CHAPTER III. Definitions

Art. 7. Definitions of common terms

(1) For purposes of this Code, except for Title VI, the terms and expressions below have the

following meanings:

1. activity — any activity carried out by a person for the purpose of earning revenues;

2. dependent activity — any activity carried out by an natural person in an employment

relationship;

2.1. Any activity can be reclassified as dependent if it meets at least one of the

following criteria:

a) the income beneficiary is subordinated to the income payer, namely to the

management bodies of the income payer, and complies with the working requirements

imposed by the latter, such as: job description, working place, working hours;

b) in the course of activity, the income beneficiary uses the material resources of the

income payer, that is adequately equipped premises, special work or protection equipment,

tools and similar and contributes only their efforts, be it physical or intellectual, but not their

equity;

c) for business purposes, the income payer bears the travel expenses of the income

beneficiary, such as the allowance for delegation and secondment in Romania and abroad, as

well as other similar expenses;

d) the income payer bears the annual leave allowance and the allowance for

temporary work incapacity, on behalf of the income beneficiary.

2.2. If an activity is reclassified as dependent, income tax and mandatory social

security contributions, assessed according to the law, shall be recomputed and transferred,

being jointly due by the income payer and the income beneficiary. In this case, the rules

concerning assessment of tax on salary income derived outside the primary position,shall

apply;

3. dependent activity at the primary position — any dependent activitycarried out based

on an natural person employment contract or a special status set out by legislation reported to

the employer as the primary position by the employee; if the activity is conducted for several

employers, the employee is bound to report to each employer the place wherefrom such

position which they consider primary is performed;

4. independent activity — any activity carried out on a regular basis by a natural person

other than a dependent activity;

5. association without legal personality — any consortium, economic interest group,

civil partnership (Rom. societate civila) or other entity that is not a separate taxable person for

purposes of income and profit tax, according to norms issued in application thereof;

51. central tax authority - the Ministry of Public Finance, an institution in charge with the

consistent application of the tax legislation;

6. competent tax authorities — the tax authorities within the Ministry of Public Finance

and the specialized offices of the local public administration authority, as the case may be,

that are in charge with tax-related issues;

7. finance lease agreement — any lease agreement that satisfies at least one of the

following conditions:

a) the risks and rewards of the ownership right over the leased asset are transferred to

the lessee when the lease agreement takes effect;

b) the lease agreement specifically provides for the transfer of the ownership right

over the leased asset to the lessee when the agreement expires;

c) the lessee has the option to purchase the asset upon expiry of the agreement, and

the residual value expressed as a percentage is less or equal to the difference between the

lease term and the maximum normal useful life, compared to the maximum normal useful life,

expressed as a percentage;

d) the lease term exceeds 80% of the maximum normal useful life of the leased asset;

within the meaning of this definition, the lease term includes any period for which the lease

agreement may be extended;

e) the total amount of lease payments, save for ancillary expenses, exceeds or equals

the entry value of the asset.

8. operating lease agreement — any lease agreement entered into by and between a

lessor and a lessee which transfers to the lessee the risks and rewards of the ownership right,

save for the sale risk of the asset at the residual value and which does not meet any of the

conditions referred to in letters b) to e) under point 7. The sale risk of the asset at residual

value exists when the buy-back option is not exercised at the beginning of the agreement or

when the lease agreement specifically provides for the return of the asset upon expiry of the

agreement;

9. commission — any payment in cash or in kind made to a broker, a general

commissioner agent or to any person similar to a broker or a general commissioner agent, for

intermediation services performed in connection with a commercial operation;

10. mandatory social security contributions — any contributions that must be paid in

accordance with the effective legislation for protection of unemployed persons, health

insurance or social security;

11. tax credit — a reduction in income or profit tax by the amount of the tax paid abroad,

according to double tax treaties or as provided in this Code;

12. dividend — a distribution in cash or in kind made by a legal person to a participant in

the legal person as a consequence of the ownership of shares/units in such legal person,

except for:

a) a distribution of additional shares/units that do not modify the percentage of

ownership of the shares/units of any participant in the legal person;

b) a distribution made in connection with the acquisition/redemption of its own

shares/units in the legal person that does not modify the percentage of ownership of the

shares/units of participants in the legal person;

c) a distribution in cash or in kind made in connection with the liquidation of a legal

person;

d) a distribution in cash or in kind made upon reduction of share capital actually

constituted by participants.

e) a distribution of issue premiums, proportionally with the part incumbent on each

participant.

The following amounts shall also be treated as dividends from a tax perspective and shall be

subject to the same tax treatment as dividend income:

- the amount paid by a legal person for goods or services purchased from a

participant in the legal person exceeding the arm’s length price for such goods and/or

services, if the amount in question was not subject to taxation for income or profit tax

purposes at the beneficiary;

- the amount paid by a legal person for the goods or services supplied in favour of a

participant in that legal person, if the payment is made by the legal person to its personal

interest.

