Excises conundrumThe overhauled calculation ofexcises, which is not fully compliantwith EU legislation, may have only alimited impact on budget revenues,warn experts

Tax interventionExperts say the new tax on specialconstructions needs furtherclarification and could threatenfuture investments in the localeconomy

Increasing the tax takeThe modernization of fiscal authorityANAF and the encouragement ofcompliance should help Romaniaincrease its future tax collection rate

Filling the state

coffers

March 2014, Number 1

Business Review Supplements

www.business-review.eu

2 NEWS www.business-review.euBR Tax & Law Supplement | March 31 -April 6, 2014

NEWS in briefThird parties could beforced to pay debts of local companiesThe National Agency for Tax Adminis-tration (ANAF) issued an order at thebeginning of February, describing theprocedures under which individuals andlegal entities may be held by the Ro-manian authorities jointly and individ-ually liable for the tax debts of Romaniantaxpayers, according to Ioana Hockl,partner at ZRP Tax. If a Romanian com-pany cannot pay its outstanding debts,the tax authorities may oblige third par-ties, including shareholders or admin-istrators, to pay the debts, provided thetax authority has proved they con-tributed to the outflow of resourcesfrom the company.

Tax incentives for localholding companies As of January 1, the Fiscal Code includesincentives for Romanian holding com-panies. Romulus Badea, tax partner atSoter & Partners, says the tax exemptionapplies to income from dividends, fa-vorable value differences on securities,income from the sale/assignment of se-curities and income from personal bank-ruptcy, the last three provisions beingnew additions to the Fiscal Code.

Changes in taxation of micro-enterprisesAs of January 1, companies generatingup to 20 percent of total revenues fromconsultancy and management activitiesare included in the category of micro-enterprises and will pay income tax of 3percent. Companies exceeding thisthreshold enter the profit tax system.In addition, firms in this category needto cover more than 80 percent of theirrevenues from other sources, accordingto amendments to the Fiscal Code.

Tax exemption for foreign companies disposing of stakes in local firmsAs of March 1, foreign companies’ incomefrom the sales or assignment of partici-pation titles held in Romanian companiesare not taxable in Romania, under thecondition of a minimum 10 percent par-ticipation for an uninterrupted periodof one year, according to Darian DRSTax. This can apply where Romania hasconcluded a double tax avoidance treatywith the country of residence of the for-eign legal entity.

Submission of statementsconcerning residents ofother EU member statesAccording to Darian DRS Tax, payers oflabour income, administrators’ fees, lifeinsurance products, under certain con-ditions, and pensions are obliged to sub-

mit statements regarding the incomepaid to each beneficiary that is residentof another EU member state from March1. In addition, taxpayers that are residentsof another EU member state are obligedto declare income derived from Roman-ian immovable properties by 25 May ofthe current year for the previous one.

Anti-fraud controls updatedA new title regarding the procedure forcarrying out anti-fraud inspections wasintroduced in the Fiscal Procedure Codeas of March 1. It refers to operative andunplanned inspections. Each time suchinspections are carried out at the mainor secondary headquarters of companies,they are registered in the unique in-spections registry. In a separate change,fiscal authorities can use as evidenceany means that proves the existence ofa fiscal state, including data stored onservers and online, along with audio-video recordings.

Tax audits for VAT refunds below RON 45,000VAT refunds will be performed onlywith a subsequent tax audit, where theVAT refund sought is lower than RON45,000, in a measure that came intoforce on March 1. The authorities haveexempted taxpayers that mentioned intheir records acts sanctioned as criminaland cases where, based on the infor-mation available, the tax authoritiesconsider that there is a risk of undue re-imbursement, according to Darian DRSTax.

Changes in excise dutiesExcisable products that no longer meettrading conditions, owned by economicoperators in bankruptcy, may be suppliedto authorized production warehousekeepers only for processing purposes,based on an invoice and under fiscalsupervision, according to one changein the Fiscal Code that came into forceon March 1. In addition, excise dutypayers that produce non-harmonizedexcisable products are those economicoperators that own the raw material, ir-respective of whether the processing isdone by them or by third parties, in Ro-mania or outside Romania, accordingto Darian DRS Tax

VAT cash accounting system becomes optionalThe authorities have decided to makethe VAT cash accounting system optionalfrom January 1 and have scrapped themandatory VAT collections within 90days for invoices for deliveries of goodsand services within this system. TheVAT cash accounting system applies fortaxpayers registered for VAT purposes,which carry out their activity in Romania,

EDITORIALOvidiu PosircaEditor

The head of a business association waswondering a couple of weeks ago whythe country has adopted new taxes thisyear, considering the economy grew by3.5 percent in 2013. In fact, Romaniawas Europe’s high flyer in the fourthquarter of last year, growing by 5.1 per-cent year-on-year.

