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Fiscal Code amendment

Among the news stipulated in the new emergency ordinance, dated October 27th 2015, we can note a decrease of dividend tax to 5% starting with 2016, not since 2017 as established, a decrease of VAT for water supply from 24% to 9%, the classification of private schools of primary and secondary education in the category of Romanian juristic persons who do not own corporate income tax and a modification of microenterprise tax.

The dividend tax shall be established by applying a tax rate of 5% from the gross dividend paid to a Romanian juristic person. Dividend tax is declared and paid to the state budget up to and including the 25thof the month following the one in which the dividend is paid.

Another important measure stipulated in the project refers to a decrease of VAT for water supply, to 9% for all types of services.

The Emergency Ordinance also stipulates that, starting with 2016, exemption from corporate income tax is not applicable eclusively to universities anymore, but also to nursery schools, schools and private high schools.

Regarding the corporate income tax, the document approved within a Government meeting further proposes that, in case of wages and salaries received additionaly to those obtained from the main activity of an employee, the monthly tax shall be determined by applying a rate of 16% from the calculation basis determined as difference between the gross income and compulsory social contributions related to each month, due according to the Romanian law or according to international legal instruments to which Romania is party, as well as, as the case may be, of the individual contribution to the state budget that is due according to law, for each position where such additional income is obtained.

Modifications from the Fiscal Code regarding the chapter of compulsory social contributions, as stipulated in the content of the document launched by the Ministry of Finance, set out an exemption from the payment of health insurance contribution for natural persons that are insured for maternity and health services on the territory of a state with which Romania applies a bilateral agreement for social security containing provisions regarding health and maternity insurance.

From the point of view of local taxes, the normative deed sets the following prerequisites:

  • in case a vehicle is registered or licensed during the year, its owner is bound to file a statement mentioning this to the local tax authority that is competent for the area where they have their permanent residence, office or business establishment, as the case may be, within 30 days from the date when they have obtained such vehicle;
  • declaration regarding the terms between February 29th – March 31st 2016 when they filed the forms regarding buildings owned by natural or juristic persons, to be used for non-residential or mixed purposes, statements regarding vehicles that are deregistered and not used anymore, as well as the filing of supporting documents issued in 2015 regarding exemptions or reductions from the payment of building and land tax or motor vehicle tax in case of natural or juristic persons who are entitled by law to benefit from such facilities.

Starting with 2016, the threshold up to which juristic persons are able to register as microenterprise will be increased up to the level of EUR 100,000 and the system of tax rates applied to microenterprises will be differentiated depending on the number of employees.

As a result, in case in which during a business year a microenterprise obtains income higher than EUR 100,000 or the rate of income obtained from consulting and management services is higher or equal to 20% from the total income, such microenterprise shall pay a corporate income tax of 16%. The corporate income tax is to be caclulated and paid starting with the quarter in which any of the limits stipulated previously have been exceeded.

According to the present Fiscal Code (approved by the Law 571/2003, in new version), valid until December 31st 2015, a microenterprise can obtain income of maximum EUR 65,000 (equivalent in RON).

As a result, according to the ordinance bill, a new system of differentiated tax rates shall be settled for microenterprises as of 2016, depending on the number of employees.

More precisely, tax on microenterprises will be between 1% and 3%, depending on the existence of employees and their number, as follows:

  • tax rate of 1% for microenterprises having at least two employees;
  • tax rate of 2% for microenterprises with a single employee;
  • tax rate of 3% for microenterprises with no employee.

In case the number of employees changes during the tax year, the tax rates stipulated above are to be applied correspondigly, starting with the quarter in which the change occured. For microenterprises that have one, respectively two employees whose contracts are terminated, the condition regarding the number of employees will be considered fulfilled if new employees are hired during the same quarter.

Moreover, in case microenterprises set off with no employees or having at most two employees and the number of their employees increases so that the tax rate stipulated before could be modified or maintained, new employees have to be hired by individual employment contracts for an undetermined period of time or for a determined period of at least 12 months.

According to the new regulations, microenterprises pay a tax of 3%, regardless of the number of employees they have.

Accounting monograph regarding the repartition of surplus / profit of a non-profit organization

The Association “Save the forest” is a non-profit entity that has been set up according to the Government Ordinance no. 26/2000 regarding associations and foundations. In order to obtain income, the entity sells promotional materials. The income from this business is considered business income that is subject to corporate income tax. In 2014, the association obtained an excess of RON 1,000.