13. interest — any amount that is required to be paid or received for the use of cash,

regardless whether required to be paid or received within a debt obligation, in connection with

a deposit, or under a finance lease agreement, installment sale or other deferred payment sale;

131. copyright and related rights — literary, artistic or scientific original works of

authorship, regardless of means of creation, medium of expression and independently of their

value or destination, derivative works employing one or more pre-existing works, as well as

related rights and sui generis rights, according to Law no.   8/1996 regarding copyright and

related rights, as amended and completed.

14. franchise — a trading system based on continuous collaboration between financially

independent natural persons or legal persons, in which a person, called the franchiser, entitles

another person, called the beneficiary, to use or develop a business, product, technology or

service;

141. deferred profit tax – tax payable / recoverable in the future in relation to temporary

taxable / deductible differences between the accounting value of assets or debts and the tax

value thereof;

15. know-how — any information on certain industrial, commercial or scientific

experience that is necessary for the manufacture of a product or for the application of an

existing process and that is not permitted to be disclosed to other persons without the

authorization of the person that provided such information; inasmuch as it is derived from

experience, know-how is what a manufacturer cannot know from mere examination of the

product and mere knowledge of technical progress;

16. fixed asset — any tangible asset that is held for use in the production or supply of

goods or services, for rental to third parties, or for administrative purposes, if the asset has a

normal useful life of more than one year and a value exceeding the limit provided by

Government Decision;

17. non-resident — any foreign legal person, any non-resident natural person, and any

other foreign entities, including collective placement bodies without legal personality, which

are not registered in Romania according to the law;

18. non-profit organisation — any association, foundation or federation established in

Romania in accordance with the legislation in force, but only if the income and assets of the

association, foundation or federation are used for an activity of general, community or non-

lucrative interest;

19. participant — any person that is the owner of a share/unit;

20. person — any natural person or legal person;

21. related parties — a party is related with another party if the relationship between them

is defined in at least one of the following cases:

a) an natural person is a related party of another natural person if such persons are

spouses or relatives up to the third degree, inclusively. Between related parties, the price for

the transfer of tangible or intangible assets or the price for the supply of services constitutes a

transfer price;

b) an natural person is related with a legal person if the natural person owns, directly

or indirectly, including holdings of related parties, a minimum of 25%, by value or by

number, of the shares/units or voting rights in the legal person, or effectively controls the

legal person;

c) a legal person is related with another legal person if at least:

(i) the first legal person holds, directly or indirectly, including holdings of related

parties, a minimum of 25% of the value/number of shares/units or voting rights in the other

legal person or controls the legal person;

(ii) the second legal person holds, directly or indirectly, including holdings of

related parties, a minimum of 25% of the value/number of shares/units or voting rights in the

first legal person;

(iii) a third party legal person holds, directly or indirectly, including

holdings of related parties, a minimum of 25% of the value/number of shares/units or voting

rights both in the first and in the second legal person.

22. non-resident natural person - any natural person who is not a resident natural person;

23. resident natural person - any natural person who meets at least one of the following

conditions:

a) the person has his or her domicile in Romania;

b) the centre of vital interests of the person is located in Romania;

c) the person is present in Romania for a period or periods that exceed in aggregate

183 days during any period of 12 consecutive months ending in the calendar year in question;

d) the person is a Romanian citizen who is working abroad as an official or employee

of Romania in a foreign state.

By way of derogation from letters a) to d), a resident natural person shall not be a foreign

citizen under a diplomatic or consular status in Romania, a foreign citizen who is an official

or employee of an international and intergovernmental organization that is accredited in

Romania, a foreign citizen who is an official or employee of a foreign state in Romania nor

the family members of such foreign citizens;

24. Romanian legal person — any legal person that was incorporated in accordance with

the Romanian legislation;

241. legal person set up according to the European legislation – any legal person

incorporated under the terms and using the mechanisms provided by European regulations;

25. foreign legal person — any legal person that is not a Romanian legal person and any

legal person set up according to European legislation not having the registered office in

Romania;

26. arm’s length price — the amount that an independent customer would pay to an

independent supplier at the same time and place for an identical or similar good or service

under fair competition terms;

27. real estate — any land, building or construction erected or incorporated into the land;

28. royalty — any amount required to be paid in cash or in kind for the use of, or the right

to use, any of the following:

a) a copyright of a literary, artistic or scientific work, including films or tapes for

radio or television broadcasts, as well as for carrying out audio or video recordings;

b) any patent, invention, innovation, license, trademark, trade name, franchise,

drawing, design, model, plan, sketch, secret formula or production process, or software;

Within the meaning of this law, a royalty does not include remuneration in cash or in kind

paid for the acquisition of software that is intended solely to operate such software, without

modifications other than those necessary to install, implement, store or use such software. In

addition, for purposes of this law, a royalty does not include remuneration in cash or in kind

paid for the acquisition of the entire copyright of a computer program.

c) any broadcast, including public broadcasts, be it direct or indirect by cable,

satellite, optic fiber or other similar technology;

d) any industrial, commercial or scientific equipment, any movable assets, means of

transport or containers;

e) any know-how;

f) the name or image of any natural person or other similar rights concerning an

natural person.

