Title I - General Provisions
The methodological norms for the application of the new Tax Code contain provisions similar to the methodological norms for the application of the Tax Code which was in force up to 31 December 2015. Nevertheless, several amendments have been introduced, amongst which:
Clarifications regarding the concept of independent activity
Further clarifications have been brought in respect of the contractual arrangements between parties for assessing an activity as being an independent one. The contractual arrangements shall mandatorily include conditions on the agreed scope of work, rights and obligations of both parties so that it does not result in the existence of a subordinating relationship but of the individual’s freedom to decide as regards the performance of activities.
The criterion regarding the freedom of the individual to choose the place, the way of conducting activities and the working schedule is met so long as its three components are met cumulatively.
The parties can agree upon the date, place and working schedule depending on the activity’ specificity and other activities the supplier is performing.
It is clarified that an individual has the freedom to perform the activity only for one client so long as there is no exclusivity clause.
Clarifications in respect of transfer pricing
Clarifications have been introduced concerning the concept of control, within the meaning of the provisions for determining related party relationships.
Also, clarifications have been brought for the application of the procedure for the avoidance of double taxation between related parties further to ajustments/estimations performed by tax authorities for reflecting the arm’s length price of products, merchandise and services.
Clarifications related to the special provisions for the application of the Tax Code
Clarifications are provided concerning the interpretation of the term transaction without economic purpose within the meaning of art. 11, para (1) of the Tax Code, such term indicating any transaction/activity which is not designed for generating economic advantages, benefits, profits and which artificially or conjecturally determines a more favourable tax position.
Title II - Corporate income tax
Computation of tax result
New examples of items similar to income and expenses were introduced.
A part of the new examples of items similar to income are represented by the legal reserve and the reserves for tax incentives, the amounts recorded in the retained earnings which are taxable as per the provisions of the new Tax Code, the amounts representing the reduction or cancellation of the prudential filters that were deductible for the purpose of the computation of the taxable profit, etc.
The amounts recorded in retained earnings which are deductible as per the provisions of the new Tax Code, certain amounts transferred to retained earnings as a result of the application of the accounting regulations compliant with the European directives, etc. are among the new examples of items similar to expenses. In addition, it is expressly mentioned that the losses from the cancellation of own shares do not represent items similar to expenses.
Provisions regarding the computation of the taxable result were introduced for the taxpayers for which the modified tax year includes periods from both 2015 and 2016.
These categories of taxpayers will apply the tax treatment in force for the periods before / after 1 January 2016 for the income, expenses, similar items recorded before / after 1 January 2016.
Provisions were introduced in respect of the way in which the adjustments / price estimates, established by the tax authorities at the level of the other related party, are treated in the profits tax computation by the Romanian related party.
Non-taxable income
Clarifications were brought regarding the non-taxable income represented by the amount of the new participation titles or by the increase in the nominal value of the existing participation titles, recorded as a result of the incorporation of reserves, as well as explanations in respect of the tax value of these participation titles. Examples regarding the computation of the tax result upon the disposal of these participation titles were also introduced.
The cases under which the amounts received as a refund of the contribution share of the shareholders / associates as a result of a share capital reduction are considered as non-taxable income in the computation of the tax result were elaborated.
Expenses
Certain types of expenses are provided as examples of expenses incurred for business purposes, such as advertising expenses incurred to promote the company, expenses for travel and accommodation inside the country and abroad, marketing expenses, research expenses, expenses representing the value of the receivables disposed of, expenses resulting from the subsequent evaluation and execution of derivative instruments, etc.
The list of the expenses incurred for business purposes included in the methodological norms for the application of the new Tax Code is not exhaustive.
The expenses assimilated to salaries are deductible for the computation of the tax result irrespective of the tax regime applicable at the individual’s level.
Clarifications regarding the application of the 50% limit for the expenses representing foreign exchange differences booked further to a lease agreement were introduced.
The condition regarding the destruction of inventories or depreciable fixed assets enabling the deductibility of the expenses with the inventories or depreciable fixed assets discovered as missing or damaged, shall be considered observed both in case when the destruction is carried out by own means, as well as when these are delivered to specialized units.
