This year has brought about changes in VAT that aim to reduce tax fraud, and the unreported income of individuals will come under the scrutiny of the tax authorities. Meanwhile, tax specialists are calling for a consolidation of profit tax and VAT for group companies, as well as a holding law. These were among the pronouncements made at the tenth edition of Romanian Tax, Law & Lobby, organized last week by Business Review.
Romania is trying to reduce fiscal evasion and increase its tax collection rate, which currently stands at 33 percent of GDP, but specialists say the tax authorities are actually increasing the bureaucracy.
Dan Schwartz, managing partner at RSM Scot consultancy, said the latest anti-fraud measures in the fiscal legislation only increase bureaucracy, which in turn increases fiscal evasion. The country already has an Intracommunitary Operators Registry and inverted taxing on agricultural products, aimed at reducing tax fraud.
“Excessive bureaucracy was one of the reasons FDI went down in the first two months of this year against the same period of 2011,” Schwarz warned.
According to Ioana Sandru, tax partner at Zamfirescu Racoti Predoiu Tax Advisors, the start of 2012 brought several fiscal changes in VAT, such as 50 percent deductibility for fuels and road vehicles and a deductibility right for buildings started and abandoned and for services bought and not used. The extension of taxpayers that can form VAT groups was another welcome measure. In addition, companies can register for VAT after an inspection by the tax authorities, which can also remove the VAT right under certain conditions.
“The introduction of the holding concept is extremely useful, allowing the holding body to administer, manage and finance the group companies, granting greater flexibility in financing these companies,” said Sandru.
Starting this year, tax authorities will conduct risk analysis and find the taxpayers whose major assets exceed their reported income, which could be indicative of tax avoidance.
Tanti Anghel, director, general directorate of the fiscal procedure code at the Ministry of Finance, explained that if tax inspectors find a difference that exceeds 10 percent and is over RON 50,000 (about EUR 11,000) it will be taxed.
Romania has a flat rate of 16 percent on corporate tax, capital gains, withholding tax and personal tax, but this is not helping the country’s competitiveness, according to Mark Gibbins, partner and head of taxation services at KPMG consultancy. He said the high rate of social security contributions reduces the flat tax’s impact on individuals.
Companies facing a tax inspection have the right to delay this procedure if they need to gather additional documents to prove their fiscal health, according to Florin Gherghel, head of the tax department at Noerr Finance & Tax. He added that there are many situations when the inspection authorities only skim the documents and don’t conduct a thorough analysis.
Boosting cash flow
Reverse taxing can be a solution for cash-strapped companies, according to Ionut Bohalteanu, partner in the fiscal consultancy department at law firm Musat & Asociatii.
“The application of reverse taxing for certain activities prevents and fights fiscal evasion, at the same time giving companies that have real liquidity issues a chance at survival,” said Bohalteanu.
Adrian Luca, managing partner at Transfer Pricing Services, said the number of fiscal inspections on transfer pricing increased from 150 in 2010 to over 500 last year, while adjustments in transfer pricing jumped from EUR 2 million to approximately EUR 30 million over the period. Luca suggested the creation of an adjustment mechanism and simplified documentation as means to improve the legislation in this area.
Specialists described the Romanian lobbying market as still underdeveloped and at the same time lacking transparency, as there is no law to regulate these activities.
Roberto Musneci, senior partner at lobbying firm Serban & Musneci Associates, said the lobbying market in Romania is not developed and this is an opportunity.
“There are 15 registered companies but there are many more in other liberal professions who don’t portray themselves as lobbyists but represent legitimate interests for groups,” explained Musneci.
Adrian Moraru, deputy director at the Institute for Public Policy (IPP), warned that the lack of transparency in the Romanian lobbying scene creates a market that lacks competition. “We at IPP support the enactment of a lobbying law, not self-regulation by the industry,” said Moraru.
Agreement came from Aurelian Horja, co-author of the book Regulating Lobby Activities: On the Influence Hallway, and of the Lobbying in Romania study.
“Self-regulation is not a solution because it allows operators to do almost anything without any penalties,” said Horja.
Musneci said if the law regulates the lobbying activity and not the lobbyists themselves then he is not ideologically against it, adding that he always makes it known what group he is representing. Currently his firm is trying to push pieces of legislation in healthcare and renewable energy.
