VAT fuel deductibility

Company cars can have three uses – only for performing the activity, only for the personal use of the employees or a mixed one.

The expenses and the VAT related to the vehicles heavier than 3.500 Kg. and equipped with more than 9 seats, including the driver’s seat, are considered to be fully deductible. Deductible are also the expenses and the VAT for any type of vehicle used in one of the following situations:

  • Only for emergency services, security services and courier services;
  • By sales and purchasing agencies;
  • For taxable passenger transport, including taxi services;
  • For rendering taxable services, including renting to other persons or for instruction by driving schools;
  • As goods, for commercial purpose.

Mixed use

According to legal provisions, expenses related to power-driven vehicles (except for the amortization for which special rules are applied) which are not used only for economic activity, with a maximum permissible laden weight not exceeding 3.500 Kg and maximum 9 seats, including the driver’s seat, are deductible to a limit of 50%.

The 50% deductibility rule applies also, with regard to the right of deduction of input VAT for the above described vehicles. The expenses subject to this limitation include directly the expenses attributable to vehicles, including those related to the leasing contracts, such as: fuel, spare parts, local taxes, compulsory motor insurance, periodic worthiness tests, rent, not deductible expenses related to the WATT resulted from applying the 50% limitation, interests, commissions, less favorable exchange rate differences etc.

Full deductibility

Full deductibility is applied for the above mentioned expenses only in case the vehicles are used only for economic purposes and under their justification based on accounting documents and vehicle logbooks. According to the Fiscal Code, the vehicle logbooks must contain the following information:

  • The class of the vehicle used;
  • The purpose and place of the travel
  • Kilometers covered;
  • Own norm of fuel consumption/km. covered.

By exclusion, one can understand that in case of vehicles for which the 50% treatment is applied, no preparation of vehicle logbook is needed.

Benefits in kind

In case the vehicle is used both for economic and personal purposes but is considered fully deductible (because it is used in the above mentioned situations), it is recommended the use of the vehicle logbook as supporting document  in order to determine how much is used for economic purpose and how much for personal purpose.

According to the Fiscal Code, the advantages in form of personal use of the vehicles for which the deductibility limitation of 50% was applied are not considered to be wage income. With regard to the vehicles for which full deductibility was given, but which are used also for personal purpose, the part which was used for personal purpose is considered to be a benefit in kind. Thus, in order to calculate the value of the benefit in kind, the following formula will be used:

Benefit in kind = (1.7% of the entry value or the value of the rent divided by the total number of the kilometers covered in a month) and then multiplied by the number of kilometers used for personal purpose.

VAT limitation period

The new amendments brought to the Fiscal Procedure Code have both positive and negative effects upon taxpayers starting with the 1st of January. We mention thus, the most important amendments for the business environment.

The legal VAT repayment term was extended from 45 days to 90 days in case of settling a VAT return with anticipated control. Moreover, the 90 days term can be also extended with another 6 months in case the statements performed in the VIES System need to be checked upon or in case information from the tax authorities of other states is needed. This way, a legal term of 9 months within which a vat reimbursement claim can be settled is born, without a possibility for the taxpayer to ask for interests as a result of delayed VAT reimbursement. Until now, the limitation period of 5 years began on the 1st of January of the year following the one in which the tax claim was born, as differences between the taxpayers and tax authorities regarding their perspective upon the moment in which the tax claim was born were arising. Now, by means of these amendments, this moment was determined as starting from the 1st of July of the year following the one for which the tax claim is due.

“Consequently, the tax authority will be able to perform the tax inspection and establish tax liabilities within 5 years and 6 months following its determination (end of financial year) for the taxes for which the tax base is yearly established and for the taxes for which the tax base is monthly established (VAT), the term can reach 6 years and 4 months from the day the tax base is established (for example for the tax related to January).”

