Romania moves to rewrite tax code

The government initiative to overhaul the tax code has been welcomed by the big businesses actively participating in the rewriting process, but experts say that in order to generate real benefits, the new code has to include measures aimed at making Romania attractive to foreign investors.

By Ovidiu Posirca

Romania published the first tax code and tax procedure code in 2004, three years before the country was accepted into the EU. At that time the legislation faced new challenges, as fresh EU laws had to be correlated with domestic tax provisions.

The business advocacy groups of the likes of the Foreign Investors Council (FIC) and AmCham have stressed on numerous occasions that the underlying issue of Romania’s tax framework is the lack of predictability and stability. They say companies have limited time to analyze new tax changes, disrupting business plans that have to be changed on the fly.

Luisiana Dobrinescu, coordinating lawyer at law firm Dobrinescu Dobrev, said the rewriting of the codes is intended to include the methodological norms in the text of the codes and to renumber the articles in both.

“The fiscal legislation of the last five years has been notable for the introduction of tax rules by the back door and through the methodological norms. This system allowed rules retroactivity, under the banner of interpretative rules,” Dobrinescu told BR. She reckons the rewriting of the codes should solve this technical challenge. Dobrinescu has contributed on matters related to VAT and tax procedure in the new codes.

Ramona Jurubita, partner, deputy head of taxation at the professional services firm KPMG, says the new tax code should promote uniform application in the “widest number” of tax definitions and principles and clarify the “ambiguous provisions” that resulted in conflicting interpretations.

Supporting investments

Experts say the tax code is one of the instruments the government can use to stimulate foreign investments, and representatives of the business community have put forward a raft of measures that can help companies stay afloat in choppy waters.

“It’s important that the new measures in the Fiscal Code aim to stimulate and encourage the business environment, to create the premises of durable development and the solid evolution of tax revenues,” FIC representatives told BR.

The FIC has suggested that policymakers try to curb fiscal evasion by maintaining the flat corporate tax rate of 16 percent and slashing and capping social security contributions, which are among the highest in the EU. This would help shrink the black labor market. According to the Fiscal Council, a government think tank, more than 2 million workers in Romania do not have proper work papers.

“Romania might increase its attractiveness through a modern Fiscal Code; however, legislative stability, infrastructure and the reduction of bureaucracy and corruption are far more important factors,” Bogdan Voinescu, tax partner at Bulboaca & Asociatii Tax, told BR.

The advocacy group added that Romanian can attract more investors by enforcing legislation for holdings and developing a modern legal framework which would allow Romanian companies that are members of the same group to use consolidated results in the calculation of profit tax.

“By a ‘modern tax code’ I understand a code that is adapted to economic realities whose changes are made strictly in consultation with the business environment, to avoid one of the criticisms made by companies against the authorities, which is the lack of the predictability that plays an important role in the investment decision in a jurisdiction,” Jurubita told BR.

“In addition, the enforcement of legal provisions, including as regards the control body, shouldn’t suffer delays and difficulties in the interpretation of applying certain provisions or focus tax inspections on the good taxpayers,” she added.

Another measure foreign investors have called for is the reintroduction of the facility for paying VAT at customs, which has been suspended until January 2017. The FIC says this facility would generate higher traffic in the port of Constanta.

The KPMG partner suggested the Ministry of Finance introduce the concept of a global fiscal representative to boost imports through Romania, offer VAT advantages like the Netherlands and Belgium and introduce the VAT group in line with the EU Directive.

In the new codes the authorities should amend the VAT cashing system to make it optional, cut the current VAT rate of 24 percent and simplify provisions for social security contributions, urged Voinescu of Bulboaca & Asociatii Tax.

“Another desirable amendment would be in the area of local taxes where there is currently a huge difference between the level of building tax companies have to pay and the level of tax due from individuals,” said Voinescu. He added that the current tax on buildings payable by companies is very high, representing up to 1.5 percent of the accounting value.

Dobrinescu of Dobrinescu Dobrev said the new tax code should regulate the tax treatment for operations such as the assignment of litigation rights and transactions (judicial and extrajudicial), the improved structuring of VAT adjustments and the modern regulation of associations without legal status.

New code due to come into force next year

Daniel Chitoiu, the finance minister, said earlier this month that the rewriting of the codes should be completed by mid-September and Parliament should adopt them at the end of October so that they can be enforced from January 2014.

“We hope the rewriting of the two fiscal codes will be beneficial both for the business environment and for those that use the legislation,” Chitoiu said in an interview with the website cursedeguvernare.ro.

The private sector has got involved in the rewriting of the codes, supporting specialists from the Ministry of Finance and the National Tax Agency (ANAF).

The FIC has assigned representatives for all the working groups that proposed technical changes and wider measures aimed at supporting the economy. AmCham and the Association for Tax Reformation (ARSIT) are also involved in the process.

Experts praised the relationship they had with authorities during the rewriting process but some fear that politics will come into play for the major decisions.

“There have been and still are a lot of discussions regarding the proposed changes. The aspects that can’t be controlled by the authorities’ technical specialists are proposals that have a budgetary impact and will instead be subject to political decision,” said Dobrinescu.

ovidiu.posirca@business-review.ro

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