Is such entity bound to set up a legal reserve? Can the association distribute dividends?

The normative framework regulating the accounting of a non-profit organization is given by the Ordinance of the Finance Ministry no. 1969/2007. According to point no. 183 of this ordinance, legal reserves are to be set up annually from the surplus / profit of the organization, within the thresholds and limitations that are stipulated by the law.

From the point of view of accounting registrations, amounts representing reserves set up from the surplus / profit of the current financial year shall be registered according to point 191, par. (4) of the ordinance, by the accounting posting:

129 ”Profit appropriation” = 106 “Reserves”

The accounting surplus / profit remaining after appropriation shall be taken over to the account 117 ”Other retained earnings” at the beginning of the financial year following the one for which financial reports are prepared. From this account, the amount shall be apportioned to other legal destinations.

The registration into accounting of the destinations meant for the surplus / accounting profit shall take place after the General Assembly of the organization approves the appropriation of the surplus / profit, by registering amounts representing reserves and other purposes. Entities are not allowed to adjust registrations made regarding the appropriation of the surplus / profit.

Associations are incorporated, organized and operated based on the Government Organisation no. 26/2000 regarding associations and foundations. This ordinance does not lead to any obligation for associations to set up any reserve fund as the Company Law imposes under art. 183.

As a result, the associations that are set up according to the Government Ordinance no. 26/2000 regarding associations and foundations are not bound to set up any legal reserve.

As regards dividend distribution, art. 1 of the Government Ordinance no. 26/2000 ascertains the fact that natural persons can set up foundations that can carry out activities of general interest or for the interest of a community. If a foundation carries out its business for the personal interest of the founding person, such interest must not be that of obtaining profit. As a result, non-governmental organizations are not to distribute dividends to their founders and the gains that are obtained remain available for continuing their business.

Accounting monograph on stock exchange transactions

Short-term financial investments

are to be booked in accounting in the accounts of the group 508 “Short-term investments”.

Short-term financial investments include the following:
– shares held at affiliates and
– other short-term investments representing the issued and redeemed bonds, acquired bonds and other stocks and securities purchased with the purpose of obtaining short-term profit.

Evaluation of short-term investments 
Initial evaluation. Upon their inflow, short-term investments are to be valued to their acquisition cost, i.e. their purchase price or the value established according to contracts.

In case of short-term securities that are quoted on a regulated market, the acquisition cost does not include the trading costs that are directly attributable to their acquisition, as such costs are booked in their adequate expense accounts.

Evaluation as at balance sheet date. Short-term financial investments (shares and other financial investments) that are admitted for trading on a regulated market ought to be valued to the quotation value from the last day of their trading and those that are not traded are to be valued to their historical cost, less any possible adjustments for impairment.

All possible plus or minus differences resulting from their evaluation shall be booked as financial income or loss, in the accounts 768 or 668, as the case may be.

Outflow evaluation. Upon the outflow of short-term investments, the provisions of point 131 of the Accounting regulations apply according to the 4th Directive of the European Economic Communities, as approved by the Order of the Ministry of Public Finance no. 1802/2014, respectively one of the following methods apply:
– FIFO method: first in-first out;
– LIFO method: last in – first out;
– WAC method: weighted average cost method.

Accounting posting of operations 
Stocks and securities are to be acquired by the mediation of a broker company.
The client transfers the broker an amount of money, as agreed, which the broker invests according to the instructions of the client or on their own initiative.

Periodically, the investment company sends the investor a statement of account in which the invested amounts are presented, as well as the stocks and securities in which investments have been made, the sales and acquisitions made and the fee of the investment company.

1. When an order for the acquisition of stocks and securities is placed to a broker and purchases of stocks and securities are to be booked as follows:
508 “Other short-term financial investments” = 5092 “Amounts payable for other short-term

financial investments”

  1. When amounts of money have already been transferred to the account of the broker, this operation is to be booked as follows:
    5092 “Amounts payable for other short-term financial investments” = 5121 “Cash at bank in RON”3.The sale of shares resulting in gains is to be booked as follows:
    461 “Sundry debtors”   =   %

508     “Other short-term financial investments”
7642    “Gains on disposal of short-term financial investments”

4. The sale of shares resulting in loss is to be booked as follows:
%                                                                                      =     5081″Other short-term financial investments”
461″Sundry debtors”
6642 “Losses on disposal of short-term financial investments”

The outgoing value of stocks and securities shall be determined by one of the methods FIFO, LIFO or the weighted average cost method, which is similar to the procedure applied for the outflow of stocks of goods.

