Romania has increased the deductibility for R&D expenditure to 50 percent in order to support economic growth, but has imposed a mandatory tax for microenterprises in an effort to increase collection. Artificial transactions have come under increased scrutiny from authorities seeking to combat fraud, while the taxation rate of non-residents’ revenues wired in off-shores will be raised to 50 percent, said experts during the Tax & Law event organized last week by Business Review.
By Ovidiu Posirca
In February, the turnover threshold under which companies are considered microenterprises was cut to an annual EUR 65,000, and a mandatory 3 percent tax on revenues was imposed.
Florin Gherghel, head of the tax department at Noerr Finance & Tax, expects the budget collection to increase as a result of this initiative.
“The disadvantage of this measure is that no newly launched company will benefit from a fiscal deduction for investments,” said Gherghel.
Meanwhile, the additional deducibility for R&D expenditure rose to 50 percent and applies to activities carried out both in Romania and abroad. Companies are still waiting for the publishing of the application norms to see how they can use this fiscal facility.
The legislation was amended by authorities who enforced new provisions on VAT adjustments for goods missing from the recordkeeping.
VAT will not be adjusted for leasing firms that attempt to recover goods in the event of terminated leasing contracts, according to Mariana Vizoli, director of the VAT legislation department at the Ministry of Public Finance.
In addition, beneficiaries can deduct VAT based on issued invoices worth below EUR 100 (VAT included), if the supplier has mentioned the beneficiary’s VAT registration code on the invoice, according to Vizoli. This also applies to the acquisition of car fuel based on invoices.
Delia Catarama, partner at Viboal Findex, a tax consultancy, commented of the readjustment of VAT in transactions that the reconsideration of VAT at the market price is regulated and only works when VAT is neutral, when there are restrictions on the right to deduct.
Improving competitiveness through taxation
Companies active in Romania are grappling with aggressive tax audits as the authorities aim to increase tax revenues, said Mark Gibbins, partner, head of taxation at the professional services firm KPMG, who presented this year’s legislative challenges for the tax system.
“We’re continuing to see aggressive tax audits and growing tax litigation,” said Gibbins. He added that Romania plans to increase tax collection and improve its efforts to combat tax evasion.
The business community would like to see a more expanded, expedient and comprehensive tax ruling system and stable tax legislation without major changes at short notice, said Gibbins. He commented that a swift refund process coupled with a reduction of red tape would help businesses.
The KPMG partner added that a tax consolidation regime (tax grouping) would increase Romania’s competitiveness along with the enforcement of a holding company regime.
Dragos Doros, partner at NNDKP Tax Advisory Services, said the Ministry of Finance was currently working on holding regulation, as part of a wider effort to rewrite the Fiscal Code and the Fiscal Procedure Code.
A cap of the computation of social health insurance contributions would be another measure welcomed by employers, said Gibbins.
Expanding the taxation base
Increasing the tax collection has been one of the objectives outlined by the current government, which wants to increase the taxation base in various fields.
More traders registering revenue from the fisheries, forestry and agriculture sector will pay social security contributions, according to Luisiana Dobrinescu, partner at law firm Dobrinescu Dobrev.
Gabriel Biris, partner at law firm Biris Goran, urged the public authorities to reform the existing social contributions system, calling it a nightmare.
Meanwhile, since February, revenues obtained by non-residents that provide services abroad have also been made taxable, except for those obtained through international transport activity, said Otilia Bujor, tax manager at PKF Finconta, a tax consultancy.
Revenues registered in countries that do not have a double tax avoidance agreement with Romania will be taxed 50 percent.
“The government is aiming to reduce transactions with off-shores, but this impacts trade relations with countries that haven’t closed a double tax avoidance agreement with Romania,” stated Bujor. Romania has signed such treaties with only 86 countries.
The cash funneled through tax havens is an issue of great concern to the EU, which estimates that around EUR 1 trillion is lost yearly through tax evasion and avoidance.
Florentina Susnea, general director of PKF Finconta, explained that Romania has transposed into domestic legislation the concept of artificial transactions, whose sole purpose is to avoid tax or gain an advantage. Such transactions are usually carried out with tax havens. Romania is also trying to prevent companies from resorting to aggressive fiscal planning, which is another recommendation of the European Commission, the executive body of the EU. “Fiscal planning doesn’t necessary mean fiscal evasion and the EU is currently fighting against the transactions (artificial),” said Susnea.
Tax havens Barbados, Bermuda and the British Virgin Islands attracted more FDI that Germany in 2010, according to IMF data. The three islands accounted for 5.1 percent of the global FDI, compared to 4.7 percent for Germany and 3.7 percent for Japan.
Aside from tax-related changes, Romania also enforced the New Civil Procedure Code in February, which brought in many updates, including the payment ordinance procedure.
This procedure applies to certain receivables stemming from a civil contract or determined through a regulation or other legal instrument, according to Liliana Dragomir, partner at Baker Tilly Romania Legal Services.
Business Review also organized two workshops on Transfer Pricing and Access to Finance – state aid and EU funds.
Nadia Oanea, tax manager and head of the tax department at Baker Tilly accountancy, warned that an aggressive policy on transfer pricing will see companies come under intense scrutiny from tax authorities, also generating negative publicity.