Mergers & Acquisitions

Last reviewed 21 Aug 2023

Financing

Financial assistance by the subsidiary

Loans provided to a parent company by the subsidiary are not advisable, as such may be reconsidered as repayment of capital.

 

Subordinate debt (mezzanine capital)

Not specifically regulated.

Interest expenses for acquisition financing

No specific regulations; however, there is a significant risk of non-deductibility, as they are incurred for obtaining non taxable revenues (i.e. dividends).

Interest expense on subordinate debt

No special provisions exist.

EU interest barrier

Financing costs may be deducted up to a limit of EUR 1,000,000 per fiscal year. The deductibility of the amounts exceeding this threshold is limited to 30% of the borrower’s gross profit, adjusted for certain items (minus non-taxable income, add back financing costs and tax depreciation).

Squeeze-out options

Buy-out of minority shareholders (squeeze-out)

In Romania, a shareholder can be excluded if he does not fulfill the legal requirements expressly stipulated by the Company Law. The squeeze out is performed in court, based on the decision of a judge.

Capital gains – corporations and partnerships

Sale of shares in a joint stock corporation

The gain of legal entities on the sale of shares in a joint stock corporation is taxable income. Gains derived by a Romanian company or by a company residing in a country with which Romania has concluded a DTA from the sale of shares in a Romanian company or in a company residing in a country with which Romania has concluded a DTA are non-taxable, provided that the seller has held at least 10% of the shares for an uninterrupted period of at least 1 year.

Sale of shares in a limited liability company

See above, "Sale of shares in a joint stock corporation"

Sale of interest in a partnership

The gain on the sale of ownership interest in a general partnership and a limited partnership is taxable.

International participation exemption

See above, "Sale of shares in a joint stock corporation"

Sale of business

Definition

The sale of the business involves the transfer of tangible and intangible assets, liabilities and employees. The transfer of all the assets or a portion of the assets could be VAT neutral provided, inter alia, that the business is transferred as a going concern.

Valuation

In the sale of a business, the transferred assets are either recorded by the buyer at the fair value determined by an expert’s opinion or at the original seller’s book value of these assets while recognizing a separate total revaluation adjustment (difference in valuation of acquired assets), depending on the structure of the transaction.

Goodwill

If the purchase price of the company exceeds the fair value of individually valued assets, goodwill is created. The goodwill cannot be amortised from a fiscal perspective.

Mergers and demergers

Types of mergers described by commercial law

Merger by acquisition, merger by the formation of a new company; total or partial spin-off (de-merger) of the company, which transfers its business in whole or in part to existing or newly created companies.

Valuation

Revaluation to fair market value of the assets and liabilities of companies involved in mergers and spin-offs is generally performed by authorized independent valuators.

Valuation in financial accounting

The difference between fair value and book value is recorded as goodwill.

Goodwill amortization

Goodwill cannot be amortized for tax purposes. For financial accounting purposes, goodwill can be amortized over a maximum period of 5 years taking into consideration the economic useful life of the asset.

Tax treatment of revaluation

Mergers and de-mergers may be corporate tax neutral under certain circumstances, such as: they involve the transfer of assets and liabilities constituting a (line of) business, they are not tax-driven and have sought business rationale, the tax value of the transferred items is maintained in the books of the transferee etc.

Tax losses and financial costs available to be carried forward may be transferred to the beneficiaries during mergers or de-mergers (pro-rata transfer applies in the case of partial de-mergers).

Generally, mergers and de-mergers are VAT neutral.

Contributions (transfer of assets into the capital of a company)

Contributions in kind

Contribution in kind into the registered capital of the company is allowed, however, Company Law stipulates several rules in this respect:

1. The value of the assets contributed in kind must be evaluated by authorised experts. Apart from the in-kind participation, in-cash contributions are mandatory in all types of Romanian legal entities.
2. The value of such assets, the evaluation method, and the number of shares issued in exchange must be described in the corporate charter after the value has been established by the experts.
3. The valuation methods vary depending on the nature of the assets and on the scope of the valuation. Fair market value is the most common method, discounted cash-flow analysis is another method (based on future earnings, e.g. for real estate); the third method is used only for buildings (not for land) that can be valued at the cost of reproduction (for tax purposes only).

Tax treatment

For domestic reorganization processes, the provisions regarding the neutrality of the contribution in kind to a company's equity have been eliminated except for cases when a transfer as a going concern, in exchange of shares, takes place.

Goodwill amortisation

Goodwill cannot be amortized for tax purposes. For financial accounting purposes goodwill can be amortized over a maximum period of 5 years.