5. Fees charged by the broker shall be withheld by the broker and this shall be booked as follows:

622 “Commissions and fees” = 461 “Sundry debtors”

6. Amounts collected from the broker’s account, representing the net gain from sales (amounts collected – fees charged) or upon the liquidation of the account are to be booked as follows:

5121 “Cash at bank in RON”    =    461″Sundry debtors”

7. The evaluation of stocks and securities at the balance sheet date shall be made based on the exchange rate of the last trading day.
– The positive difference resulting from evaluation (the trading value of the stocks is higher than the asset value determined by one of the methods FIFO, LIFO or weighted average cost) is to be booked as follows:
668 “Other financial expenses”        =    508 “Other short-term financial investments”
– The positive difference resulting from evaluation (the trading value of the stocks is higher than the asset value determined by one of the methods FIFO, LIFO or weighted average cost) is to be booked as follows:
508 “Other short-term financial investments”        =    768 “Other financial revenues”

Tax treatment

The provisions of the Law 571/2003 (Fiscal Code), complete with subsequent modifications and completions are to be considered upon determining taxable corporate income.

Art. 21 stipulates that before determining taxable corporate income, only those expenses that are incurred for the purpose of obtaining taxable income are to be considered deductible. This includes such expenses that are regulated by currently valid normative deeds.

Both revenues are obtained from the transfer of stocks and securities, on the one hand and those obtained as a result of plus differences from evaluation, on the other hand, are taxable.

Accounting monograph regarding the income obtained from the use of slot machines

The company Y is a Romanian juristic person, incorporated pursuant to the Law 31/1990 regarding companies keeping the books according to the Ordinance of the Finance Ministry no. 1802/2014. The company owns a gambling licence issued for the operation of a slot machine according to the Government Decision no. 77/2009. In order to enter the gambling premises, the customers have to pay an amount of RON 10, which represents the ticket for access to the gambling machine. The issuing of tickets and amounts collected from natural persons represent income that is taxable at the level of the company, whereas payments to natural persons are considered expenses. Apart from that, the gains of individuals are also subject to tax.

The gamblers benefit from a tax exemption that is applicable to gains of RON 600/ day.

The accounting registration for amounts collected from natural persons is as follows:

5311 ”Petty cash in RON”= 704 “Services rendered”

For the company, revenues from gambling are subject to income tax of 25% according to art. 75-77 of the Fiscal Code.

Accounting registration for expenses related to gains of gamblers:

6588 ”Other operating expenses” = 462 “Sundry creditors”

Withholding tax shall be registered as follows in the books of the company:

462 “Sundry creditors” = 446 “Other taxes and similar liabilities”

Payments made to players shall be booked as follows after withholding tax:

462”Sundry creditors” = 5311 ”Petty cash in RON”

Tax payment shall be booked as follows:

446 “Other taxes and similar liabilities” = 5311 “Petty cash in RON”

The forms regarding the registration of amounts paid and collected for this type of gambling are stipulated under the Appendixes 8a-8b of the Government Decision no. 870/2009, for an approval of the regulations of application of the Government Emergency Ordinance no. 77/2009 regarding gambling. The most used form is „Report on amounts collected daily from the operation of slot-machine systems”.

Accounting monograph regarding the novation of a payable bank credit

The company Y is a Romanian juristic person, incorporated according to the Company Law no. 31/1990 and it is a corporate income tax payer. This company contracted in 2012 a bank credit amounting to RON 200,000 for a term of 5 years. Due to financial difficulties, the company could not pay its credit instalments in 2014. On July 30th 2015, the bank assigned its loan contract to a Romanian debt recovery company, for an amount of RON 150,000 and a novation contract has been concluded to this purpose.

According to the Ordinance 1802/2014, the company has to keep track of its long-term credits based on the account 162 “long-term bank credits”.