Despite the positive advances in theeconomy, the tax take has fallen byclose to 1 percentage point to around 32percent of GDP and the governmentswiftly announced new taxes to plugthe gap.

You will find in the first Business Re-view Tax&Law supplement the mainfiscal changes made this year, includingamendments to the calculation of ex-cises and the controversial tax on spe-cial constructions.

The supplement will be publishedregularly throught the year, aiming tooutline the main fiscal and legalchanges that impact the local businessenvironment.

We have presented the key meas-ures that could improve Romania’s taxcollection rate. This has been themantra of the government, which saysit is aiming to create the fiscal room fortax breaks by increasing collection.

So far, though, the only visible resulthas been the roll out of new taxes,which experts claim are shortsightedmeasures that generate gains in rev-enue on the short but will hit employ-ment and the strength of companies onthe long run.

Cuts in social contributions for em-ployers and the tax exemption on rein-vested profits have been trumpeted asmeasures that will help firms, but theirimplementation depends on a highercollection rate for the state budget. The

only certainty is the approval of a newexcise for fuels worth 7 eurocents nextmonth, which should in theory financethe country’s motorway investments.

Friendlier initiatives such as the fis-cal regulation of holding companies, theoptional VAT cash accounting systemand VAT nonpayment on imports forauthorized companies were imple-mented last year. This has been wel-comed by companies but theunderlining issue of unpredictability isstill there. The Fiscal Code was changed39 times throughout 2013, while the Fis-cal Procedure Code was amended 21times.

According to a World Bank study, ittakes local companies 200 hours tocomply with their tax obligations, whilethe number of payments stands at 39.Even ministers have expressed theirfrustration with Romania’s tax paymentinfrastructure, which is among themain factors hampering any gains in thecollection rate, alongside rampant taxevasion.

Razvan Cotovelea, the minister forthe information society, recently saidhe did not understand how tax collec-tion agency ANAF functioned, afterhe’d queued for 45 minutes to paysome taxes for his family. He went sofar as to call the situation at ANAFheadquarters “primitive”, referring tothe tax collection mechanism. A minis-ter enduring this bleak reality may be ofcold comfort to the companies and in-dividuals going through this on a regu-lar basis, but it neatly illustrates the riftbetween policymakers and the eco-nomic reality.

Last year, ANAF started a massivemodernization program backed by theWorld Bank, in a bid to make local insti-tutions friendlier to taxpayers. Thisproject should be completed around2018.

Finance minister Ioana Petrescu saidthat Romanians will pay more taxes iftheir confidence in the state is boosted.She also mentioned something aboutrespecting honest taxpayers. They paytheir taxes without knowing exactlyhow this money will be used.

In business – as in modern life – timeis always of the essence, and taxpayerswill appreciate any future online pay-ment systems. But will the budget actu-ally increase while the accountability ofthose using this money remains soweak?

ovidiu.posirca@business-review.ro

Seeking a give-and-takebalance on taxes

Photo: M

ihai Constantineanu

NEWS 3www.business-review.euBR Tax & Law Supplement | March 31 -April 6, 2014

and have registered a turnover belowRON 2.25 million in the previous year.

New tax for special constructionsThe Fiscal Code includes a new tax forspecial constrictions starting January 1.The tax is payable in two tranches andamounts to 1.5 percent of the gross car-rying amount of the special construction.The tax is applicable to Romanian legalpersons, foreign companies that operatethrough a permanent headquarters inRomania and to legal persons with head-quarters in Romania set up accordingto EU legislation. The main sectors im-pacted by this tax are energy and tele-com.

Computation mechanismfor excises alteredThe rule establishing the exchange rateused to determine excise duties waschanged on January 1. If the exchangerate established by the ECB on October1 in the previous year is lower than theone registered one year earlier, than theolder one will be taken into account.This will be updated by the price con-sumer index for September of the pre-vious year, recorded by the NationalStatistics Institute.

Amendments to place ofsupply of services forbroadcastersFrom January 1 2015, for telecom, radiobroadcasting and television services andother services provided electronicallyto non-taxable persons, the place ofsupply of such services will be the placewhere the beneficiary is established,where it has its domicile or usual resi-dence, according to Darian DRS Tax.This provision was included in amend-ments to the Fiscal Code that came intoforce on March 1.