Regarding the claim procedure, the taxpayer will dispose of 45 days for filing the tax claim, term which allows a more through preparation of the tax and legal argumentation as well as the identification of potential new evidence which could be used against the contested act. Secondly, we assist to the introduction of the provision allowing the taxpayer to claim for the oral presentation of the tax claim before the dispute settlement body. On the other hand, the new fiscal procedure code did not undertake the text allowing the taxpayer to contest also ”the lack of act”, which could generate contrasting interpretations and future conflicts between taxpayers and authorities.

Money laundering

Through Decision No. 673/2008, published in the State Gazette, Part I, No. 452 of 17th June 2008, The National Office for Prevention and Fight against Money Laundering has approved the working methodology regarding the transmission of reports of cash transfers and reports of external transfers.

Thus, according to the Decision No. 673/2008, the entities mentioned in Art 8 of the Law No 656/2002 for Prevention and Fight against Money Laundering must send the reports of cash transactions and external transactions to The National Office for Prevention and Fight against Money Laundering within 10 days following the transaction being reported.

The reports can be sent daily or all together for maximum 10 working days and can be generated in paper form or in electronic form, through magnetic or optic media.

If the reporting entities choose a cumulative transmission for maximum 10 days, these must transmit a report of every kind, which should contain all operations undergone in the period of time related to the reporting.

The reports can be transmitted by submitting them to registry of The National Office for Prevention and Fight against Money Laundering, by post or by courier, with acknowledgement of receipt.

Reports in electronic form must be accompanied by a notification containing the characteristics of the file: name, date and time of generation and size.

Reporting entities

Natural and legal persons responsible for sending reports to The National Office for Prevention and Fight against Money Laundering are, according to Art.8 of Law No 656/2002 for the prevention and fight against money laundering and terrorism financing, the following:

  1. a) credit institutions and Romanian branches of foreign credit institutions;
  2. b) financial institutions, as well as Romanian branches of foreign financial institutions;
  3. c) managers of private pension funds, in their own name and for the private pension funds they are managing, marketing agents authorized in the private pension field;
  4. d) casinos;
  5. e) auditors, natural and legal persons performing tax and accounting consultancy;
  6. f) notaries public, lawyers and other persons exercising liberal legal professions, in case they offer support with preparing or improving the operations for their clients regarding the purchase or selling immovable properties, shares or social participations or elements of the company value, managing the financial instruments or other goods belonging to clients, constituting or managing bank accounts, saving accounts or accounts of financial instruments, organizing the subscription process of the contributions requested by the foundation, the functioning, or the management of a company, of undertakings for collective investment in transferable securities or of other similar structures or the development according to the law of other fiduciary activities , as well as in the case in which they represent their clients in any financial operation or operations concerning immovable properties;
  7. g) providers of services concerning companies or other entities , other than those mentioned by lit e) or f);
  8. h) persons with tasks in the privatization process;
  9. i) estate agents;
  10. j) associations and foundations;
  11. k) other natural or legal persons marketing goods and/or services, only as long as they are based on operations involving cash, RON or foreign currency, whose minimum limit is represented by the RON equivalent of 15.000 Euro, no matter if the transaction implies a single operation or more operations which seem to be related.

The management structures which will be preparing the reports, in case of liberal professions

The Emergency Ordinance No 53/2008 amended, at the end of April, the Law No 656/2002. Among the new rules, there are those regarding the auditors, natural and legal persons offering tax or accounting consultancy, notaries public, lawyers and other persons exercising legal liberal professions.

In their case, the reports will be prepared by the persons assigned by the management structures of liberal professions, who must send them to the Office within 3 days following their arrival.

Reporting threshold: 15.000 Euro

The Emergency Ordinance No 53/2008 has established a reporting threshold of 15.000 Euro, mandatory for the employees of legal persons and for natural persons that are mentioned by Art.8 of Law No 656/2002, in contrast to the previous rule implying a 10 thousand euro threshold.

By operations that seem related, we mean “operations related to a single transaction resulting from a single commercial contract or agreement of any type between the same parties, whose value is divided in tranches smaller than 15.000 Euro or its RON equivalent, when they occur in the same bank working day.”

