve. In a global context in which the energy transition is becoming ever more important, fiscal rules must be balanced so as to support both environmental protection and economic competitiveness.

1. Establishing the measures necessary for the implementation of offshore petroleum operations

Article 1 of Act no. 256/2018 is amended so as to ensure legal clarity and to establish the measures necessary for the implementation of offshore petroleum operations. This clarification is vital in order to attract new investors and to maintain a stable and predictable regulatory framework allowing long-term investment planning.

2. Repeal of certain provisions and harmonisation of the legislation: By repealing letters m), n), o), p) and r) of article 2, the current legislation is simplified and harmonised with international standards. This measure could improve the perception of the Romanian business environment and could contribute to better integration into the European energy market.

3. Amendments to the fiscal regime applicable to offshore petroleum activities: Article 18 proposes maintaining the level of royalty and the percentage rates of petroleum royalty for the holders of offshore petroleum agreements. This fiscal continuity is essential in order to maintain investor confidence and to avoid the financial destabilisation of ongoing projects. Fiscal stability is a key factor in long-term investment decisions, and this amendment respects the commitments of the Romanian State towards investors.

4. Taxation of supplementary offshore revenues: Article 19 introduces a system of taxation of supplementary offshore revenues, whose purpose is to increase revenues to the State budget by taxing the differences between the selling prices of natural gas and a reference price established in 2012. This system of taxation could stimulate greater transparency in the trading of natural gas and could ensure that the benefits of gas extraction are also reflected in State revenues. It must nevertheless be analysed whether this tax will affect the competitiveness of prices for final consumers and whether it will negatively influence investment decisions in the exploration and exploitation of natural gas resources.

5. Sale of natural gas on centralised markets: Through the amendments to article 20, an obligation is introduced for the holders of offshore petroleum agreements to sell a percentage share of 90% of the natural gas on centralised markets. This measure could contribute to greater competitiveness on the natural gas market and to a more transparent formation of prices. At the same time, it is crucial to ensure that these provisions will not lead to market distortions or to the creation of barriers to free competition.

6. Establishing a special account for investments. Article 19 paragraph (8) provides for the collection of the tax on supplementary revenues into a special account intended for the financing of natural gas infrastructure. This measure has the potential to accelerate the development of energy infrastructure and to support Romania’s energy security. It is important, however, to monitor the efficiency with which these funds are used, in order to ensure that they will have a real positive impact on the economy.

7. Implementing a legal framework for the conduct of offshore petroleum operations. Article 34 introduces the possibility of concluding addenda to the petroleum agreements relating to offshore petroleum blocks, which will allow adaptation to the new legislative conditions. This represents an important step in making the existing contractual framework between the State and the petroleum companies more flexible and up to date, thus ensuring that exploration and exploitation activities can continue under optimised conditions. Conclusions: analysing the proposed amendments to the fiscal legislation, it may be observed that they seek to increase revenues to the State budget and to promote a more equitable distribution of the fiscal burden. The introduction of progressive rates of taxation for large corporations and for persons with large fortunes represents a bold step towards a fairer taxation, more oriented towards social responsibility.

11. Impact on the competitive environment and on the field of State aid

Not applicable

2. Impact on the business environment

In recent years, the development of fiscal legislation in Romania has attracted the attention of numerous actors in the business environment, both domestic and international. The amendments made to the Fiscal Code by Act 227/2015 and the related legislation are intended to adapt the fiscal framework to economic realities and to environmental requirements. We shall analyse in detail the impact of these amendments, with particular emphasis on the articles most relevant to the business environment.

I. Amendments to the Fiscal Code

1. Special regime for large taxpayers: The introduction of articles 18¹ and 18² into the Fiscal Code comes as a measure to balance the fiscal burden for taxpayers with substantial annual revenues. By applying progressive rates of taxation according to the revenue threshold, the State intends to stimulate a better distribution of the fiscal burden and, at the same time, to secure the resources needed to finance public expenditure. Thus, taxpayers exceeding the threshold of 10 million euro will pay a tax of 1%, those exceeding 100 million euro will contribute 2%, and for revenues exceeding 1 billion euro the rate of taxation is 3%. This progressive structure may have a positive impact on the business environment by encouraging the reinvestment of profits and by supporting long-term growth. At the same time, through these measures large taxpayers are made directly accountable for contributing to the State budget in proportion to the size of their revenues. This could lead to greater equity in society and to a more efficient redistribution of resources.

2. The tax on large pensions: The amendments to article 101 paragraph 2 of the Fiscal Code are likewise significant, imposing a tax of 10% on the monthly taxable income from pensions, while for that part of the pension exceeding 11 gross minimum national wages the rate of taxation is 90%. This is a measure aimed at adjusting the level of taxation of special pensions, a subject frequently debated in public and one which has aroused much controversy. By this amendment the legislator seeks to balance the pension system and to reduce inequalities.