New VAT regime forbroadcastersThe specific regime applicable to elec-tronic services provided by taxable per-sons not established in the EU to non-taxable persons was extended, beingmade applicable also to telecommuni-cation, radio broadcasting and televisionservices, from January 1 2014, accordingto Darian DRS Tax.

Procedure for refund oftaxes withheld at sourceA procedure was introduced for the re-imbursement of tax receivables held atsource starting March 1. Specifically,when an income payer withholds moretax than actually due, as a rule, thesums are reimbursed at the taxpayer’srequest, submitted within the statuteof limitation, according to Darian DRSTax. The sum reimbursed by the payeris regularized with other similar typesof tax obligation. Where non-residentssubmit a tax residence certificate afterthe tax is withheld by the income payer,the withholding tax will be reimbursedeven if the tax period when the refundedtax receivable was due was subject to atax inspection.

Hiked excises for cigarettesUnder a draft bill passed by thegovernment and published by theMinistry of Finance, the specificexcise is set to grow from EUR56.61 to EUR 59.77 per 1,000 ciga-rettes. The ad valorem excise willbe reduced from 19 to 18 percent.The total excise will amount toEUR 84.37 per 1,000 cigarettesfrom EUR 81.78. The increased ex-cise will be applied between April1 2014 and March 31 2015.“The percentage of the ad val-

orem excise has been reducedversus the retail sale price and thelevel of the specific excise – thefixed component of the total excise– has been increased, in line withthe principle of fiscal consolidation,which ensures a higher and fixedcollection level of revenues for thestate budget, no matter the price,”stated the motivation of the draftbill.

Capped interchange fees and limited cash paymentsInterbank fees for each transactioncarried out at a merchant outletwith a payment card will be cappedat 0.2 percent for debit cards and0.3 percent for credit cards, ac-cording to a draft bill published bythe Ministry of Finance. “In Romania the level of inter-

change fees has remained un-changed for a long period of timedespite changes in the marketconditions. These levels of inter-change fees were common to bothtypes of card systems, Visa andMasterCard, and for both types ofcards, although credit cards aremore expensive than debit card,”stated the motivation of the draftbill.The bill includes another provi-

sion that eases the purchase ofhouses and cars using cash from aprevious version that made cash-less payments mandatory for thiskind of transaction.Such transactions would be car-

ried out within the limits imposedon transactions between individu-als of RON 10,000 daily. Cashtransactions between companiesshould be limited to RON 5,000daily for one supplier and not morethan RON 10,000 compared to lev-els in the previous draft bill of RON2,000 and RON 5,000, respectively.The threshold for cash transac-tions between individuals has goneup from RON 2,000 to RON 5,000,according to the draft bill.

Draft billsunder debatein March

Local companiesgrapple with newconstruction tax

The new tax of 1.5 percent en-forced on special constructionsis cumbersome and may dent

Romania’s capacity to attract fresh in-vestments in key sectors, caution taxexperts.

Daniel Anghel, treasurer of the For-eign Investors’ Council, the businessadvocacy group, outlined a series ofnegative effects the tax could have,including anti-trust distortions in cer-tain branches of industry and potentialincreases in prices and tariffs for com-panies.

“Where market conditions do notallow increases in prices or tariffs, thistax may lead to the scrapping of certaininvestments or even the closure ofsome companies, which would havea grave impact on the level of unem-ployment and the overall economy inRomania,” Anghel told BR.

He added that at the level of EUmembers, there is no practice or ten-dency to impose a tax on productiveassets, similar to the amount estab-lished in Romania.

“The excessive costs of this new taxwill not be absorbed by the profit mar-gins of impacted companies and theirsurvival will depend on whether theycan transfer these costs to final con-sumers by increasing tariffs, especiallyfor utility services, but elsewhere too.The final outcome will be an increasein prices for final consumers, boostinginflation,” said Anghel. He is callingfor this tax to be repealed until theauthorities carry out an impact studyon the business environment, includ-ing the level of the tax and the assetsto which it applies.

Miruna Enache, partner, fiscal as-sistance, at professional services firmEY Romania, added that the tax hasnot been checked against regulationimpacting specific services such aselectronic communications and thetransport and distribution of gas andelectricity. She said imposing this taxwould generate “additional difficulties”for these businesses, which wouldfeed through into tax collection, es-pecially for profit tax.

According to Dan Badin, partnerat Deloitte Tax, the type of construc-tion to which this tax applies is stillunclear, for example modernizationsor the expansion of existing buildings.