Fusion through assimilation

According to the provisions of the Law on Companies, the fusion through assimilation implies, in general, the following stages and procedures.

  • Drawing-up the Decision of the company’s general meeting of shareholders initiating the fusion and the Statement of the receiving companies regarding the establishment of their obligations.
  • Drafting of the fusion Project by the administrators of the societies undergoing the fusion – the content of this document is stipulated in the Law on Companies. This document must contain relevant information related to the fusion process, the basis of the fusion, the terms and conditions of the fusion, the determination of the share value, of the exchange report, of the first fusion (if the case), the date of the financial statements related to the fusion;
  • Submission of the documents to the Trade Register;
  • Drawing-up of the fusion report by an independent expert assigned by the Trade Register. This report is drawn up for the shareholders of the companies involved in the fusion process. The independent expert will check, among others, the fusion Project drawn up by the administrators of the companies taking part in the fusion and will determine whether the exchange report is correct and reasonable as well as whether the method of calculating the exchange report is appropriate.
  • Publishing the Fusion Project in the Official Gazette. From this moment on, the creditors of the societies involved in the fusion dispose of 30 days in order to file possible claims related to the fusion process.
  • Drawing-up of the fusion report by the administrator – usually, this report should contain explanations concerning the fusion and economic, legal details related to the fusion and especially related to the exchange report.
  • Submission of the fusion documentation, the fusion project the report of the administrators and of the independent expert, of the censors and auditors, of the last 3 annual financial statements of the societies involved in the fusion.
  • Drawing-up the final decision of the shareholders for approving the fusion
  • Registration at the Trade Register of the final Decision of the shareholders for approving the fusion
  • Republishing the amendment of the contract

The negative net asset value

In practice, the analysis of the net asset value of the companies involved in the fusion would be advisable.

According to the Law on Companies, if the companies face a negative net asset value (situation in which the net asset value is smaller than the share capital), they must either increase the share capital or to dissolve it, according to current legislation. It must be mentioned, that in practice, no cases of such dissolution were heard of. For example, in case the assimilated society faces a negative net asset value, this situation can lead to loss from the assimilating company (through the reported result) which could influence in a negative way the capacity of the assimilating company to distribute dividends or it can affect the deductibility of interests.

Company value

The order 1802/2015 mentions the fact that the company value can be recognized in case of transfers which occur as a result of fusion operations. The company value represents the difference between the purchase price and the market value of the net asset value resulting from the fusion.

Thus, the company value resulting from the fusion is related to the method being actually used in order to assess the companies involved in the fusion process.

It must be mentioned that, from a tax point of view, the company value cannot be amortised.

What should be taken into account for the most advantageous fusion option

In order to decide what the most favorable option would be, the following aspects should be taken into consideration:

  • The scenario established for the ongoing of the fusion process must have a sustainable economic fundamentl;
  • The careful analysis of the impact of the reserves and provisions, as well as the net asset value of the assimilated company as a result of certain financial simulations;
  • The analysis of the loss registered by the companies involved in the fusion;
  • The impact of the transfer taxes as a result from the fusion;
  • Procedural and report-related aspects

Companies’ audit obligations regarding the trial balance dated 31 December 2015

The following companies are bound to request the auditing of companies on 31 December 2015:

I. Medium-sized and big companies–the ones that on balance day exceed the limit of at least two of the following criteria: assets: 17.500.000 lei; turnover: 35.000.000 lei;

3.average number of employees during the financial year: 50.

 II. Companies of public interest, defined according to current provisions.

III. Small companies which, on balance day, exceed the limit of at least two of the following three criteria.

  1. a) total assets: 16.000.000 lei;
  2. b) net turnover: 32.000.000 lei;
  3. c) average number of employees during the financial year: 50.

