Tax Flash No. 4/2016
Decision 1/2016 for the approval of the methodological Norms for the application of Law no. 227/2015 regarding the Fiscal Code, as subsequently amended and completed, was published in Official Gazette 22/2016
Among the most important changes/completions of the methodological Norms for the application of the new Fiscal Code we mention the following:
– Clarifications are brought with respect to the classification of an activity as an “independent activity“.
– Clarifications are brought with respect to the concept of control, namely, an individual or a legal entity is considered to control a legal entity if it can be both factual and legally proved that they are under the control of the same administrator / manager or that the director of the legal entity is a shareholder or administrator of the other legal entity.
– A transaction without economic purpose is defined as a transaction which does not have as objective deriving economic advantages, benefits or profits and that artificially determines a favorable tax position. When reconsidering a transaction in order to adjust its fiscal impacts, the specific rules applicable to the taxes and social security contributions provided by the Fiscal Code shall apply.
CORPORATE INCOME TAX
– Examples of expenses incurred for business purposes are listed (advertising expenses, travel and accommodation expenses incurred in Romania and abroad, marketing expenses, research expenses, expenses representing the value of the disposed receivables etc).
– Expenses assimilated to salaries are deductible for the purpose of profits tax, irrespective of the tax regime applicable to them at the individual’s level.
Taxpayers who opted for a financial year different from the calendar year, and the amended fiscal year includes periods from 2015 and 2016, will treat the income and expenses, when computing the fiscal result, according to the law in force at the time when the incomes and expenses were recorded.
– The legal reserve set up again, within the same limit, after its use for covering losses or distribution in any form, would be considered deductible when computing the tax result.
– The bad debt provisions are deductible, if certain conditions are met, within the limit of 30% of the amount of the outstanding debt, including VAT.
– The criteria for the assessment of the independence of the transferred branch of activity in the context of reorganisation operations (spin off etc.) are established.
MICROENTERPRISES INCOME TAX
– Clarifications are brought regarding the start / end of the reporting period for the establishment / liquidation of a microenterprise, and the date of the submission of the declaration in case of microenterprises that cease their existence during the year.
– The provisions defining the concept of dependent activity, in the context of salary income were eliminated.
– The taxpayers carrying out independent activities and who start their activities during the tax year shall submit the tax return regarding the estimated income / income norm within 30 days from the beginning of the activity.
– Income derived by individuals, who are not registered for tax purposes, rendering production activities, trade activities, services, liberal professions, deriving income from intellectual property rights, and income from agriculture, forestry and fisheries, without having a continuity character, are considered income from other sources, the income payer having the obligation to withhold the tax.
– Clarifications were brought regarding the modality to establish the basis of calculation of income tax if the ownership transfer over an immovable property is made via a court decision.
– Examples are brought regarding the types of financial instruments that generate taxable interest income.
– Activities carried on by non-resident individuals in relation to international transport performed by companies with the place of effective management or residence in Romania, are considered dependent activities performed in Romania.
SOCIAL SECURITY CONTRIBUTIONS
– Romanian citizens residing in Romania, who carry on dependent activities in a state that does not fall under the EU legislation applicable to social security or the agreements on social security to which Romania is part of, with employers in these states who do not have registered office or a permanent establishment in Romania, do not owe social security contributions on that income in Romania.
– Clarifications and examples are brought regarding the qualification of an income as royalty.
– Income from management or consultancy services in any field is subject to withholding tax in Romania, irrespective of whether these services are rendered or not in Romania, if there is no tax treaty concluded between Romania and the income beneficiary’s country of residence or if the non-resident cannot prove its tax residency.
– Payments representing negative interest do not qualify as payments of taxable income.
– The 5% withholding tax rate is applicable to dividends distributed after 1 January 2016.
– Foreign legal persons are not allowed to carry out activities such as production, trade or provision of services through their representative offices established in Romania.