On the credit side of the account 162 “Long-term bank credits”, the following are to be registered:

– The amount of long-term credits received (512)

– Unfavourable exchange rate differences resulting from end-of-month evaluation, respectively evaluations at the end of the financial year, for the credits in foreign currency (acc. 665)

On the debit side of the account 162 „Long-term bank credits” the following are to be registered:

– The amount of refunded long-term credits (acc. 512)

– Favourable exchange rate differences resulting from an end-of-month evaluation, respectively evaluation at the end of the financial year, of credits in foreign currency, as well as evaluation upon their refund.( acc. 765)

According to the books of the company, such credit is reflected in the balance of the account 1622 “Long-term bank loans in arrears”.

The assignment of credits changes only the juristic person who is entitled to require credit refund, so that no accounting entry is necessary related to that.

A detail account is to be used for the following accounting articles:

581 “Internal transfers” = 1622 “Long-term bank loans in arrears” – Bank – RON 200,000

581 “Internal transfers” = 1622 “Long-term bank loans in arrears” – Z SRL – RON 200,000

How to obtain tax amnesty

The law of tax amnesty, which became valid on July 23rd 2015 regulates exemption from the payment of tax obligations for several categories of tax payers.

Moreover, the law stipulates the following:

  • Regrouping of the business from the category of independent businesses conducted by self-employed persons or paid based on civil law contracts, respectively copyrights, by the reclassification of such amounts as independent income of salary type, for the term preceding the date of July 1st 2015;
  • Cancellation of the contribution to health insurance, for persons with income lower than the statutory minimum gross income, in case the basis of the contribution has been increased up to the level of the statutory minimum gross income, for the term January 1st 2012 – June 30th 2012;
  • Regrouping as wages and salaries of the allowance paid for business travel or secondment abroad and per diems for travelling abroad. All taxes that are applicable to salaries in cash shall be ascertained for such per diems, for the term preceding July 1st 2015;
  • Cancellation of the VAT difference for persons obtaining income from copyright, when they have exceeded the VAT exemption limit, but they have not been registered for VAT due to various reasons, for the term preceding the date of July 1st

In order that the law could be applied, four procedures have been adopted, considering the registration of a tax payer in one or several of the situations that are stipulated under the Law no. 209/2015.

Actually, tax liabilities that are to be made subject to the amnesty law shall be identified distinctively at the level of tax audit structures or of structures where administrative and tax documents are issued containing tax liabilities.

In case tax audit reports refer to other taxes as well, which are not subject to amnesty, such obligations that are subject to cancellation shall be withdrawn.

Moreover, persons having specific attributions have to prepare a list of obligations that ought to be cancelled and such list has to be signed and approved accordingly and then it has to be communicated to the department managing the account of the relevant tax payer. Such list shall mark separately cancelled obligations that have been previously communicated to the tax payer, as well as those that have not been notified to them yet.

As regards the procedure for the identification of natural persons for which the health insurance is cancelled, such procedure includes two parts: one for all tax payers obtaining income that is lower than the gross minimum salary for which the obligation of payment is cancelled, but also one for tax payers for which a cancellation of health insurance contributions has been granted by the Law no. 225/2015.

After going through these procedures, a final list has to be prepared and communicated to the department having attributions of checking and administering tax payers. Persons who benefit from tax amnesty shall receive a decision regarding the cancellation of tax liabilities.

In case there are natural persons who benefit from the provisions of the laws that have been mentioned, for which the procedure ex officio has not been fulfilled, such persons are entitled to require the application of exemption of the payment of health insurance contribution.

Regarding the procedure how cancellation decisions are issued, the regulation shall adopt the format of the “Decision for cancellation of tax liabilities, respectively internal procedures of communication, archiving, use and preservation of documents prepared for the actual implementation of tax amnesty”.

Payment to the company of a tax that is due by natural persons upon the sale of shares

Mr. Popescu is a natural person that is resident of Romania and he is the sole shareholder of the company X SRL, a Romanian juristic person that has been set up according to the Company Law no. 31/1990. The nominal value of the share capital is RON 2,000. The natural person decides to sell the shares to another natural person from Romania. The parties have agreed as price of sale the amount of RON 10,000 and they have signed the share assignment agreement on July 22nd 2015. In order to have this modification registered with the Trade Registry, the authorities of the Registry require a proof of the tax payment made in relation to this transaction.