Provisions, depreciation adjustments and reserves
The legal reserve set up once again, in the same limit, after its use for covering losses or distribution in any form would be considered deductible for the computation of the tax result.
Explanations were introduced regarding the tax deduction of the adjustments for doubtful receivables, in respect of the date (i.e. 1 January 2016) starting with which the receivables, other than those towards customers, should be recorded in order to be taken into consideration and, respectively, in respect of the tax period in which these can be deducted for corporate income tax purposes. In addition, it is mentioned that the bad debt adjustments are deductible within the limit of 30% of the amount of the outstanding debt, including VAT.
Rules were introduced regarding the reserves and provisions transferred during reorganization processes in the sense that a document has to be provided to the beneficiary regarding the reserves and provisions transferred, which were deducted and not taxed.
Tax depreciation
For motor vehicles for which the tax depreciation is limited to RON 1,500/month, the deductible value upon write-off is computed as the number of months left from the normal useful life multiplied by RON 1,500.
Tax payment and submission of tax returns
Certain reserves should not be included in the computation of the tax result by the taxpayers ceasing their activity following the liquidation operations, such as the reserves from net profit, amounts relating to reductions in tax rate or tax exemptions, etc.
Title III – Tax on income of microenterprises
Only microenterprises set up after 1 January 2016 can be subject to the reduced tax rate of 1% applicable, under certain conditions, for the first 24 months from the registration of the Romanian legal entity.
Certain items that are not included in the taxable base by the microenterprises ceasing to exist, and which were previously corporate income tax payers, are mentioned.
Title IV – Income tax
Income from independent activities
Updates brought to the expenses with limited deductibility:
- Assignment/delegation allowances and travel and accommodation expenses paid only to employees;
- A 10% rate applied to the gross income obtained from accounting and technical expertise, judiciary and extra judiciary, owed to the local expertise office.
The deadline to submit the tax return regarding the estimated income / income norm by the taxpayers carrying out independent activities and who start their activities during the tax year is extended from 15 to 30 days from the date the activity starts.
The advance payment that has to be withheld by the income payer of intellectual property rights is calculated by applying the 10% rate to the gross income.
Income from salaries and assimilated to salaries
Clarifications were brought with respect to the non-taxability of the gift tickets within the limit of RON 150 granted on special occasions for each employee and his/her minor child, irrespective if the parents work for the same employer.
The concept of international legal instruments in the context of computing the income tax on salary income and assimilated to salary is defined.
Income from other sources
The norms also include the income obtained by individuals from tips, in accordance with the legal provisions.
Clarifications are brought regarding the income obtained by tax payers that are not fiscally registered in accordance with the applicable legislation. These are addressing the income derived from the following types of activities: production, commerce, service delivery, liberal professions, intellectual property rights, as well as income obtained from agricultural activities, forestry and fishery, if they do not have a continuity character and for which are not applicable the legal provisions of chapter II “Income from independent activities” and chapter VII “Income from agricultural activities, forestry and fishery” of titles IV of the Tax Code.
Income obtained by non-residents individuals from dependent activities
The term dependent activity performed in Romania also includes the activities performed by non-resident individuals in relation to international transport performed by companies with the place of effective management or that are considered resident in Romania.
Title V – Social contributions
There are no pension, health fund contributions and unemployment contributions due in Romania by individuals carrying out employment activities (having non-resident employers) in third countries and non-treaty countries in social security area.
Further clarifications are brought in respect of the ceiling provided for health fund contributions due by the employers starting 1 January 2017
Title VI - Tax on income derived from Romania by non-residents and tax on foreign representative offices established in Romania
Clarifications concerning taxation, as per Title VI, of income derived by non-residents
Clarifications are introduced according to which the income delivered by non-residents from a Romanian resident (or which represent expenses at the level of a Romanian permanent establishment of a non-resident) further to the provision of management or consultancy services of any kind are taxable irrespective of whether these services are rendered or not in Romania, as long as there is no convention for the avoidance of double taxation concluded between Romania and the income beneficiary’s country of residence or as long as the income beneficiary does provide a proof in respect of its tax residency.