Defining certain specific terms
– The notions of “Permanent address” and “Usual residence” are defined.
– The rules for determining the business place and fixed establishment of a taxable person were transposed from the Council Regulation (EU) no. 282/2011.- In term of VAT the contiguous zone and the exclusive economic zone of Romania to the Black Sea are part of the Romanian territory for the transactions relating to the activities carried out as regard exploiting natural resources.
– The fiscal group can be formed also with persons that are not administered by the same tax authority and for the administration of such fiscal groups will be designated a separate fiscal authority.
– In case of leaving the fiscal group, each member of the group must prepare the first VAT return only based on the fiscal operations carried out after leaving the fiscal group, without taking the VAT balance from the informative VAT return related to the previous fiscal periods.
Supplies of goods/services
– The mergers and divisions will be always considered as transfer of assets, insofar as the beneficiary is a taxable person established in Romania.
– Examples were included as regards the free of charge disposal of goods/services for purposes closely related to the economic activity, for which no obligation for VAT collection arises.
The taxable base and VAT rate
– The VAT regime in the case of “the single transactions” as well as for “the bundle transactions” is established.
– “Simple purpose” and “Multiple-purpose” vouchers are defined, being presented also the rules for determining the VAT chargeability.
– Examples for determining the chargeable event for certain special operations in the context of the VAT quota change (e.g. from 24% to 20%), are included.
– The taxable base for expired food products is zero, if such are granted free of charge for social or philanthropic purposes.
– The VAT chargeability occurs at the date when the re-charge invoice for costs is issued, but the chargeable event of the initial operation is maintained.
– The adjustment of the taxable base for the receivables changed or removed as a result of implementation of a reorganization plan is allowed, starting with the date of pronouncing of the court decision by confirmation the reorganization plan, if such occurs after 1 January 2016, including for the invoices issued previously, within the prescription term.
– Clarifications regarding determination of the output VAT (at or from the value of the transaction) are brought, depending on how the price was established between the parties.
– Drinking water is included in the category of goods which are subject to 9% VAT.
– The interest charged under contracts with instalment payments represents consideration for a credit granting.
– The tax authorities shall establish the payable/ refundable VAT amount for taxable person exceeding the threshold for small enterprises, not requesting the VAT registration, as a difference between output VAT and input VAT, as well as the related late payment interest/penalties, as appropriate.
Right of deduction
– The tax authorities will deny the VAT deduction if it is established that such was fraudulent or abusively exerted.
– Starting 1 January 2016, full deduction of VAT is granted during the development of investments used for both taxable or VAT exempt without deduction right operations, following that the VAT adjustment to be performed in the first year when the deliveries of goods / supplies of services with the goods resulted following the commissioning of the investments will occur.
– The beneficiaries are entitled to deduct VAT related to invoices issued by the suppliers after tax audit, provided that such will occur within one year from the date when the correction invoice was received.
Adjustment of the VAT deductions
– Clarifications as regards the situations generating VAT adjustments in case of the unused services, stocks of goods and tangible fixed assets in progress are brought. In the event that it cannot be determined the VAT quota of the acquisition, it will be used the VAT quota in force at the time of the adjustment.
– In order to determine the value of an immovable good after transformation or modernization, the person performing these actions must obtain the value of the good recorded in the accounting books of the person making it available, before performing the works, or should determine the value of the immovable property before and after modernization by means of a valuation report.
– For VAT purposes, the written-off is defined as being the operation of decommissioning the asset, followed by its dismantling.
– Provisions regarding transitional dispositions in case of VAT adjustment for tangible assets not qualifying as capital goods until 31 December 2015 are introduced.
– The beneficiaries who erroneously deducted the VAT related to a VAT exempt or outside the VAT scope transaction, receiving the correction invoices after tax inspection, will include such invoices in the purchase ledgers and the VAT return, into a separate column, without diminish the value of the deductible VAT.