3. The tax on large fortunes: The introduction of TITLE X¹ into the Fiscal Code, under the name “The tax on large fortunes”, brings into discussion a form of progressive taxation applied to natural persons with substantial fortunes. Articles 500¹–500⁵ establish rates of taxation of 1%, 2% and 3% applied progressively according to the total value of the fortune, starting from the threshold of 10 million euro. This fiscal initiative may be interpreted as a step towards ensuring greater social justice and a more equitable distribution of the fiscal burden.

On the other hand, the obligation to draw up an annual declaration of wealth for taxpayers exceeding the threshold of 10 million euro may serve as an instrument of transparency and fiscal control, contributing to the fight against tax evasion and to increasing the degree of fiscal compliance.

4. Personal deductions: Another significant change is the adjustment of personal deductions according to the number of dependants. This is aimed especially at families with children and seeks to reduce the fiscal burden for taxpayers with family responsibilities. The amendment of article 77 paragraph 2, third sub-paragraph, provides for progressive deductions from 20% to 50% of the income tax due, according to the number of dependants. Support for families is thus encouraged and their importance in the social structure recognised. This measure may have a positive impact on the standard of living and may stimulate demographic growth, being at the same time a step towards a more humane fiscal policy, more oriented towards the needs of citizens.

II. Amendments to Act no. 256/2018 on offshore petroleum operations

The legislation on offshore petroleum operations has likewise been the subject of significant adjustments. The amendments made by Act no. 256/2018 concern chiefly the level of royalties, the taxation of supplementary revenues and the conditions for exploiting natural resources in offshore blocks.

1. Establishing a specific fiscal regime: Article 18 brings clarifications as regards the application of the level of royalty and of the percentage rates of petroleum royalty for the holders of offshore petroleum agreements. Although this is a technical and complex field, the essence of the amendments consists in applying a stable fiscal regime throughout the duration of the petroleum agreements, thus offering predictability and a clearer fiscal framework for investors. This is crucial in a sector where investments are massive and the planning horizon is long-term.

2. Deductibility of investments: A particularly important aspect is constituted by the rules concerning deductible investments, described in article 19. It is specified there that the investments taken into account in calculating the deduction from the tax on supplementary revenues are not taken into account in the fiscal result for the purposes of profit tax. This means that investments in the upstream segment are considered non-deductible for the purpose of calculating profit tax, but may be deducted from the tax on supplementary offshore revenues. This mechanism of deductibility encourages the reinvestment of profits in exploration and exploitation activities, thus contributing to the sustainable development of the petroleum sector.

3. The tax on supplementary offshore revenues: Article 19 defines the tax on supplementary offshore revenues as a levy applicable to the difference between the selling price of natural gas from domestic production and a reference price established in 2012. This tax aims to capture part of the supplementary profits obtained by companies as a result of price fluctuations on the natural gas market. The percentages for calculating the tax are structured so as to reflect the differences in prices, and the deduction of investments in the upstream segment is limited to a maximum percentage, in order to ensure that the State benefits from an equitable share of the supplementary profits. This fiscal measure may have mixed effects on the energy market: on the one hand it encourages efficiency and the prudent management of resources, and on the other it may influence the investment decisions of companies in the energy sector.

4. Sale of natural gas: Article 20 imposes on the holders of offshore petroleum agreements the obligation to conclude contracts on centralised markets for the sale of a minimum share of 90% of the natural gas contracted. This requirement promotes transparency and competition on the natural gas market, with the potential to contribute to the stabilisation of prices and to ensure equitable access to resources for all market actors. By establishing a clear and non-discriminatory trading framework, the aim is both to protect the interests of consumers and to create a healthy competitive environment for producers.

5. Penalties for failure to observe the provisions: A novelty introduced by the legislative amendments is the establishment of significant penalties for failure to observe the provisions of arts. 19 and 20. Under article 25, failure to observe those obligations may attract fines of up to 30% of the turnover of the company concerned for the year in which the breach was found. This reflects a more assertive approach by the State in enforcing fiscal rules and a step towards ensuring compliance in the energy sector. Through these measures, the aim is to discourage non-compliant fiscal behaviour and to emphasise the importance of observing the legal rules.

Conclusions: The recent amendments to Romanian fiscal legislation reflect a tendency to adapt the fiscal system to current economic dynamics and to the needs of sustainable development. From the imposition of progressive rates of taxation for large taxpayers to the adjustment of the fiscal regime for offshore petroleum operations, these changes are intended to balance the fiscal burden, to stimulate investment and to promote transparency and equity in the business environment. The impact of these amendments is complex and will manifest itself differently according to the sector of activity and the size of the economic actors.