Furthermore, the taxation base hasto be clarified to see if the charge ap-plies to the gross or net value of thebuilding. The tax provisions are con-flicting because they also apply toconstructions in industrial parks,which are exempted from paying localtaxes.

“In all probability, to inspect the im-plementation and to correctly regulatethe tax, the authorities will carry outsubsequent inspections, which couldbe seen as a way to clarify its imple-mentation. This clarification methodcould generate additional debts inconnection to the new constructions’tax, as well as potential penalties andinterest on delayed payments,” saidBadin.

Ionut Bohalteanu, partner at Musat& Asociatii, said that financial man-agers would have to assess the impactof this tax on the operational profitsof affected companies. ∫

Ovidiu Posirca

Pylon on the pressure: the new tax threatens some companies’ survival

4 FOCUS TAX www.business-review.euBR Tax & Law Supplement | March 31 -April 6, 2014

Modernized tax agencyand higher compliancekey for higher tax takeWith budgetary revenues having fallen by close to 1 percentage point to 32 percent of GDP last year, accordingto the Ministry of Finance, tax experts outlined the key measures that could increase the tax take.

∫ OVIDIU POSIRCA

They say that keeping the moderniza-tion of tax collection agency ANAF ontrack and increasing the compliancerate, while tackling tax evasion, shouldsee Romania get closer to the averageEU collection rate of 40 percent in thecoming years.

According to the Ministry of Finance,revenue to the consolidated budget rose

3.6 percentage points in nominal terms,but fell 0.9 percentage points of GDP,while expenses rose 3.8 percentagepoints in nominal terms but fell 0.9 per-centage points as share in GDP to 34.5percent of GDP.

Ioana Petrescu, the minister of fi-nance, said earlier this month thatstreamlining the tax collection ratecould be done by clamping down on taxevasion, which could pave the way forfiscal easing.

“The fiscal levers, which are the levelsof taxes, will be used to encourage eco-nomic growth,” said the minister duringan Aspen Institute event in mid-March,quoted by public radio station RadioRomania. She cited the 5 percentagepoint reduction of social insurance paidby employers, and the tax exemption ofreinvested profit as measures that couldreduce the fiscal burden. Petrescu saidthe reduction of CAS could be passedthis July.

Ioana Hockl, partner at ZRP Tax, saidthat easing labor taxation, such as socialinsurance and health fund contribu-tions, could help limit black marketlabor. She called on the tax authoritiesto be more focused on chasing taxevaders, both individuals and compa-nies, instead of increasing the tax bur-den on all taxpayers or excessivelyinspecting good-faith companies.

On tax collection, the minister of fi-nance stressed that the ministry does

TAX FOCUS 5www.business-review.euBR Tax & Law Supplement | March 31 -April 6, 2014

KPMG Forensic: Newstrengths in ‘alternative’dispute resolutionby Michael Peer Partner,Forensic KPMG in CEEA swift, effective way to resolvedisputes, arbitration has become ahot topic in the media, whether regarding its use in negotiationsaround natural gas prices or evenin disagreements relating to theOlympics.

As one of the few arbitration institutions to publish data regardingcases, the International Chamber ofCommerce (ICC) recently reportedthat in 2012 ICC arbitration cases involved 2,036 parties from 137 countries and independent territories.

Clearly efficacious, according to arecent international survey over twothirds (69 percent) of in-house counselin financial services companies feltinternational arbitration was suited toresolving their transnational disputes.

With all of that in mind, KPMGForensic has beefed up its range ofservices, and is now even better positioned to provide alternative dispute resolution services to itsclients.

In connection with this, KPMG ispleased to announce the recognitionof Michael Peer, a partner in the firm's Central and Eastern EuropeanForensic practice, as a Fellow of theChartered Institute of Arbitrators.

Peer has had a long career withKPMG acting as an expert witness onaccounting and damages issues onbehalf of Forensic clients in local and international arbitration cases. Hehas experience working with the arbitration rules of the ICC, LCIA, SCC and UNCITRAL, and he is servingnational and transnational clients inCentral and Eastern Europe, includingRomania, Poland, the Czech Republic,Hungary etc.

Already having achieved his Chartered Accountant designation,Peer has now surpassed the stringent training and examination requirements established by theChartered Institute of Arbitrators toachieve its highest membership category.

“Chartered Institute of Arbitrators'mission is to promote and facilitateworldwide the determination of civil and commercial disputes by arbitration, mediation and other alternative means of private disputeresolution through the support of aduly qualified and highly regarded

membership,” he says. “It is the only globally recognised professionalqualification in the arena of alternativedispute resolution.”

