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12.2.1. Main Rules

Effective from 1 January 2018, the erstwhile thin-capitalization rules have been replaced by an EBITDA-based interest barrier mechanism in line with the EU anti-tax avoidance directive (ATAD). The current rules apply since 1 January 2019 and limit the deduction of ‘excess borrowing costs’ over the RON equivalent of EUR 1 million to 30% of the adjusted EBITDA. For these purposes, “excess borrowing costs” are defined as the difference between all borrowing costs (including forex expenses and capitalised interest) and income from interest and other economically equivalent income. The non-deductible excess may be carried forward indefinitely. Effective 1 January 2019, where a taxpayer ceases to exist as a result of a merger or division, the right to carry forward excess borrowing costs is transferred to the newly created taxpayer in proportion to the assets transferred. In all cases, the limitation does not apply to standalone entities without associated entities or permanent establishments (PE), and in respect of excess borrowing costs resulting from loans used to finance long-term public infrastructure projects.

In 2008, the deduction cap was set at the RON equivalent of EUR 200,000 and 10% of tax adjusted EBITDA.

Prior to the move to the EBITDA-based interest barrier, Romania applied a classic thin-capitalization regime based on a debt-equity ratio of 3:1.