Additionally, newly introduced clarifications provide that payments representing negative interest do not qualify as payments of taxable income within the meaning of Title VI of the Tax Code.
Clarifications concerning distributed dividends which have not been paid by the end of the year during which the financial statements were approved.
Clarifications are brought in respect of the applicability of the more favourable tax rate stipulated by the convention for the avoidance of double taxation concluded between Romania and the non-resident beneficiary’s state of tax residency also in case of dividends which were distributed but have not been paid by the end of the year in which the financial statements were approved, provided that the non-resident makes available a tax residency certificate valid for the year during which the financial statements were approved.
Additionally, clarifications are introduced according to which the 5% withholding tax rate is applicable to dividends distributed after 1 January 2016.
Clarifications regarding the option for regularization of the tax on income from interest / independent activities / activities carried on in Romania by artists and sportsmen, income derived by legal persons that are residents of a EU Member State or the European Economic Area.
Clarifications are provided according to which the option to regularize the tax paid according to title VI on income from interest / independent activities / activities carried on in Romania by artists and sportsmen, through the declaration and payment of tax on the taxable profit / income related to these types of income, in accordance to title II, respectively title IV, can be exercised within the statute of limitation period provided by the Tax Procedure Code.
In this respect, the application norms stipulate that two tax residency certificates should be attached, in original or notarised copy, to the tax return submitted for the purpose of the regularisation: one certificate should mention that the income beneficiary had been tax resident in an EU Member State or in a state of the European Economic Area for the year during which the income was derived and another certificate which should mention that the income beneficiary had been tax resident in such state during the year when the option for the tax regularisation was exercised.
Additionally, the application norms provide the main types of expenses which should be considered for determining the taxable result corresponding to interest income.
Clarifications concerning the tax refund on interest income, respectively on interest and royalty income.
Based on the newly introduced application norms, in case the holding conditions provided by art. 229 para (1) letter c), respectively art. 229 para (1) letter g) of the Romanian Tax Code are fulfiled after the payment date for the respective income, the refund of the withholding tax paid in excess can be requested by the non-resident beneficial owner of the income.
Clarifications concerning the activities carried out by representative offices
New clarifications are introduced which stipulate that foreign legal persons are not allowed to carry out, through their representative offices established in Romania, activities such as production, trade or provision of services.
Title VII - VAT
Definitions
It has been clarified that the contiguous zone and the exclusive economic zone of Romania are part of the Romanian territory from a VAT perspective for certain operations referred to by the Norms.
Single tax group
A single tax group is also possible for taxable persons that are not administered by the same tax authority.
Supply of goods
In case of building contracts, sale-purchase pre-contracts and mutual promissory contracts for the sale of an unbuilt property it shall be considered that a supply of goods has taken place if they are finalized by the transfer of title over resulting constructions, otherwise a supply of services is deemed to have taken place.
Supply of services
The free of charge provision of molds/equipment for the supply of services to their owner shall be considered a supply of services related to the economic activities of the owner of molds/equipment, but it shall not be deemed a supply of services for consideration.
If the service provider is the owner of the molds/equipment who recovers their value from the service beneficiary, the operation shall be considered ancillary to the provision of services.
Place of supply of services
Additional clarifications and examples have been provided in connection to the services which are considered related to immovable property (for example, the Norms include expressly into this category the services related to gas, water, sewage networks and others alike).
Chargeable event and chargeability
Additional clarifications and examples have been provided in connection to determining the chargeable event and the chargeability of an operation, including in the context of shifting from a VAT rate of 24% to the 20% rate.
Clarifications have been provided as regards chargeability in the case of prepaid phone cards and vouchers, making the distinction between single purpose and multiple purpose vouchers.
Tax base
Clarifications have been provided regarding the application of the commissionaire structure from a VAT perspective in case of cost recharges, in the sense that it shall only apply when the amounts are recharged at cost.