We must draw attention upon the fact that, as an exception to the general rule laid down  by the Order No. 1802/2014, the Order No. 123/2016 provides the auditing obligation in case, based on the trial balance drawn up on 31 December 2015, the limit of at least two of the three above mentioned criteria is exceeded. In other words, for the financial situations of 2015, the auditing obligation will only be decided under fulfillment of the criteria for a single year and not for two consecutive years.

The companies that have chosen a financial year different from the calendar year determine the size criteria for attributing a certain category and for deciding the auditing obligation according to the trial balance drawn up at the end of the chosen financial year, which ends before the first of January 2016.

The subunits without legal personality in Romania, which belong to certain legal persons headquartered abroad, except for subunits opened in Romania by companies headquartered in states belonging the European Economic Area, apply the same provisions concerning the attribution of the size category and the assessment of the auditing obligation, in other words they analyze the criteria based only on a single financial year and not two.

Programmers exempt from payroll tax – What conditions must be met

In 2015 there was a significant regulatory change, in the sense that any natural person who graduated from a college, with long-term high education, regardless of the field of studies, may be considered a programmer in the acceptance of exemption from income tax given by Article 60 of the new Tax Code.

Programmers exempt from payroll tax – What conditions must be met

In terms of legislation, several provisions need to be met. Thus, further study on the income achieved in the previous year from the sale of software is required according to Article 1 letter d) of OMFP no. 835/2015, namely:

“Art. 1. – (1) Economic operators employees who operate their activity in Romania in accordance with the law in force, whose object of activity includes the creation of computer programs (NACE code 5821, 5829, 6201, 6202, 6209), as well as employees of Romanian legal entities of public law benefit from tax exemption on income from salaries, in accordance with the provisions of the Code, If the following conditions are cumulatively met:

  • the positions they are employed for correspond to the list comprising the occupations listed in the Annex;
  • b) the position is part of a specialized department of informatics, highlighted in the organizational chart of the employer, such as: computer center, direction, department, registry, service, office, division or the like;
  • c) they hold a diploma awarded after completing of a form of long-term higher education or they hold a diploma awarded after completing the 1st cycle of undergraduate studies, issued by an accredited institution of higher education, and actually provides one of the activities listed in the Annex;
  • d) the employer achieved in the previous fiscal year and recorded separately in analytical balances, as a result of the activity of creating computer programs intended for trade on a contract basis, an annual income of at least the equivalent in lei of $ 10.000 (calculated on the average monthly exchange rate communicated by the National Bank of Romania, related to each month in which the income was recorded) for each employee who benefits from income tax exemption.”

In terms of value, the company may benefit from exemption from income tax if, in the previous year, it earned income grater than $ 10.000 for every programmer subject to exemption, income generated from the sale of that contract based software.

The term of “marketing” may be interpreted as a direct sale of property rights, but as long as this term was not limited to the exchange of property, by marketing we understand other forms of operating this software, such as leasing to third parties.

The transfer pricing file II

The large companies must file annually to the Fiscal Administration the transfer pricing documentation by March 25 if they ran transactions with affiliates which summed rise over certain thresholds, according to the Order 442/2016 of the National Agency for Fiscal Administration (ANAF). The other taxpayers shall submit this documentation only during a tax audit.

 The order 442 of 2016 establishes three situations, depending on the size of the taxpayers, for preparing and submitting the transfer pricing documentation. Only big taxpayers have to prepare their transfer pricing documentation annually until March 25 and only under certain conditions. More specifically, they have this obligation if their total summed transactions with affiliated parties go beyond the following thresholds:

  • 200,000 euros, for interest received / paid for financial services
  • 250,000 euros, for transactions related to the services received / provided
  • 350,000 euros, for transactions on purchase / sales of tangible or intangible goods.

The big taxpayers who do not have large transactions above these thresholds, the small and medium-sized taxpayers shall submit the file only on request during a tax audit and shall be given a period between 30 and 60 days for this purpose which may be extended once. In their case, too, there are materiality thresholds expected:

  • 50,000 euros for interest received / paid for financial services
  • 50,000 euros for transactions related to services received / provided
  • 100,000 euros for transactions on purchases / sales of tangible or intangible goods.

