Romania aims to pass key tax and insolvency bills this year

The rewritten Fiscal Code should be submitted to Parliament for the final vote this summer, while the new Insolvency Code will undergo the same treatment in less than one month, said officials during the 13th Tax&Law conference, which was organized last week by Business Review.
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Dan Manolescu, state secretary at the Ministry of Finance, said that certain provisions regarding income tax are still under discussion, along with other measures on specific income, and on the fiscal framework regarding the stock exchange.

“In terms of local taxes, we are planning to restructure the tax on buildings, depending on the use of the building. We will have further discussions to clarify it and we hope it will go before Parliament in May or June,” said Manolescu

“The rewriting means we will have a new document with another structure and from this point of view we have tried to rearrange a little the titles in the Fiscal Code and the way in which they are correlated. We have direct taxes in one place, and the same for indirect taxes. The income side is connected to contributions,” added Manolescu.

Changes in VAT

Among the recent fiscal changes intended to help the business environment, he named the rollout of legislation for holdings in the Fiscal Code starting this year and the change in the fiscal year based on the accounting year.

“The decision to move the fiscal year closer to the accounting year will make accountants’ and inspectors’ work easier. We aim to change the provisions so that all companies can choose a different accounting year from the calendar year,” said Manolescu.

Mariana Vizoli, deputy general manager of the directorate of VAT legislation and customs regulations, outlined the main changes in VAT that were enforced this year. This includes the implementation of the optional VAT cash accounting system and the extension of situations in which VAT adjustments are not carried out for goods that were destroyed, lost or stolen.

On the topic of VAT, Delia Catarama, tax partner at Viboal FindEx, a tax consultancy, outlined cases in which advanced invoicing was considered by tax authority ANAF as a loan, meaning that the company that received the invoices was not allowed to deduct VAT.

Experts tip Romania to become holding destination

Manolescu of the Ministry of Finance suggested that the rollout of new provisions for holding companies in the Fiscal Code will create the opportunity for local entrepreneurs to reorganize their businesses and bring back some structures to Romania from other destinations.

“For the first in Romania we have provisions regarding holdings that can be used locally,” said Florin Gherghel, head of the tax department at Noerr Finance & Tax.

Under the new rules, a Romanian company will not levy profit tax on revenues from the sale or assignment of participation titles held by a Romanian or foreign company located in a state that has signed a double taxation avoidance treaty with Romania. However, the first company needs to hold for an uninterrupted period of one year a minimum of 10 percent of the share capital of the company in which it holds the participation titles.

The same goes for revenues generated from the dissolution of another Romanian or foreign company or for dividends received from a Romanian/foreign company (from a non-EU country that has concluded a double taxation avoidance agreement with Romania).

Authorities have also eased conditions for exempting dividends from an EU subsidiary from profit tax, with the required period of a 10 percent shareholding quota dropping from two years to one. In addition, one of the conditions which a EU company has to fulfill in order not to pay dividend tax on dividends received from a Romanian company has been relaxed, namely the period for a 10 percent shareholding has dropped from two years to one.

Emilia Moise, head of the tax department at Grant Thornton Romania, the accounting firm, said during a workshop following the conference that Romania could become an alternative to Cyprus and the Netherlands as a friendly destination for holdings.

ANAF has also started to increase audits for transfer prices, according to Adrian Luca, director at Transfer Pricing Services.

“The new principle in the field of transfer pricing is that profits have to be taxed where valued is created,” said Luca. He also chaired a workshop on transfer pricing solutions for fiscal protection following the conference.

He commented that companies run the risk of tax audits in this field if, for instance, the profit margin is lower than the regular margin reported by taxpayers in similar situations or if it registers an inexplicable drop.

Companies that do not have transfer pricing files will be fined up to EUR 3,000 and if the file is not done property the firm risks readjustments for transactions which can be in the tens of millions of euros.

Essentially, on transfer prices the ANAF wants to make sure that prices for transactions between connected companies are in line with industry averages so they do not reduce their taxable profits.

Cristina Saulescu, senior tax consultant at PKF Finconta, the tax consultancy, outlined the main European rules covering aggressive fiscal planning and the measures taken by Romania to deal with it.

She recommended companies revise contracts, especially those within the group, and scrap circular transactions, self-cancelling and self-compensating transactions, to avoid these being deemed aggressive fiscal planning by authorities.

Nadia Oanea, tax advisory department coordinator at Baker Tilly, presented the ways in which businesses can be structured more efficiently. She touched on the operational advantages of business restructuring along with the smart solutions for cash flow management and cutting financing costs, including cash polling and the flexible management of investments through holding structures.

Controversial provisions in New Insolvency Code

Government emergency ordinance no 91/2013, which approved the adoption of the New Insolvency Code, contains provisions that hinder companies’ recovery from insolvency, noted Simona Milos, president of the National Institute for the Training of Insolvency Practitioners (INPPI) and one of the authors of the new code.

The member of the consortium said it was unable to dispossess the tax authority ANAF of priority in the distribution of funds from insolvency, although this was the recommendation of the IMF and the World Bank.

“At a European level there are few countries that prioritize budgetary receivables when it comes to insolvency. There are a few exceptions related to labor reports, social security, pension insurance – for social purposes,” said Milos.

“We are among the few countries that encourage the tax authority to sleep and accumulate huge debts and penalties that cannot be recovered in an insolvency procedure, but instead we are blaming the low rate of recovery on the insolvency practitioner, who is not doing enough.”

Milos expressed her hope that the new Insolvency Code would be passed by Parliament in a month, adding that last week the Chamber of Deputies was debating the ordinance approving the code.

Under the new code, the duration of the reorganization plan has been reduced from three years to one, with the option of extending it by 12 months. Milos said this facilitates filing for bankruptcy and bars the debtor from repaying historic debts.

Furthermore, the reorganization plan will have to be passed by creditors holding 50 percent of the total receivables, from a previous proposal of 30 percent. Milos of the INPPI said this would allow the biggest creditor to dominate the receivables table and makes the voting based on categories of receivables useless. Another provision impacting the new Insolvency Code is the introduction of the possibility of foreclosure for holders of current receivables, which could generate a series of conflicts between previous and current creditors or between current creditors granting financing and other current creditors.

“In the new code we also find provisions regarding group insolvency, which is an attempt to regulate this aspect,” said Professor Radu Bufan, PhD, of the INPPI.

Andreea Deli, partner at law firm Deli&Asociatii, described the approach to the budgetary receivables in the New Insolvency Code, adding that around 200,000 firms go into administration across Europe each year. In Romania, the figure stands at 35,000.

Financing opportunities for companies going through insolvency will be improved under the New Insolvency Code, said Stan Tirnoveanu, co-managing partner at ZRP Insolvency, who presented the provisions that could streamline the procedure.

“Most of the new elements aim to streamline the procedure by unfreezing assets, ensuring financing, increasing predictability and imposing standards regarding the activity of the insolvency practitioner,” said Tirnoveanu.

Luisiana Dobrinescu, lawyer at Dobrinescu&Dobrev, outlined the recent changes in the fiscal procedure norms and the actions that can be taken to prevent fraud by debtors that damages creditors, in the first three years since the start of the insolvency procedure.

On crossboder insolvency the new code does not bring significant changes, according to Diana Rizea, senior associate at Noerr. She outlined provisions in EU regulations that allow the opening of the main insolvency procedure in the member state where the debtor has its principle place of business and of a secondary provision in the member states where the debtor has a headquarters, without previous recognition of the main procedure.

Ovidiu Posirca

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