ANAF is intensifying its collection efforts through the control of high net worth individuals

In the Official Gazette of Romania No. 585/28.06.2023, Order No. 920/13.06.2023 of the National Agency for Fiscal Administration (ANAF) was published, regarding individuals with high net worth, which regulates several aspects related to compliance and control of high net worth individuals, resulting in an intensification of ANAF’s efforts to collect as much revenue as possible for the state budget, in full and on time.

By Corina Mîndoiu, Partner, Income Tax and Social Contributions, EY Romania and Călin Stan, Lawyer, Senior Managing Associate, Băncilă, Diaconu și Asociații

Order No. 920/13.06.2023 specifically regulates the following: the definition of individuals with high net worth; the method of determining/estimating net worth; the definition of High Net Worth Individuals Group (HNI Group), Extended HNI Group; the appointment of the competent unit responsible for carrying out the voluntary tax compliance program for individuals with high net worth (General Directorate for the Control of Individual Income – GDCII).

Thus, an individual with a high net worth is defined as a tax resident in Romania who holds assets, both in the country and abroad, estimated at a value exceeding 25 million Euros, the equivalent in Romanian lei, calculated at the average euro exchange rate of the previous year, as established by the National Bank of Romania.

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Regarding the value of assets, Order No. 920/13.06.2023 provides clarity by stating that their estimation will be based on data and information regarding real estate, movable assets, and financial assets held, with net worth being considered the sum of these three elements. Additionally, the notions of High Net Worth Individuals Group and Extended High Net Worth Individuals Group are regulated as follows:

• The notion of High Net Worth Individuals Group refers to individuals whose estimated net worth exceeds 25 million Euros.
• The notion of Extended High Net Worth Individuals Group refers to the High Net Worth Individuals Group plus the spouses and relatives by blood or marriage up to the second degree.

Taxpayers who are part of the High Net Worth Individuals Group and/or the Extended High Net Worth Individuals Group will be informed that they belong to such a group through a notification that will include more information regarding their qualification under the net worth criteria, the three elements on which the estimation of net worth was based, and legal aspects related to compliance. Currently, individuals identified with fiscal risk are notified by the tax authorities for compliance purposes if significant differences are found between the income declared by the taxpayers and the income estimated to have been earned by them based on certain tax and asset indicators. The compliance notification represents a procedural step prior to initiating a tax audit (but subsequent to a risk analysis).

Furthermore, the group of individuals with high net worth, as well as the extended group, will be updated every 3 years by including individuals whose estimated net worth exceeds 25 million Euros, and every 6 years by removing individuals whose net worth has fallen below the aforementioned threshold.

In order to ensure tax compliance, alternative tax treatments will be applied to increase voluntary tax compliance – guiding high net worth individuals in understanding and reporting their income, as well as sending notifications regarding identified non-compliance issues. Additionally, ANAF will select, based on risk analysis, individuals who present a risk of non-compliance in declaring taxable income, in order to conduct examinations of their personal tax situation/documentary checks.

The key aspects to be noted from the ANAF draft order focus on increasing the level of compliance in declaring high net worth and paying the corresponding taxes, as well as developing a “partnership relationship” between high net worth individuals and the tax authority in Romania to avoid unpleasant and difficult situations where irregularities are found in reporting and payment as a result of audits. ANAF aims to work towards voluntary tax compliance of high net worth individuals through all measures taken, including segmenting taxpayers based on fiscal risk, with control actions preceded by targeted preliminary guidance and notification regarding identified non-compliance issues.

On their part, taxpayers in this category must thoroughly analyse the legislation, accurately and completely assess their total net worth, declare their income, and comply with the payment of the corresponding taxes, in accordance with the provisions of the Fiscal Code, generally by May 25th of each year for the previous year. There are complex situations where income can be generated both in Romania and abroad, and assets can be of various types, including those falling into the aforementioned three categories. Therefore, specialised tax analysis is necessary.

In conclusion, ANAF aims to create the necessary conditions for compliance, correctness, and transparency in the declaration of income, in its entirety, and the necessary collaboration between high net worth individuals and authorities. Considering what ANAF intends to define as “high net worth” and taking into account the necessary evaluation of movable and immovable assets and financial assets held, special assistance, both in tax and legal matters, is necessary to avoid situations of complete non-compliance.

According to the activity report of ANAF for 2022, as a result of the audits conducted on legal and natural persons in 2022, the tax inspection recorded the following results:

• 34,991 verifications were carried out on legal and natural persons (26,056 on legal persons and 8,935 on natural persons), out of which 24,459 were tax inspections (17,411 on legal persons and 7,048 on natural persons).
• Additional amounts totalling 2,806.1 million lei (2,629.5 million lei for legal persons and 176.6 million lei for natural persons) were established.

Moreover, in the first three months of 2023, 14,160 inspections were conducted on legal and natural persons – 10,184 on legal persons and 3,976 on natural persons – resulting in additional amounts totalling 612.0 million lei.