According to the provisions of art. 40 ^ 1 (1) and (2) and art. 40 ^ 2 of the Fiscal Code, as amended by the Law no.30 / 2019:
“Art. 40 ^ 1 For the purpose of this chapter, the terms and expressions below have the following meanings:
- borrowing costs – the cost of interest on all forms of debt, other economically equivalent costs with interest, including other expenses incurred in obtaining funding in accordance with applicable legal regulations, such as, but not limited to, to these: pay-as-you-go loans, interest on instruments such as convertible bonds and zero coupon bonds, amounts under alternative funding mechanisms such as “Islamic finance”, finance lease finance costs financial, capitalized interest included in the carrying amount of an asset or amortization of capitalized interest, amounts calculated on the basis of a return on financing under the transfer pricing rules, where applicable, notional interest on derivative financial instruments or coverage of the risk of borrowing a entities and certain gains and losses generated by exchange rate differences in loans and instruments related to obtaining financing, guarantee fees for financing mechanisms, brokerage fees and similar costs related to fund loans;
- excess debt due – the amount by which the cost of a taxpayer’s indebtedness exceeds the interest income and other economically-incomes earned by the taxpayer;
For the purposes of Art. 40 ^ 2 (“Rules for limiting interest deductibility and / or other costs equivalent to economic interest”), the difference between the excess costs of indebtedness as defined above and the deductible limit of EUR 1,000,000 is limited deductible in the fiscal period it is incurred, up to the level of 30% of the calculation base established according to the algorithm presented in art.40 ^ 2, paragraph (2).
Thus, according to the above mentioned algorithm, the calculation basis used to determine the excess cost of indebtedness, deductible in the calculation of the tax result, is the difference between the revenues and expenditures registered according to the applicable accounting regulations, in the reference tax period, which deducts non-taxable incomes and which adds the expenses with the profit tax, the excess costs of the debt, as well as the deductible amounts representing the fiscal amortization, determined according to art. 28 of the Fiscal Code.
In the circumstances where the calculation basis is negative or equal to zero, the difference between the excess costs of the debt and the above mentioned deductible limit is non-deductible in the fiscal reference period and is carried forward according to art. 40 ^ 2, para. (7).
Therefore, the taxpayer has the right to deduct, in a tax period, the excess costs of indebtedness up to the deductible limit represented by the RON equivalent of EUR 1,000,000 calculated at the exchange rate communicated by the National Bank of Romania valid for the last day of the quarter / fiscal year, as the case may be.
By way of exception from paragraph (1) and (4) of Article 40 ^ 2, if the taxpayer is an independent entity in the sense that it is not part of a consolidated financial accounting group and has no associated venture and no permanent establishment, it fully deducts the excess costs of indebtedness during the tax period in which they are incurred.
Surplus costs of indebtedness that can not be deducted in the fiscal calculation period in accordance with paragraph (1) of art. 40 ^ 2 shall be carried forward, without the time limit, in subsequent fiscal years under the same conditions of deduction under this Article .
The right to transfer taxpayers who cease to exist as a result of a merger or division is transferred to newly created taxpayers, respectively those who take over the assets of the company absorbed or divided, as the case may be, proportionate to the assets transferred to the beneficiary legal entities, according to the draft merger /division.
The taxpayer’s right to carry over who does not cease to exist as a result of a removal of part of their assets transferred as a whole is shared between those taxpayers and those who partially take over the assets of the transferring company as the case may be in proportion to the assets transferred to the persons legal entities, according to the draft division, respectively those maintained by the ceding legal person.
Thus, borrowing costs include items that are directly related to borrowings or any form of loan-like financing, such as: short or long-term bank loans, associate loans, loans from any type of IFN or from other entities.Therefore, if the company is subject to corporation tax and is part of a group of associated companies, it may deduct in a tax period the excess cost of the debt up to the deductible limit of EUR 1,000,000, calculated at the exchange rate communicated by the NBR valid for the quarterly / fiscal year, as the case may be
The difference between the excess costs of indebtedness and the deductible limit is deducted limited in the fiscal period in which it is incurred, up to the level of 30% of the calculation basis established under art. 40 ^ 2 par. (2) of the Fiscal Code.If the company is an independent entity in the sense that it is not part of a consolidated group for financial accounting purposes and has no associated enterprise and no permanent establishment, it fully deducts the excess cost of debt in the tax period in which are supported.