Upon preparing an accounting monograph, we need to consider that, by the fact that the natural person selling the shares obtains a price that is higher than the nominal value, such natural person obtains taxable income.

According to Art. 66, par. (3) of the Fiscal Code, the natural person has to pay 16% tax for the gain they obtain. The tax calculation basis is the difference between the price of sale and the nominal value of shares.

The tax is withheld by the buyer from the price due to the seller. The amount is made available to the company and it is paid to the budget by the company that issued the shares that are subject matter to the sale.

Tax calculation basis = RON 10,000 – 2,000 = 8,000

Tax due = RON 8,000 x 16% = 1,280

Booking of the amount paid by the buyer at the cashier’s office of the company:

5311”Petty cash in RON” = 462 “Sundry creditors” amounting to RON 1,280

This amount shall be booked as follows in the account of income tax that is due by the natural person:

462”Sundry creditors” = 446”Other taxes and similar liabilities” amounting to RON 1,280.

Payment of tax to the budget, by bank transfer:

446”Other taxes and similar liabilities” = 5121 “Cash at bank in RON” amounting to RON 1,280

Tax is declared to the state budget by the tax return form 100, which corresponds to the month in which tax is paid and the company shall file the tax return 205 concerning the tax withheld from the income obtained by the natural person, until the 28th February of the following year.

Tax is due until the date when the modification is registered with the Trade Registry and payment within the deadline is a prerequisite of modifications that are related to the company.

Temporary suspension of business

In case of temporary suspension of business, the competent tax authority can approve, upon the request of the relevant tax payer, other deadlines or conditions for filing the following tax returns – forms 100, 101, 102, 103, 104, 120, 130 and 300.

In order to be subject to the derogation status for tax return, tax payers must fulfil all the following conditions during the entire term when such status applies:

  1. not to conduct any kind of business;
  2. not to obtain any kind of operating revenue, financial revenue, extraordinary revenue and / or other elements that are similar to revenue;
  3. not to have available any employed staff and not to pay income for which withholding tax is retained;
  4. to be registered with tax authorities with all the obligations they have fulfilled in relation to tax returns and payments;
  5. not to have pending for settlement any VAT return with negative VAT amounts and refund option or any request for the return of taxes and contributions;
  6. not to be subject matter to any ongoing tax audit measure;
  7. not to be registered on the list of tax payers that are declared inactive;
  8. in case of tax payers who are juristic persons and have been incorporated under the Company Law no. 31/1990, in new version, complete with subsequent modifications and completions, temporary suspension of business must be registered in the Trade Register, according to the provisions of art. 237 of the aforementioned law.

For the part of tax year that is exterior to the term in which the derogation status applies to tax returns, tax payers must file the forms 101, 120 and 130 upon the terms that are stipulated by the law (for ex. for the term January 1st, 2009 until the term when the derogation status applies)

Apart from that, it is compulsory to file tax returns according to the tax vector, from the date the application is filed until the date the derogation status is approved for tax returns.

During the term that is subject to the derogation status, the obligation of preparing annual tax reports and accounting reports shall still be valid according to the provisions of the Accounting Law no. 82/1991, in new version.

Necessary documents (photocopy):

  • application for granting the derogation status for tax returns;
  • a copy of the register excerpt from the Trade Registry, regarding the status of companies and the temporary suspension of their business;
  • decision of the shareholder(s) regarding the temporary suspension of business;
  • conclusions pronounced by the delegated judge;
  • confirmation of company details, issued by the Trade Registry;
  • certificate regarding the registration of the modifications, issued by the Trade Registry.

Documentation shall be filed with the office of the competent tax institution, for the administration of the tax payer.

Term for settlement: 30 days as of the date of filing the documents

The approved derogation status of tax returns ceases to be valid:

  1. upon the date that has been approved for its cessation;
  2. starting with the month when any of the conditions stipulated under Chapter A, point 3 is no longer valid;
  3. starting with the month in which, according to law, new obligations are set up regarding tax returns in relation to taxes of any kind and contributions that are due to the state budget.

In case the derogation status regarding tax returns ceases, the tax payer shall reenter ex officio the usual tax return system.