According to Peer, KPMG has experience in assisting its clients toresolve disputes as quickly and withas little disruption to their businessesas possible.

He adds, “Our Dispute Advisoryteam can help you to negotiate the settlement of an emerging dispute or, in the event negotiations are insufficient, to facilitate mediation ofthe dispute.

“We also assist our clients byproviding expert determinations in

respect of accounting or related disputes, particularly those stemmingfrom disagreements arising from thewording of contracts. In the event thedispute is not resolvable outside of litigation or arbitration, we provide expert witness testimony on a rangeof issues including construction related topics such as delays.”

KPMG Forensic, he says, has accredited arbitrators who can heara dispute under the provisions of the chosen arbitration rules or legislation.

About KPMG KPMG is a global network of professional firms providing Audit, Taxand Advisory services. We operate in155 countries and have more than155,000 people working in memberfirms around the world. The independent member firms of theKPMG network are affiliated withKPMG International Cooperative(KPMG International), a Swiss entity.Each KPMG firm is a legally distinctand separate entity and describes itself as such.

PARTNER CONTENTnot plan to increase collection on theshort term, and that if a fiscal amnestyis passed, this will boost individuals’motivation to evade tax.

“The collection rate has never goneabove 30-35 percent of GDP, not even inthe boom period. Tax evasion must bereduced, and voluntary compliance in-creased,” said the minister last week,quoted by daily Adevarul.

According to a study by Visa Europe,the payments technology business, Ro-mania’s informal economy amountedto 28 percent of GDP last year, the sec-ond highest level in the EU. This meansthat close to EUR 40 million was fun-neled into the informal economy in2013. “Fiscal evasion could be discour-aged by either reducing VAT on moregoods, such as meat as well as otherbasic foodstuffs, or by taking proactivemeasures to increase compliance, themodernization of the tax administra-tion, as well as the elimination or clari-fication of provisions which are subjectto interpretation,” Ramona Jurubita,deputy head of tax at KPMG Romania,the professional services firm, told BR.

Ionut Bohalteanu, partner at lawfirm Musat & Asociatii, noted that statebudget collection rates have comeunder increased pressure in the recentperiod.

ANAF to undergo five-yearmodernization Last year, Romania’s Ministry of Fi-nance inked a USD 92 million loan dealwith the World Bank for the moderniza-tion of ANAF. The project, which willrun through to 2019, aims to increaseANAF’s efficiency in collecting taxesand social contributions. At the sametime, tax compliance should be im-proved through the reduction of theburden on taxpayers.

Daniel Anghel, treasurer of the For-eign Investors’ Council (FIC), the busi-ness advocacy group, commented thatreforming the fiscal administration wascrucial to increase the tax take.

He suggested fiscal inspection andcontrol structures be overhauled, alongwith the elimination of overlapping in-spections and differences in the appli-cation of fiscal legislation.

He added that ANAF’s IT infrastruc-

ture has to be upgraded to limit the pay-ment time for taxpayers, while fiscal in-spections should focus on sectors withhigh risks of tax evasion.

Neighboring Bulgaria is one of theEU members to have successfully mod-ernized its tax administration with thehelp of the World Bank. The country hasincreased its tax take by 5-6 percentagepoints to 35 percent of GDP and split itstax authority into five regional bodies.Poland has pursued the same reformprogram. The ANAF cut several hun-dred jobs last year, as it restructured itsoperations at a regional level. However,new jobs have been created due to theroll out of a new anti-fraud division inlate 2013, which is tasked with tacklingserious fiscal crimes.

“In the recent period there has beenan increase in the fiscal inspection ac-tivity. Starting this year, taxpayers un-dergoing fiscal inspections will beselected based on a risk analysis,” DanBadin, partner at Deloitte Tax, told BR.

ANAF also has a division tasked withinvestigating wealthy individuals whohave lied in their tax statements. Ac-cording to media reports, the authori-ties will impose a 16 percent tax rate onthe undeclared income of these people.

Tackling tax evasion throughcomplianceAccording to Anghel of the FIC, tax eva-sion is the root cause of the poor collec-tion rate in Romania. He said it could betackled either by increasing constraintsor by incentivizing voluntary compli-ance, or through a “well balanced”combination of the two. “Unfortunately,the first option has already shown thatit generates unwanted effects, nega-tively impacting fair-dealing companies,”said Anghel. “So we recommend theimplementation of a voluntary compli-ance statement for all taxpayers, to in-crease voluntary compliance and taxcollection for the state budget.” Headded, “Such a measure, associatedwith the reduction of sanctions for goodtaxpayers, or even the granting ofbonuses for those meeting their fiscalobligations on time, and an increase ofsanctions for tax evasion, could havepositive effects on the medium and longterm by increasing budgetary revenues,without the need for additional meas-ures adjusting tax rates.”