Tax rates
Additional clarifications and examples have been provided as regards the application of the VAT reduced rates of 9% and 5%.
The Norms bring clarifications regarding the taxable amount in case the contract provides that VAT is (not) included in the price or the price was established without any mention to VAT, respectively, in the case the consideration is set by law, by tender, by court decision.
Exemption without deduction right
The supplier’s consent for postponing the payment of the price after the supply of the goods or services, in exchange for interest, shall be considered granting of loan which is exempt from VAT without deduction right.
Exemptions with deduction right
In case of exemptions with deduction right (e.g. exemptions for intra-Community supplies, export operations, international and intra-Community transport, international trade of goods and exemptions for agents), the charging of VAT by the supplier does not imply the cancellation of the deduction right at the level of the beneficiary.
Right to deduction
A number of principles established by the European case law concerning the right to VAT deduction were introduced, the most important being:
- the right to deduct VAT is a fundamental principle of the VAT system, in principle it may not be limited and it is immediately exercised for the entire tax applied to upstream operations, even if the taxable person would start the actual performance of its economic activity at a later stage;
- in order to benefit from the right to deduction, substantive requirements should be firstly complied with (meaning that substantive conditions prevail over form conditions);
- tax authorities may deny the right to deduction if it is ascertained by means of objective proof that this right is claimed fraudulently or abusively;
- disallowance of the right to deduction is an exception from the application of the fundamental principle of VAT.
Adjusting the right to deduction
The right to deduct VAT in the case of decommissioned (written-off) capital goods shall no longer be adjusted. The Norms define the concept of decommissioning (write-off) in the sense of enforcing this provision.
Rulings in cases referred to the Court of Justice of the European Union
Express reference to certain rulings given by the Court of Justice of the European Union has been made. We mention the most important:
- C-349/96 – Card Protection Plan – it sets the criteria used for determining whether a transaction is ancillary to a principal supply or whether the operation is a single complex service;
- C-463/14 – Asparuhovo Lake Investment Company OOD – clarifications have been provided in relation to the date of the chargeable event for services entailing the payment of lump sum amounts, independent of the volume and nature of services actually provided (e.g.: services provided under a subscription);
- C-42/14 – Wojskowa Agencja Mieszkaniowa w Warszawie – it analyzes the applicable VAT treatment in the case of a recharge to the tenant of expenses incurred by the owner;
- C-285/11 Bonik EOOD si C-277/14 PPUH – it analyzes the case and consequences where the taxable person claims the right to deduction fraudulently or abusively.
Title VIII – Excise duties
I. Harmonized excise duties
Energy products
It is mentioned that, in case of an assimilation of a product with an equivalent energy product for which an excise duty level is established, the respective assimilation generates effects only in respect of excise duties applicable to the respective product and has no consequences regarding the warehousing regime and the movement and receipt of the excisable goods under an excise duty suspension regime.
Fiscal warehouse
Clarifications have been brought regarding other production activities carried out in a tax warehouse, that are related to the main activity and that lead to the usage of raw and auxiliary materials, of by-products obtained or to the usage of products which contribute to the production process (e.g., a warehouse for production of beer, wine, fermented beverages other than beer and wine, could also produce still or sparkling water and non-alcoholic beverages, packages used for bottling the products, etc.)
In order to carry out other activities, the authorised warehouse keeper should notify this intention to the territorial customs authority.
The validity period in respect of the fiscal warehouse authorizations issued until 31 December 2015 and valid on 1 January 2016, is extended up to 5 years without the need of submitting a re-authorization application.
Securities
It is simplified the manner of establishing the securities required for the end user who benefits from excise exemption and who is also the registered consignee for energy products.
In this respect, the security provided for the end-user licence also covers the security required to the registered consignee.
Exemptions for energy products and electric power
The economic operators who benefit from the excise duty exemption for energy products entirely obtained from biomass, respectively biofuels, should notify their exempt use to the customs authority.
The notification is valid for one year from its registration date in the register specially created for this purpose to the competent customs authority.