Accounting monograph for financing from a POSDRU project

A company that benefits from a financing project for the development of human resources must consider several aspects:

  • All the amounts that are related to the project are booked in subsidiary accounts that are separate from those that are used for the current business;
  • The subvention is considered a deferred income that is to be booked on account of the account 475;
  • The subvention is to be transferred to income to the extent in which expenses for which they have been financed are booked.

1) Rebooking of the project subvention approval

445.POSDRU = 475.POSDRU with an approved amount

2) Expense booking depending on their nature

604.POSDRU = 401.POSDRU for purchases of materials and consumables that are approved for deduction within the scope of the project

611.POSDRU = 401.POSDRU with the value of maintenance and repairs deducted within the scope of the project

628.POSDRU = 401.POSDRU for purchases of services that are approved for deduction within the scope of the project
641.POSDRU = 421.POSDRU with the salaries of the employees, which are approved for deduction within the scope of the project
645.POSDRU = 431.POSDRU /437.POSDRU with the value of social insurances approved for deduction within the scope of the project
3) Subventions shall be booked as income to the extent in which subsidized expenses are realized.

475.POSDRU = 7584.POSDRU

4) Booking of the collection of subvention;

5121.POSDRU = 445.POSDRU
For the non-current assets financed in the project, the subventions shall be regrouped as income proportionately to the financed depreciation value, for the term of use and depreciation of the fixed asset, at each calculation of the depreciation.

Depending on how it is approved for deduction within the project, the VAT from acquisitions made for the project can be required from POSDRU and a certificate regarding the non-deductibility of VAT is necessary in relation to the expenses that are mentioned in the refund application. Such certificate is to be issued by tax authorities.

The Ordinance of the National Revenue Office no. 1964/24.07.2015

  • The Ordinance of the National Revenue Office no. 1964/24.07.2015 modifies the criteria based on which companies incorporated under the Company Law no. 31/1990 register for VAT.
  • These modifications have as subject matter the Ordinance of the National Revenue Office no. 17/2015, the basic regulation regarding the conditions for VAT registration.

 

  • Outside this regulatory basis, the following three types of companies are included:
    • Companies that upon set-up estimate that they are going to obtain a turnover that is higher than RON 220,000 or companies that upon incorporation declare that they want to be VAT payers, even though they do not reach the exemption margin (art. 153, par. (1), point „a” of the Fiscal Code);
    • Companies that have started to run their business but during their business year express their wish to be registered for VAT, even though they have not reached the upper limit after which VAT becomes applicable in a mandatory manner;
    • Companies for which the VAT number has been invalidated ex officio by the tax authority and intend to register for VAT.
  • According to this ordinance, forms no. 098 “Application for VAT registration” and 088 “Affidavit” shall take place only when the company has not reached the margin of RON 220,000 and it cannot justify its business or when its VAT number has been invalidated out of reasons that are known (failure to file statements for a term of 6 months, there are no transactions as reported in expense deduction sheets, for a term of 6 months etc.).
  • According to art. 3 of the Ordinance no. 17/2015, a company exceeding the VAT margin shall be registered for VAT only by filing the form 010 „Amended statement”.
  • The company does not have to file the form 088, although tax authorities require this pursuant to a normative deed that allows for arguable interpretations of laws.
  • It is not seldom that companies exceeding the maximum limit of RON 220,000 applies for the registration for VAT and tax authorities require from them to file the form 088. As a result following an analysis, authorities find that the company does not have the business capacity necessary for paying VAT, which is obviously absurd, because the company has just exceeded the turnover limit.
  • On the same day, the company receives the VAT number, it becomes VAT payer but, within a few days, such code is invalidated based on the statement 088 and the company has already become taxable and registered for VAT, but it has a VAT number that is not valid.
  • The consequences are the following:
    • The company shall collect VAT upon deliveries of services and it shall pay tax based on the special VAT return form no. 301;
    • The company shall not deduct VAT from the acquisitions it makes. The beneficiaries of this company are also not allowed to deduct VAT.
  • Present modifications do not refer to substance, i.e.:
    • a) if the legal representative of the company fails to supply the required data correctly and completely, then the tax authority rejects the application;
    • b) if data are not complete, a set of documents shall be sent to the Office of Fight against Fraud, together with the application of the company, so that an inspection could take place on-site.
  • On this occasion, terms during which documentation is approved or rejected have also been changed from 1 to 30 working days, depending on the fulfilment of criteria and the multitude of circumstances that actually appear.