EU Accession: Challenges on the Road Ahead

By Venkatesh Srinivasan
Partner, Head of Tax Services
Ernst & Young Romania

How much time do we have till Romania’s EU accession? There are several possible answers to this question. From where we stand, most likely 10 months. Of course, the view from the EU is a little more circumspect; Brussels will give its verdict in May. But A-day looks years away if the preparedness of business in Romania is taken into view. And this may catch us off guard and land us in a spot of trouble. EU accession means a plethora of compliance requirements that business in Romania will have to address in a relatively short period of time. Unless companies are prepared for accession, even January 2008 may feel like too much too soon.

What does preparedness mean for business in Romania, in particular companies? That would depend entirely on what kind of business a company is involved in. Compliance requirements vary for different sectors of business and industry, from trade to manufacturing to services. Besides compliance, accession would entail a broad array of changes from what can be sold to how long employees may work and how transactions are taxed. Dealing with these changes now would mean being better prepared for competition from companies in older EU countries. A glance at the big picture could gives us a better idea of where we stand and what our companies need to do over the coming months to meet the challenges of joining the common market.

Broadly speaking, accession would mean a bigger playing field – a borderless market that allows free movement of capital, labour, goods and services. While it may seem like suddenly the neighbourhood cornershop has grown up and become a supermarket, it implies much more than operating in a physically enlarged space. It implies operating in a newer and larger marketplace with very specific and complex rules of operation. One of the most important aspects of this is implementing the acquis communautaire, which involves adopting the entire body of EU norms, regulations and directives in practically every area of EU competence. Romania will have to fully align its legislation to EU standards and practices. Legislative change in the realm of business will most likely pick up in the months ahead to fulfil this objective. If companies in Romania have been complaining about the frequent changes in legislation, these complaints are unlikely to cease any time soon.

Companies would also be required to deal with systemic, procedural and administrative changes. In the field of trade alone, these changes would be considerable. Take, for instance, import and export activities in a 485-million strong community that allows free movement of goods and services. Besides a change in definition (import and export would apply only to trade with non-EU countries), there would be significant changes in procedures and duty rates as Romania ceases its customs functions, and revenues, to the jurisdiction and supervision of the EU. Duty rates would be revised, as would import and export procedures. Commercial policy would undergo major transformation.

Bucharest has been meeting its EU commitments on value added tax (VAT), excise duties and direct taxes and should be ready in these areas by accession. But significant changes are still expected on areas such as indirect taxes on the raising of capital, parent-subsidiary transactions, interest and royalties, and savings. The EC Country Report of October 2005 acknowledged Romania had made progress in adopting the legislative framework on excise duties for tobacco and alcoholic products and mineral oils, but said more initiatives were needed to carry out alignment – reaching minimum excise levels, transposing provisions on intra-community movement and adopting the Energy Directive.

At Ernst & Young, we realise the overwhelming nature of the task from the experience of our colleagues in other countries and our client companies are all the better assured for it.


Date: 27 February 2006.