Alexandru Ambrozie, partner at lawfirm Popovici Nitu & Asociatii, sug-gested Romania ask for a derogationfrom the European Commission, theexecutive arm of the EU, for enforcingreverse taxation in certain sectors, as ameans to tackle serious tax evasion. Hementioned the identification of unde-clared and bogus transactions, addingthat shadow companies committingVAT and excises fraud should be an-other focus area. He concluded thatfewer changes in the fiscal frameworkalong with an intensified effort byANAF in assisting taxpayers shouldcontribute to Romania’s effort to collectmore in taxes.

ovidiu.posirca@business-review.ro

“In the recent periodthere has been an in-crease in the fiscal in-spection activity.Starting this year, tax-payers undergoing fis-cal inspections will beselected based on arisk analysis,” Dan Badin, partner at Deloitte Tax

6 NEWS www.business-review.euBR Tax & Law Supplement | March 31 -April 6, 2014

Mihai Darie is the new financial director at state-owned nuclear producer Nuclear-electrica, with the appointment ef-fective from February. He wasrecruited by Quest Advisors as partof a wider program for the appoint-ment of professional boards andmanagers at state companies. Dariehas worked in the financial sectorfor over 14 years, holding manage-ment positions in the private andpublic sector. He headed the re-structuring and loan recovery de-partment at Raiffeisen Bank and waseconomic director at the PropertyFund. He is a graduate of the Facultyof Finance, Insurance Banks and

Stock Exchanges at the Bucharest Uni-versity of Economic Studies (ASE).Darie has an EMBA and is a member ofACCA-UK. He is also a chartered finan-cial analyst (CFA).

Adrian Gheorghehas been appointed manager of the fi-nancial department at Hidroelectrica,the state-owned hydroelectricity pro-ducer, replacing Georgeta Iosif, whohad held the position since September2013. Gheorghe, who assumed his newrole on March 24, has held top man-agement positions over the last 15years. He worked at professional serv-ices firm PwC between 1993 and 1995,then was CFO at ABN Amro Bank Ro-

mania between 1995 and 2001, holdingthe same position at Raiffeisen BankRomania between 2002 and 2007. Next,Gheorghe moved to Bancpost, wherehe spent two years as CFO. Prior to hisappointment at Hidroelectrica, he wasCFO at Mandy Foods International.

Adriana Jankovicova was appointed CFO of Banca Comer-ciala Romana (BCR) at the end of Jan-uary. She has previously worked ashead of group performance manage-ment at Austria’s Erste Group. Jankovi-cova joined Erste in 2002 and later be-came head of Erste Group Assets &Liabilities Management, in charge ofcontrolling for the group.

Ioana Petrescu34, was named new minister of fi-nance in March, replacing Daniel Chitoiu, as part of a wider govern-ment reshuffle. She started workingin Romania last September as advisorto Prime Minister Victor Ponta on fis-cal and economic matters. Petrescuhas a bachelor’s degree in mathe-matics and economics from WellesleyCollege, and obtained a master’s de-gree in economics from Harvard Uni-versity. She later got her PhD in eco-nomics from the same institution.From 2010 she was assistant professor at University of Maryland,College Park, School of Public Policy.

WHO’S NEWSBR welcomes information for Who’s News. Submissions may be edited fo r length and clarity. Get in touch at simona.bazavan@business-review.ro

Hike in excises could seeinformal market expandThe government may benefit from

higher budget revenues on theshort term, following the 6.5 per-

cent hike in excises this year due tochanges in the calculation mechanismand planned increases in excises ontobacco and energy products, but col-lection may fall on the long run asmore companies could be lured intothe informal market to survive, sayexperts.

Ramona Jurubita, deputy head oftax at KPMG Romania, the professionalservices firm, said the change in therule establishing the exchange rateused to determine excise duties willsee them grow annually, despite thereal movement of the exchange rateand relevant provisions of EU directivesin the field.

“Last year, the government promisednot to raise excise duties, and althoughthe rates themselves have not increased,in reality it has broken its promise be-cause of the change in the way the ex-change rate is calculated,” Jurubitatold BR.