3. Social impact of the amendments to the Fiscal Code and to the petroleum legislation in Romania

I. Amendments to the Fiscal Code

1. Special regime for taxpayers with large revenues. The introduction of a progressive tax for taxpayers with very large annual revenues is a bold step in the direction of fiscal equity. This measure may reduce economic disparities and may contribute to a fairer redistribution of wealth. Likewise, by increasing the contribution of the wealthiest members of society, the State can accumulate additional resources for investment in infrastructure, education and health, to the benefit of the whole population.

2. Taxation of large pensions. The amendment of the Fiscal Code so as to impose a rate of taxation of 10% on income from pensions and, above all, a rate of 90% for that part of the pension exceeding a certain ceiling, may be seen as a measure of social solidarity. This could help to balance the pension system and to ensure its long-term sustainability, an aspect particularly important in the present demographic context.

3. The tax on large fortunes. The proposal to impose a solidarity tax on large fortunes is a strong signal towards the social responsibility of those with substantial incomes and fortunes. This initiative may play an essential role in mitigating inequalities and in financing projects of public interest which contribute to the development of communities and to the reduction of poverty.

4. Modified personal deductions. The adjustment of personal deductions for taxpayers with medium and high incomes may encourage economic growth. Through these deductions, additional support is given to families with dependants, thus stimulating consumption and investment and having a positive impact on the economy as a whole. In addition, by limiting these deductions in respect of high incomes, it is ensured that the fiscal benefits are directed towards the segments of the population most in need of support.

II. Amendments to the petroleum legislation

1. Establishing measures for offshore operations. The amendments made to the law governing offshore petroleum operations bring clarity and legal stability, aspects essential for attracting investors and for developing the energy sector. These changes may lead to an increase in natural gas production and to a reduction in Romania’s dependence on imports, which has a direct impact on national energy security and on prices for consumers.

2. Taxation of supplementary offshore revenues. The taxation of the supplementary revenues obtained by petroleum companies represents an important source of revenue for the State, which can be reinvested in infrastructure projects or in other fields vital to society. This measure ensures that the benefits of the country’s natural resources are distributed equitably among all citizens.

3. Transparency in the sale of natural gas. The obligation to sell a percentage share of natural gas on centralised markets increases transparency and competitiveness in the sector. This may lead to better prices for consumers and to a more dynamic market, with beneficial effects on the national economy.

4. Investment in gas infrastructure. By channelling the supplementary offshore taxes towards the financing of gas infrastructure, the development of an efficient and modern energy system is ensured. Improved access to natural gas can stimulate regional economic development and can reduce energy costs for consumers and undertakings, thus contributing to a rise in the standard of living.

Conclusions. The legislative amendments analysed in this memorandum reflect an approach oriented towards greater social equity and towards the accountability of those with large incomes. They also aim to increase the efficiency and performance of the energy sector, with direct benefits for the economy and for society. In a changing global economic context, these adjustments may represent important steps towards long-term stability and prosperity for Romania.

4. Environmental impact

Not applicable.

5. Other information

Not applicable.

Section 5 – Effects of this normative act upon the legislation in force

a) normative acts in force which will be amended or repealed as a result of the entry into force of the draft normative act:

There will be amended Act no. 227/2015 on the Fiscal Code;

There will be amended Act 256/2018 on certain measures necessary for the implementation of petroleum operations by holders of petroleum agreements relating to offshore petroleum blocks

In summary, Act 227/2015 has 2 articles amended, 9 articles added and 0 repealed, to which an annex is added,

while Act 256/2018 has 10 articles amended and the annex amended.

b) normative acts to be drawn up for the implementation of the new provisions: none identified.

1¹. Compatibility of the draft normative act with the legislation in the field of public procurement — Not applicable

2. Conformity of the draft normative act with Community legislation in the case of drafts transposing Community provisions — No documents in Community legislation in the field have been identified.

3. Normative measures necessary for the direct application of Community normative acts — Not applicable.

4. Judgments of the Court of Justice of the European Union — Not applicable.

5. Other normative acts and/or international documents from which commitments derive — Not applicable.

6. Other information. — Not applicable.

Section 7 – Public information activities concerning the drafting and implementation of the draft normative act

1. Informing civil society of the necessity of drawing up the normative act — The draft law revising the Constitution was submitted to public debate for 18 months and is the direct result of those open consultations.

2. Informing civil society of the possible environmental impact following the implementation of the draft normative act, and of the effects on the health and safety of citizens or on biological diversity — Not applicable.

3. Other information — Not applicable

Section 8 – Implementing measures

1. Measures for putting the draft normative act into application by the central and/or local public administration authorities — the establishment of new bodies or the extension of the competences of existing institutions — Not applicable.

2. Other information — None identified