Furthermore, a royalty includes any amount required to be paid in cash or in kind for the right

to record or broadcast in any manner a performance, a show, a sporting event or any other

similar activity.

29. resident — any Romanian legal person, any foreign legal person having the place of

effective management in Romania, any legal person having the registered office in Romania,

set up according to the European legislation, and any resident natural person;

30. Romania — the territory of the state of Romania, including the territorial waters and

the air space above the territory and territorial waters, over which the state of Romania

exercises its sovereignty, as well as the contiguous zone, the continental shelf and exclusive

economic zone over which Romania exercises its sovereign rights and jurisdiction, according

to domestic law and international legal norms and principles;

31. unit/share — any share or other holding in a general partnership, limited partnership,

joint stock company, joint stock partnership, limited liability company, or other legal person

or an open investment fund;

311. security – any transferable securities, units in an open investment fund or other

financial instrument, qualified as such by the National Securities Commission, including

derivative financial instruments, and shares;

32. transfer — any sale, assignment or alienation of the ownership right, the exchange of

the ownership right for services or for another ownership right as well as the transfer of the

patrimonial fiduciary mass within the fiduciary operation, as per the Civil Code;

33. fiscal value– is as follows:

a) for assets and liabilities, other than those referred to in letters b) and c) - the entry

value, as per the accounting regulations;

b) for shares/units/securities – the acquisition or contribution value used for the

computation of the gain or loss, for income or profit tax purposes;

c) for depreciable fixed assets and land – the acquisition cost, the production cost or

the market value of fixed assets acquired free of charge or established as contribution on entry

into the taxpayer’s assets, used for the computation of fiscal depreciation, where applicable.

The fiscal value shall also include accounting revaluations performed according to the law. In

case of revaluation of depreciable fixed assets which results in a decrease of their value below

the acquisition cost, production cost or market value of fixed assets acquired free of charge or

established as a contribution, as applicable, the undepreciated value of depreciable fixed

assets shall be re-computed up to the amount established based on the acquisition cost,

production cost or market value of fixed assets acquired free of charge or established as a

contribution, as applicable. In case of the revaluation of land which triggers a decrease of their

value below the acquisition cost or market value of those acquired free of charge or set up as a

contribution, where applicable, the fiscal value is the acquisition cost or the market value of

those acquired free of charge or set up as a contribution, as applicable;

d) for provisions and reserves – the deductible value upon computation of the taxable

profit.

34. Taxpayers applying the accounting regulations in line with the International Financial

Reporting Standards so as to determine the fiscal value shall also consider the following rules:

a) For intangible assets, revaluations carried out under the accounting regulations

shall also be included in the fiscal value. If revaluations of intangible assets are carried out,

resulting in a reduction of their value below the undepreciated value determined based on the

entry value, the undepreciated value of intangible assets shall be recomputed up to the level of

the one determined based on the entry value.

b) If the cost-based model is used instead of the revaluation model, the discount by

the inflation rate shall not be included in the fiscal value of assets and liabilities determined in

line with the rules under point 33, except for depreciable fixed assets and land;

c) If the cost-based model is used instead of the revaluation model, revaluations

performed in line with accounting regulations shall be subtracted of the fiscal value of

depreciable fixed assets and land, and an discount by the inflation rate is also included;

d) For real estate classified as real estate investments, the fiscal value shall be the

acquisition cost, production cost or the market value of the real estate investments acquired

free of charge or established as a contribution, upon the date they enter the patrimony of the

taxpayer, used for the computation of tax depreciation, as applicable. Accounting evaluations

performed in line with accounting regulations shall be also included in the fiscal value. If

evaluations are conducted in relation to real estate investments resulting in a reduction of their

value below the undepreciated value determined based on the acquisition/production cost or

the market value of real estate investments acquired free of charge or established as

contribution, the fiscal undepreciated value of real estate investments shall be recomputed up

to the level of the one determined based on the acquisition/production cost or market value, as

applicable, of real estate investments.

e) For depreciable fixed assets classified as biological assets, the fiscal value shall be the

acquisition cost, production cost or the market value in the case of biological assets acquired

free of charge or established as a contribution, upon the date they enter the patrimony of the

taxpayer, used for the computation of tax depreciation, as applicable. Accounting evaluations

performed in line with accounting regulations shall be also included in the fiscal value. If

evaluations are conducted in relation to biological assets resulting in a reduction of their value

below the undepreciated value determined based on the acquisition/production cost or the

market value in the case of biological assets acquired free of charge or established as

contribution, the fiscal undepreciated value of biological assets shall be recomputed up to the

level of the one determined based on the acquisition/production cost or market value, as

applicable.

(2) The criteria for determining whether an activity carried out by a natural person is

dependent or independent shall be provided in norms.