The level of excises will be peggedto the annual inflation rate, replacingthe calculation mechanism involvingthe RON/EUR exchange rate establishedby the European Central Bank (ECB)on October 1. The exchange rate lastyear was 4.4485 RON/EUR, almost 2percent lower than the previous year,which should have led to a decreasein the level of excises this year.

However, the authorities have main-tained the exchange rate from the pre-vious year of 4.5223 and updated it

with the inflation rate, meaning thatexcises will be calculated this year ata rate of 4.7380 RON/EUR, which is6.5 percent higher than expected.

“The use of this new mechanismand the increase of the level of exciseduties for fuel will have a snowball ef-fect since they may negatively impactcompanies acting in many economicfields, discourage potential investorsand increase prices for the final con-sumer,” Ioana Hockl, partner at ZRPTax, told BR.

Experts say higher excisesdo not mean bigger revenuesAside from the general excise hike, theexcise for motor fuels including gaso-line and diesel is set to grow by an av-erage of 20 percent starting April, alsotaking into account the new fuels exciseof 0.7 percent in this category, accord-ing to tax specialists. The governmentexpects to collect around EUR 500million from the new excise this year,which will be funneled towards theconstruction of new motorways.

“In the first stage, this measure willlead to higher expenses for transportvehicles, but it will shortly have reper-cussions for the whole economy, withgrowing prices for all products andservices as a result of the increase intransport costs,” Dan Badin, partnerat Deloitte Tax, told BR.

Furthermore, excise duties for cig-arettes are set to go up by 3.1 percentto EUR 84.3 percent per 1,000 cigarettesstarting April 1, following a timetable

devised in 2010. Last autumn, the au-thorities increased the excises on awide array of luxury products includingnatural furs and large-engine vehicles.

“It is, however, unlikely that revenuecollected from excise duties will in-crease by 20 percent in 2014 and thetotal amount collected will probablynot even rise by 6.5 percent, whichrepresents only the increase in sumsto be paid due to the change in therule to establish the exchange rate,”said Jurubita.

“Statistics over the last few yearsshow that although there have beenseveral increases in the level of exciseduties, and also rises in the RON/EURexchange rate year by year, the hikein revenues collected from excise du-ties has only just kept pace with theincrease in the exchange rate,” sheadded.

Jurubita commented that the Eu-ropean Commission, the executive armof the EU, may begin infringementprocedures against Romania in re-sponse to the overhaul of the excisesystem, after many businesses objectedto the move, claiming it breached EUdirectives.She added that more com-panies may migrate towards the in-formal economy and some may go in-solvent, resulting in job losses.

Meanwhile, consumption remainsat a very low level. Jurubita said therecent apparent increase in domesticconsumption was not real, as it wasgenerated solely by a rise in consumerspending and not in volumes.

Ionut Bohalteanu, partner at lawfirm Musat & Asociatii, said that thecontribution of domestic consumptionto GDP will remain low this year, fol-lowing the change in the computationof excises and the new fuel excise.

Overall, the KPMG expert reckonedthe overall tax take of 30 percent ofGDP could be impacted if the statefails to design measures to increasecollection.

“Without improved collection rates,honest taxpayers will continue to paymore than they should,” said Jurubita.

She concluded that policymakersare likely to undermine investors’ con-fidence in Romania, by amending thelegislation in a non-transparent andunpredictable manner, and by display-ing a lack of concern with, and interestin, compliance with relevant EU rules. ∫

Ovidiu Posirca

Playing percentages: short-term gainscould cause long-term problems

7www.business-review.euBR Tax & Law Supplement | March 31 -April 6, 2014

The tax rollercoasterby Mihaela Pohaci, Partner, Popovici Nițu & Asociații TAX

Raluca Rusu, Senior Manager, Popovici Nițu & Asociații TAXYear 2014 commenced withcontradictory new provisionsin the tax field: on the up side,the long-awaited “holdingregime” has been introducedwhile the previously mandato-ry cash-based VAT system hasbeen modified and made op-tional (just in time to avoid aninfringement from the EU Commission). On the downside, additional tax burdenswere introduced: increases ofthe excise duties on fuel butalso a new tax, the “pole tax”.As covering all changes in thefiscal legislation would be along story, we will briefly address only the high and thelow of the ride.

The high - the holding regime After years of lobbying, the newlyintroduced holding provisionsoffer additional attractiveness tothe local investment climate.

Under the new regime, sub-ject to certain conditions, corpo-rate tax exemption is availablefor certain income (dividends,sale of shares, liquidation of aRomanian entity) derived by in-vestors (except companies notresident in “friendly” jurisdic-tions, i.e., with no Conventionsfor the avoidance of double tax-ation).