The affiliates are companies, resident or non-resident individuals, part of the same group, holding, directly or indirectly, at least 25% of the number of shares. Until this year, the documentation was submitted only at the request of the Fiscal Administrations, during an inspection, and a deadline, usually of three months, was given.

The values ​​exclude VAT and the exchange rate is announced by the NBR on the last day of the fiscal year.

In the file, the group members must demonstrate that the transactions between them are necessary and are not intended to diminish the taxes due. Consequently, they must justify both the reality of the transactions and the prices thereof, which must be at the market value, namely the same price or one comparable to that which would have been established with companies or individuals outside the group.

Basically, by the transfer pricing legislation, the tax authorities are trying to limit the movement of the profits in jurisdictions with more favorable tax systems. The file missing, the tax inspectors shall estimate the amount of transfer pricing and shall adjust the fees due.

Legal status of default interests and delay penalties

In 2016, as well as in the present, interests shall be calculated for each day of default.

Nevertheless, starting with 2016, the value of the interest shall be diminished to 0.02% for each day of default, from 0.03% as it is in the present.

Apart from the aforementioned, default charges shall be diminished as well, from the actual value of 0.02% to 0.01% for each day of default.

The new Fiscal Procedure Code includes a level of 1% of default charges per month or part of month in case of tax liabilities managed by local tax authorities, as compared to 2% at present.

According to the new Fiscal Procedure Code, the penalty for failing to file tax returns is an ancillary obligation representing the sanction for failing to declare or declaring less of taxes of any kind and social security contributions, by tax returns.

Concretely, for tax principal liabilities that have not been declared or have been declared incorrectly by the tax payer, as established by the tax audit authority by tax assessments, the tax payer shall pay starting with 2016 a penalty of 0.08% for each day of declaration default, starting with the day immediately following the deadline and up to the date when the amount due is declared.

According to the regulations of the new Fiscal Procedure Code, no penalty is to be ruled by tax authorities under the amount of 50 RON.

In return, the penalty for the failure to declare income may increase by 100% in case main tax liabilities are a result of committing deeds of tax evasion, as found by tax audit authorities.

Apart from that, the new Fiscal Procedure Code also foresees that the penalty for failing to declare income may be diminished by 75% upon the request of the tax payer, if the principal tax liabilities established by a decision:

  • are settled by payment or compensation;
  • are scheduled for payment according to law. In this case, the reduction is granted upon the end of the payment schedule.  

 The use of penalties for declaration default does not mean that default charges and delay penalties are ruled out.

The penalty for failing to declare income is not applicable if principal tax liabilities that are not declared by the tax payer, yet ascertained by tax audit authorities, by tax assessments, are a result of the application of provisions of tax laws by the tax payer in question, according to the interpretation of the tax authority, as included in rules and regulations, instructions, memorandums or opinions.

The Law no. 207/2015, by which the new Fiscal Procedure Code is approved, has been published in the Official Gazette no. 547, dated July 23rd 2015 and it shall come into effect as of January 1st 2016.

The transfer pricing file

Starting with 2016, all companies will have the obligation to prepare a transfer pricing file, not only upon the express request of tax authorities. The new obligations are stipulated in the New Fiscal Procedure Code (Law 207/2015).

If companies are not bound at this time to hold any transfer pricing file, unless in cases of tax audits, when they have a 3-month term available for preparing the file, starting with the next year, companies must have such transfer pricing file already prepared.

The new Fiscal Procedure Code, Art. 108, par. (2) stipulates as follows:

“In order to prove the compliance with the arm’s length principle, the tax payer operating transactions with affiliated persons or businesses has the obligation to prepare a transfer pricing file. The amount of transactions for which the tax payer has to prepare the transfer pricing file, the deadlines for its preparation, the contents of the transfer pricing documentation, as well as the conditions in which these are required shall be approved by an order of the Chairman of the Internal Revenue Office.”