Registration and reporting VAT
The taxable persons not established in Romania, registering for VAT purposes through a fiscal representative must submit to the competent tax authorities the contract concluded with the fiscal representative, showing the extent of the mandate granted.
In case of non-residents registered through a fiscal representative will change the VAT registration into direct registration or through a fixed establishment, the VAT number attributed to the fiscal representative and the balance from the last VAT return submitted will be taken over.
Clarifications regarding the address to be inscribed into the invoices issued by non-residents registered for VAT purposes in Romania, either through a fiscal representative or directly are brought.
The VAT reimbursement request is cancelled by submitting a notification is applicable for the VAT claims / VAT returns with reimbursement option submitted before 1 January 2016, which are still pending.
In order to determine the fiscal period at the VAT registration date, the supplies of goods / services performed during the period when the VAT exemption for small enterprises regime was applied or when the VAT code of the taxable person was cancelled, will not be considered for determining the turnover.
For the taxable persons registered for VAT purposes by default, the fiscal period used in the registration year is the calendar month.
Clarifications regarding the partnerships as regards the responsibilities of the administrator of the partnership, the distribution of revenues and expenses are brought.
Clarifications as regards the VAT regime for the operations carried out by/between the members of the partnerships are brought.
The conditions of partnerships are not fulfilled if the common goals do not represent supplies of goods or services towards third parties.
The VAT deduction is not allowed for the goods / services subject to the reverse charge mechanism if such are erroneously invoiced with VAT.
Reverse charge mechanism also applies for delivery of:
– tangible fixed assets with a combined content of goods classified as ferrous and nonferrous scrap, residues or waste paper, cardboard, textile, cable, rubber, plastic and glass which are not scrapped, delivered in order to be dismantled.
– end of life vehicles in order to be scrapped, dismantled, under certain conditions;
– the waste of electrical and electronic equipments;
– mobile phones, integrated circuit devices, game consoles, tablet PCs and laptops, under certain conditions
The reverse charge mechanism is not allowed for mobiles phone accessories, if they are supplied separately, neither for the integrated devices embedded in other goods.
– The assimilation of a product with an equivalent energy product produces effects only in respect of the applicable excise duties and has no consequences regarding the warehousing regime and the movement and receipt of the excisable goods under an excise duty suspension regime.
– The authorised warehouse keeper that intends to perform in a production tax warehouse other activities that are related to its main activity and that lead to the usage of raw and auxiliary materials, should notify this intention to the territorial customs authority and should also submit the procedure manual of the non-excisable goods which are intended to be realised in the warehouse.
– The validity period of the fiscal warehouse authorisations issued until 31 December 2015 and valid on 1 January 2016, is extended to 5 years without having to submit a re-authorization request.
– 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 shall be carried out in manufactured tobacco production tax warehouses.
– A construction is considered a building if it is permanently fixed in the ground and there is an intention to remain fixed in the same location for at least one calendar year.
– Clarifications and examples are brought regarding the method of determining the tax on buildings depending on their destination.
– The evaluation reports prepared with the view of establishing the building tax, are not recorded in the accounting books.
– Legal entities who have a registered office in a building shall submit the declaration regarding the destination of the respective building until 31 March 2016. regardless of whether they deduct or not the utilities expenses. The same obligation applies to individuals who own non-residential buildings or buildings with mixed destination.
– Details are brought regarding the increase by up to 500% of the tax on 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 of whether they are located inside or outside the built-up areas of cities.
TAX ON CONSTRUCTIONS
– 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).
The new Norms approved by Decision 1/2016 entered into force on January 13th, 2016, date at which Decision 44/2004 regarding the approval of the methodological Norms for the application of Law 571/2003 regarding the Fiscal Code, as well as Decision 314/2007 on marking and coloring energy products, as well as the extension of the period laid down in Decision 1861/2006 regarding the marking of energy products shall be repealed.
Info Fiscal Nr. 1/2016