Also, additional requirements for granting the exemption that need to be fulfilled by the economic operator, who use these energy products have been introduced.
Marking and dyeing
Clarifications have been made regarding the rules applicable in case of marking and dyeing of the diesel exempted from excise duty, as well as for fuel oil and assimilated products in terms of excise duties, as well as substances to be used for marking.
The economic operators who sell the substances used for marking and dyeing the products mentioned above should register to the competent customs authority based on the application provided by the methodological norms.
II. Non-harmonised excise duties
Level and assessment of excise duties
The conditions and manner of applying excise duties for products containing both products subject to non-harmonised excise duties, and tobacco products subject to excise duties have been established.
For products resulting from such combinations, the amount of excise duties is the sum of excise duties payable for each component of that product.
Payers of excise duties
The processing of manufactured tobacco for the purpose of obtaining heated tobacco products or of products in the form of a combination of heated tobacco and liquids with nicotine content inhalable through an electronic device is carried out in tax warehouses producing manufactured tobacco.
For products subject to non-harmonised excise duties which are purchased from other EU member states or imported, the economic operator must be authorized by the regional customs authorities.
Transitional provisions
Transitional provisions have been introduced with respect to the deadlines within which the economic operations shall comply with the new provisions, inter alia:
- letters of bank guarantee which were issued by banking institutions with no branches in Romania shall be renewed by March 31st, 2016;
- starting with March 1st, 2016, economic operators are required to comply with the new conditions for submitting notifications in order to apply exceptions or exemptions from excise duties, in line with the norms;
- the compliance regarding the authorization of economic operators that carry out intra-Community acquisitions or imports of products subject to non-harmonised excise duties shall be provided starting with March 1st, 2016. During 1 of January 2016 to 29 February 2016, the respective economic operators are required to inform regional customs authorities in connection to the intention to purchase from other EU member states or to import products subject to non-harmonised excise duties.
Title IX - Local taxes
Building Tax/fee
Details on the method of determining the tax/fee on buildings depending on their destination (residential, non-residential or mixed) are provided, new examples being included in this respect.
It is specified that the valuation reports prepared with the view of establishing the building tax, are not recorded in the accounting books.
In case of a building that was extended, improved, partially dismantled or suffered other changes, taxpayers have the obligation to submit a statement within 30 days from the date these changes occurred, if they have led to changes of the building’s taxable value by more than 25%.
In case the persons enjoying the administration, use, rent or lease right over a building, subsequently pass to other persons this right, the building fee will be due only by the first person which is not a public entity. However, the destination of the building, for the purpose of assessing the building fee, is determined based on the way it is used by the final user.
Individuals who have a registered office in a building should submit the declaration regarding the destination of the respective building until 31 March 2016, even if they do not deduct the expenses with utilities.
Land tax/fee
Land tax/fee is due also for the area of the plot of land covered by a building. Details on the method of determining the tax/fee on land are provided, new examples being included in this respect.
In case the persons enjoying the administration, use, rent or lease right over a plot of land subsequently pass to other persons this right, the land fee will be due by the first private person that has the contractual relationship with the public entity.
Tax on vehicles
Clarifications with respect to the method of computing and reporting the tax on vehicles, by including certain examples, are provided. At the level of the local tax authorities, the Register of vehicles subject to licensing/registration is set up.
Special taxes
With the purpose of ensuring the financial resources for promoting tourism, local councils can establish a fee for the accommodation of tourists in accommodation facilities.
Common provisions
Details are provided regarding the increase by up to 500% of the building tax and land tax for poorly maintained buildings and plots of land inside the built-up areas of localities), as well as of land tax for agricultural land uncultivated for 2 consecutive years, irrespective whether they are located inside the built-up areas of localities or outside.
Title X - Construction tax
The value of constructions for which building tax is due, which should be deducted from the taxable base for the purpose of determining the construction tax, is the value booked as debit balance of the accounts in which the constructions are recorded (even if this is different from the taxable base declared for building tax purposes).