Financing your choice
BR organized a special workshop on access to finance that presented procedures and eligibility conditions for EU funds, structural funds and state aid.
According to Cristian Dima, FCCA auditor and financial advisor at Noerr Finance & Tax consultancy, the state is an important financing source of new investment projects, covering up to 50 percent of the eligible costs. “To date over EUR 300 million has been granted as financing agreements, creating over 7,300 jobs,” said Dima. He added this had attracted over EUR 1 billion in direct investment. The state aid scheme will be running through to October 2013, and has EUR 600 million still awaiting allocation.
Firms that apply for state aid need to prove that it will have a “stimulating effect” on the business, according to Manuela Furdui, managing partner at Finexpert consultancy.
“The application for state aid includes the investment plan and the socio-economic study,” said Furdui. She added the most delicate part is sticking to the business plan submitted to the authorities. However, she considers this scheme to be less bureaucratic than the EU funds mechanism.
Romania’s EU fund absorption rate reached 6.3 percent this February and the government plans to absorb EUR 6 billion this year to support economic growth.
Ramona Ivan, executive director of the directorate for financial institutions at BCR, said absorbing EUR 4 million would ensure Romania economic growth of just under 1 percent. “Different organizations in different areas should lobby for a better positioning of Romania in the next EU budget over 2014-2020,” advised Ivan.
BCR is among the banks that guarantee loans for micro and medium enterprises, a European financial instrument known as JEREMIE. The lender has a guarantee fund of EUR 42.5 million and credit resources of EUR 215 million for SMEs. The guarantee comes at no cost for the beneficiaries.
Camelia Barariu, regional director and associated partner at Relians, said that obtaining grants from EU funds can take between eight months and two years, adding that the beneficiary needs to choose between grants and bank loans. However, if the project does not meet the performance indicators stipulated in the financing plan, the grants must be returned.
Dan Schwartz, managing partner, RSM Scot: “The limitation of a company’s right to trade as a VAT payer could have significant implications for the European principle of free circulation of goods and capital across the EU”
Ioana Sandru, partner, Zamfirescu Racoti Predoiu Tax Advisors: “A significant change would be fiscal consolidation on profit tax and VAT”
Tanti Anghel, general directorate of fiscal procedure code, Ministry of Finance: “Governmental authorities remain open to proposals from the business community”
Florin Gherghel, managing partner, Noerr Finance & Tax: “During the crisis, the fiscal authorities want to increase budgetary collection, especially from honest taxpayers”
Mark Gibbins, partner, head of taxation, KPMG Romania: “The tax system remains complicated with significant uncertainties and frequent changes at short notice”
Adrian Luca, managing partner, Transfer Pricing Services: “There is no control methodology on fiscal inspections on transfer pricing”
Ionut Bohalteanu, partner, fiscal consultancy department, Musat & Asociatii: “Reverse taxing optimizes cash flow on VAT”
Florentina Susnea, general manager, PKF Finconta: “The fiscal group should go to the sector authorities that administer small contributors”
Emilian Duca, partner, Tax & Business Solutions: “Lately, forced enforcement procedures have become an automatism, as payments made are not verified”
Mihai Popa, senior VAT consultant, PKF Finconta: “Recovering VAT paid in other EU member states has resulted in more litigation since the start of the crisis”
Roberto Musneci, senior partner, Serban & Musneci Associates: “Both lobbyists and public authorities need to be transparent”
Adrian Moraru, deputy director, Institute for Public Policy: “We believe the self-regulation of lobbying activities has failed”
Aurelian Horja, communication consultant: “Companies have started to see the benefits of lobbying”
Cristian Dima, FCCA auditor and financial adviser, Noerr Finance & Tax: “State aid is granted to companies with solid business plans and new investments”
Manuela Furdui, managing partner, Finexpert: “The technical-economic study is the most important when applying for state aid”
Ramona Ivan, executive director, directorate for financial institutions, BCR: “The real absorption rate of EU funds means big sums for big projects”
Camelia Barariu, regional director, associated partner, Relians: “A successful project is one that obtains grants from EU funds, not only approval”
Roxana Mircea, managing partner, Rei Finance Advisors: “The eligibility of VAT was a significant step for EU-funded projects this year”