While the measure is cer-tainly welcomed and long-awaited, some fine tuning is nev-ertheless required, as certaininconsistencies and negative ef-fects have been noticed after theinitial excitement has subsided.

On one hand, the profit ob-tained by investors from thealienation of shares in a Roman-ian company is now tax exempt;on the other hand, another (old)provision of the Fiscal Codequalifies the income obtained bynon-residents from the sale ofshares in real-estate companiesas “real-estate income”, not asincome from the sale of shares,putting a question mark on theavailability of the exemption insuch cases. This seems to berather a case of inconsistent im-plementation and not one of in-tentional exclusion, as taxation

relief is available anyway underConventions which do not have aso-called “real-estate clause” forcapital gain purposes. As such, areal benefit would be obtained byinvestors solely if relief is providedunder domestic legislation specifi-cally in cases where shares in real-estate companies are alienated.Not to mention that the discrimi-nation of non-resident investorsselling shares in real-estate com-panies versus Romanian investors in the same position would be another infringement just waitingto happen.

The implementation of the hold-ing regime also holds another sur-prise: while previously, dividend in-come received by a Romaniancompany from another Romaniancompany was not taxable (irrespec-tive of the shareholding participa-tion and/or holding period), starting2014, such income is tax exemptonly if the dividend beneficiaryholds at least 10% of the sharesfor a period of minimum one year.This measure, deemed to encour-age long-term, non-speculative in-vestments, actually hits the smallinvestors (companies), especiallythe stock exchange players, in a period when trading on the stock exchange is anyway ane-mic.

One can only hope that the re-quired corrections will be madesoon, so that the holding regime inRomania is indeed on a good path.

Other measures would still be re-quired in order to really make itfunctional and attractive, but thisis a start.

Mihaela Pohaci

The low - the “pole tax”The biggest surprise of last yearhas been, by far, the newly intro-duced tax on constructions, in forceas of January 1, 2014. While othermeasures have been discussed, ingreater or lesser details, with thebusiness community prior to im-plementation, the tax on construc-tions has appeared virtually “out ofthe blue”, making the hearts ofCFO’s everywhere skip a beat in thestruggle to adjust their financialbudgets.

Baptized almost immediately bytax advisors as the “pole tax”, inreminiscence of past battles car-ried out in the early years of theFiscal Code as to convince tax au-thorities that telecom poles are notbuildings within the meaning of thelocal tax on building (and shouldnot be subject to local tax), thenewly introduced tax does just that:it levies on telecom poles, as wellas on other constructions, a taxsimilar to the local tax. Althoughthe “pole tax” is clearly not a localtax, one cannot help having a “deja-vu” feeling.

The present form of the legis-lation raises various concerns,starting with the catalogue basedon which assets are classified as

constructions for the purpose ofthis tax (catalogue dating back to2005 and which is obsolete for cer-tain modern day industries such asrenewable energy), continuing withthe application basis (gross bookvalue of assets, which entails thatdifferences in accounting stan-dards and policies may lead to dif-ferent results) and ending with theapplicable rate (initial estimationsprepared by the business commu-nity indicate that the 1.5% rate istoo high for generating the targetbudget revenue desired). Add tothat the lack of application norms,partial overlaps with local taxesdue to inconsistent approaches oflocal tax authorities, as well as a rapidly approaching reporting and payment deadline of May 25 and you should have a fairly accurate image of the current sta-tus.

The business community hastried to bring implementation al-ternatives on the discussion table,aimed at correcting some of thedrawbacks, such as: using fiscalvalues instead of accounting ones (since fiscal values are de-fined unitarily and exclude distor-tions caused by applying differentaccounting/reporting standards),using net fiscal values instead ofgross values (as otherwise values which no longer exist would be taxed), as well as using a tax rate which is calibrated atachieving the desired budget rev-enues.

While initial reactions from theMinistry of Finance indicated thatthere may still be room for discus-sion in order to adjust the tax’s ef-fects and ensure a more level play-ing field among companies, thepublic declarations of the Ministerof Finance seems to indicate thatthe tax on constructions is here tostay in its present form. At leastfor a year.

In this context, impacted com-panies should thoroughly reviewtheir accounting asset classifica-tion prior to submitting the 2013 fi-nancial statements, as any errorswould generate undue burden and corrections throughout the year would not impact the tax due.

Raluca Rusu

PARTNER CONTENT

Mihaela Pohaci, PartnerPopovici Nițu & Asociații TAX

Raluca Rusu, Senior ManagerPopovici Nițu & Asociații TAX