New Law on Clarifying the Tax Regime Applicable to Transnational Daily Allowances

The Romanian Chamber of Deputies has recently adopted a new act which aims at resolving disputes related to the fiscal regime for transnational daily allowances granted to employees. The act still needs to follow additional legislative steps before coming into force.

The new legal provisions are considered within a broad context of controversies regarding the method in which incomes consisting of daily allowances granted to employees should be legally framed. Most arguments have been focused on the fact that the National Agency for Fiscal Administration has, in many cases, reconsidered the daily allowance as an income of a salary nature subject to income taxation. Such decisions would have determined the obligation of the affected employers to pay taxes retroactively for an extended period starting from 2015, with serious effects on businesses.

Moreover, there were inconsistencies in how taxes were applied related to allowances granted for transnational postings in Member States, without referring to specific situations of delegation and posting of employees. Such errors might create premises for discrepancies between the income categories, which could have profound effects on both Romanian employers and employees.

According to the newly adopted provisions, all differences of taxes to be paid are cancelled, taxes which were obtained as a result of subsequent qualifications, fulfilled by the national tax authority related to amounts representing allowances or any other amounts of the same nature, received for the period during which an employee has worked remotely in the territory of another country. This measure specifically refers to the fiscal periods between 2015 and the date of entry into force of this law.

Who will be impacted by this tax amnesty?

This decision shall be applied in a non-discriminatory manner for both employees that have already paid the taxes obtained after the recalculation imposed by the taxation decision, but also for those that have not paid until this new act enters into force. However, refunds will not be made automatically by the national tax authority, but they will be made at the request of the companies that have already complied with the decision on tax requalification.

In addition, according to these new legislative arrangements, tax inspectors will no longer be able to reclassify the daily allowances paid by the employers. Only labor inspectors will be granted such competency.

Another relevant decision implies the amendment of the Romanian Fiscal Code in a way that allowances and any other amounts of the same nature, received by employees for working remotely in another city or even country, as well as those received to cover transport and accommodation expenses, within a fixed limit, shall not be subject to taxation.

This new tax adjustment mainly establishes a limited-time opportunity for specific taxpayers and endeavors to achieve fiscal predictability for Romanian employers.