Situation:
ABC SRL settles the accommodation of an external provider of marketing consultancy services. Is this expense deductible? What about the related VAT? The invoice was issued in the name of the company in Romania.
Solution:
According to Article 286, paragraph (3) letter (b) of the Tax Code, expenses invoiced by the supplier of goods or services to the purchaser, which are the subject of a separate contract and which are connected with the supplies of goods or services in question, are considered incidental expenses.
Therefore, in the case of ABC SRL, accommodation expenses should be considered as ancillary expenses of a service or consultancy contract, depending on the quality of the contract concluded with the client who will request the settlement.
The recommendation is that these accommodation expenses, even if incurred by ABC as the beneficiary, should not be invoiced directly to ABC but to the partner, who should re-invoice them applying the VAT rules applicable to the services of the main contract.
According to point 13 paragraph (1) letter b) of the Methodological Norms for the application of the Tax Code, in application of the provisions of article 25 paragraph (1) of the Tax Code, the following are expenses incurred for the purpose of carrying out the economic activity (therefore fully deductible), without being limited to these: the main contract.
“b) transport and accommodation expenses in the country and abroad and for other natural persons, provided that the expenses are incurred in connection with work carried out or services rendered by them for the purpose of the taxpayer’s economic activity.”
The methodological rules in point 31, paragraph (6) give an example of this:
Example 4: Company A concludes a contract for the design of a building with company B. The contract stipulates that B will bear the costs of accommodation, transport, meals, per diem, etc. of A’s employees carrying out the project. On the invoice issued A mentions separately the cost of the design and the cost of the so-called expenses incurred by B. In this situation, there is no charge-back of expenses. All expenses for accommodation, transport, meals, subsistence etc. invoiced by A to B are incidental to the design service and must follow the same rules as to place of supply, rates or applicable regime as the design service to which they relate, as set out at point 30 paragraph (5).
In the above example, no re-invoicing of expenses is made, as all these expenses are ancillary to the design service, as they are charged to the provider, even if they are recovered from the client through re-invoicing.
As regards supporting documents, at least the following are required:
– the contract with the provider stating that the beneficiary bears the accommodation costs.
– the invoice issued by the provider mentioning separately the services provided as provider and the incidental expenses
– supporting documents proving the provision of services and the amount of incidental expenses incurred (e.g. activity reports, expense statements, copies of invoices issued in the name of the provider by suppliers of accommodation, meals, transport, etc.).
It should be noted that the tax code and the methodological rules do not expressly specify which are the supporting documents to benefit from the full deduction of these expenses.
If the accommodation services are invoiced directly in the name of ABC company, then the accommodation expenses for other persons (collaborators) are deductible in the calculation of the tax result, if ABC company demonstrates that the work/services provided by the respective beneficiary persons are carried out for the purpose of carrying out the economic activity of the company.
Concerning VAT, according to Article 297 paragraph (4) of the Fiscal Code:
“(4) Any taxable person shall be entitled to deduct tax in respect of purchases if they are intended to be used for the following purposes:
- a) taxable transactions;
- b) transactions resulting from economic activities for which the place of supply is deemed to be abroad if the tax would be deductible if these transactions had been carried out in Romania;
- c) transactions exempt from tax, according to article 292 1, 294, 295, and 296;
- d) tax-exempt transactions, according to article 292 paragraph (2) letter a) point 1 – 5 and letter b), if the buyer or the customer is established outside the European Union or if these transactions are in direct connection with goods to be exported to a state outside the European Union, as well as in the case of transactions carried out by intermediaries acting in the name and on behalf of another person when they intervene in the execution of such transactions;
- e) the transactions referred to in Article 270 paragraph (7) and Article 271 paragraph (6), if the tax would have applied to the transfer in question.”
According to Article 299, paragraph (1) letter (a), in order to exercise the right to deduct the tax, the taxable person must meet the following conditions:
“(a) for tax due or paid in respect of goods supplied or to be supplied to him or services supplied or to be supplied to him by a taxable person for his benefit, to hold an invoice issued in accordance with the provisions of Article 319, and proof of payment in the case of acquisitions by taxable persons applying the VAT on importation system or by taxable persons acquiring goods/services from taxable persons during the period in which they apply the VAT on importation system.”
Therefore, if the company has a legally drawn up invoice (according to the provisions of Article 319 of the Tax Code), given that the accommodation services are purchased for the purpose of carrying out the company’s economic activity (taxable transactions), VAT will be deducted in full from those invoices.
Legal basis:
– Fiscal Code (approved by Law no. 227/2015, published in the Official Gazette no. 688 of 10.09.2015), with subsequent amendments and completions;
– Fiscal Procedure Code (approved by Law no. 207/2015, published in the Official Gazette no. 547 of 23.07.2015), with subsequent amendments and completions;
– Methodological Norms for the application of the Fiscal Code (approved by Government Decision no. 1/2016).