By comparison, art. 79, par. (2) stipulates as follows: “In order to establish transfer prices, tax payers conducting transactions with affiliated persons or businesses have the obligation to prepare and file a transfer pricing documentation, upon the request of the competent tax authority and within the deadline established by them. The content of the transfer pricing documentation, as well as the conditions in which it is required shall be approved by an order of the Chairman of the Internal Revenue Office”.

The obligation of preparing the transfer pricing documentation must not be neglected!

“Fundamental in front of authorities is to justify the economic substance of transactions with affiliated parties, so that they would not be reclasified by tax auditors as artificial transactions. The most sensitive are administrative services (consulting, management, marketing, human resources etc.)”

As a procedure that is applicable before checking such file or documentation, transactions and their necessity are checked. In case it is found that these have not been necessary, they are not taken into consideration upon ascertaining tax amounts.

At this time, fines for the failure to comply with provisions regarding the requirement and presentation of the transfer pricing documentation, according to the Ordinance of the Internal Revenue Office no. 222/2008, are between RON 12,000 and 14,000.

Art. 2, par. (6) of the Ordinance of the Internal Revenue Office 222/2008 mentions as follows:

“Upon establishing the deadline for the transfer pricing documentation, which is to be filed by the relevant tax payer, the competent tax authorities shall take into consideration the number of affiliated businesses and persons involved in transactions, the number of transactions made and their complexity, as well as the period of time when transactions have taken place. The term for filing the transfer pricing file shall be of maximum 3 calendar days, with a possibility of extending just once the term, upon a written request of the tax payer, by a period that is equal to that established initially”.

Default interests and penalties

Default interests and penalties that are applicable as of 2016

The prescription term, as a general rule, is of 5 years. Atypical is nevertheless the date as of which this limitation period starts: as of July 1st of the year following that in which tax liabilities arose.

Practically, for the taxes related to January 2016, with the due date on February 25th 2016, the real limitation period starts on July 1st 2017 and it ends on June 30th

For taxes that are detained from payment as a result of the fact that penal law has been violated, the limitation period is of 10 years as of the date of the deed that has been considered an offence.

In case taxes are not paid before or upon their due date, 3 types of interests and penalties are payable (acc. to art. 174-181 of the Law no. 207/2015 regarding the Civil Procedure Code):

  • Default interests amounting to 0.02% for each day of default, respectively 7.3%/year.
  • Default charges of 0.01% for each day of default, respectively 3.65%/year.
  • Penalties for failure to file tax returns, corresponding to debts that are established additionally upon tax audits, yet inclusive for the correction on one’s own initiative of an error; such penalties are of 0.08% for each day of default, respectively 29.2% / year.

Should there appear any error in a tax return filed for amounts that are lower than necessary, the penalty for the failure the file tax returns is almost 30%, excepting the other two sanctions (default charges and penalties). Of course, tax authorities are generous and they do not fine tax payers anymore for filing amended returns.

The penalty is reduced by 75% if you pay taxes that are established additionally by a tax assessment issued at the end of the tax audit.

Tax authorities establish the tax amount due, the tax payer agrees on them as such and they benefit from a reduction of 75% from the penalty established for the failure to file tax returns. If the audited tax payer contests the result of the tax audit, then they don’t benefit from this reduction anymore.

In total, as annual balance, default interests and penalties for failure to declare shall have in 2016 a rate of 40.15%, a percentage which is applicable unfortunately not only to taxes that are not paid due to various reasons, but also to those generated by accounting errors.

In 2015, default interests and penalties are as follows:

  • Interests: 0.03% / day representing 10.95% / year.
  • Default charges amounting to 0.02% / day, representing 7.3% / year.

Total percentage for 2015: 18.25 % / year.

Annual growth for 2016 as compared to 2015: 40.15 / 18.25 = 2.2 -> 220%.