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Legislative summary - July 2019

In this issue:

·        European Union extends trade defence rules to continental shelf and exclusive economic zones of Member States

·        Statements to the EFA may also be submitted online

·        Proposals of the European Commission

·        Opinions of the European Economic and Social Committee

·        New VAT form for suppliers of electronic, telecommunications, television and broadcasting services

·        Increase of the turnover limit for the tax credit granted in connection with sponsorship or mecenate

·        Tax on assets

·        Legislative amendments in respect of the fiscal electronic cash registers

·        NAFA Orders

·        Social security contributions

·        Miscellaneous

 

·        European Union extends trade defence rules to continental shelf and exclusive economic zones of Member States

Regulation no. 2019/1131 establishing a customs instrument for the implementation of Article 14a of Regulation (EU) 2016/1036 of the European Parliament and of the Council and Article 24a of Regulation (EU) 2016/1037 of the European Parliament and of the Council

The new legislation sets out the conditions for levying the anti-dumping and/or countervailing duty on goods brought to an artificial island, on a fixed or floating installation or on any other structure on the continental shelf or in the exclusive economic zone of a Member State. The Regulation also provides for the procedures for the notification and declaration of the products concerned and the payment of the tax in question.

Thus, the receipt of goods on an artificial island, on a fixed or floating installation or on any other structure on the continental shelf or in the exclusive economic zone of a Member State must be declared by the consignee by means of a declaration of receipt.

Please refer to Tax Alert no. 25/July 2019 for more details.

 

·        Statements to the EFA may also be submitted online

Order no. 572/2019 for the submission of the Environmental Fund statements through electronic means of remote transmission, as an alternative method

The electronic submission of the Environmental Fund statements under the "Online declarations submission" service can be done by the following persons:

-   legal representative, holder of a qualified electronic signature

-   the person empowered by the legal representative, holder of a qualified electronic signature

Please refer to Tax Alert no. 27/July 2019 for more details.

 

VAT

·        Proposals of the European Commission

Proposal of the European Commission for a Council Implementing Decision amending Implementing Decision 2013/676/EU authorizing Romania to continue to apply a special measure derogating from Article 193 of the EU VAT Directive (2006/112)

Romania requested authorization to apply the reverse charge mechanism to domestic supplies of wood in 2009. The authorization has been extended multiple times since then, for the last time until 31 December 2019.

Under the current Proposal the derogation would be further extended until 31 December 2022.

 

·        Opinions of the European Economic and Social Committee

Opinion of the European Economic and Social Committee on the ‘Proposal for a Council Regulation amending Regulation (EU) no. 904/2010 as regards measures to strengthen administrative cooperation in order to combat VAT fraud’

The Commission proposal to amend Council Regulation (EU) no. 904/2010 lays down rules for Member States to collect in a harmonised way the records made electronically available by payment service providers pursuant to Article 243b of the VAT Directive. In practical terms, the proposal sets up a new central electronic system for collecting, storing and processing payment information and for the further processing of this information by anti-fraud officials in the Member States within Eurofisc, the network for the multilateral exchange of early-warning signals to fight VAT fraud.

The Committee draws attention to certain aspects which should be considered for the purpose of implementing the proposed measures, namely:

-         data processing should be allowed only for the purpose of combatting illegal conduct;

-         only authorized individuals, officials of Eurofisc, would be able to access the data collected, stored and exchanged, for clear and limited purposes related to the fight against VAT fraud;

-         the subsequent use of data would have the purpose of triggering potential investigations and law enforcement activities.

 

Opinion of the European Economic and Social Committee on the ‘Proposal for a Council Directive amending Directive 2006/112/EC as regards introducing certain requirements for payment service providers’ (COM (2018) 812 final — 2018/0412(CNS)) and on the ‘Proposal for a Council Directive amending Council Directive 2006/112/EC of 28 November 2006 as regards provisions relating to distance sales of goods and certain domestic supplies of goods’

The proposals aim to introduce a new record-keeping obligation for payment service providers under Article 243b of VAT Directive 2006/112/EC. The only payment services that are relevant in this respect will be those resulting in a cross-border transfer of funds to the payees — or to an intermediary acting on behalf of the payees — and only when the payer is located in one of the Member States. Thus, according to the proposals, the ‘cross-border’ concept refers to transactions where the consumer is in a Member State and the supplier is in another Member State or in a third country. Domestic payments are not covered by the Commission’s proposal.

In order to exclude cross-border fund transfers executed for private reasons and to focus only on payments linked to an economic activity, the payment service providers have to keep records on that payee and make them available to tax authorities only when the total amount of payments received by a given payee exceeds the treshold of 25 payments in a calendar quarter.

The Committee underlines the importance of ensuring compliance with the provisions of the General Data Protection Regulation and the need to restrict the use of data to the sole objective of combating VAT fraud, in a way which is efficient from a cost perspective and acceptable for citizens.

 

·        New VAT form for suppliers of electronic, telecommunications, television and broadcasting services

Order of the President of the National Agency for Fiscal Administration regarding the form, content and filling in instructions for Form 085 ‘Option for applying/termination of applying the provisions of the art. 278, par. 5(h) of the Tax Code’

The Order provides the template of the form 085, to be used by taxable persons established in Romania who provide telecommunications, television and broadcasting, as well as electronic services, to non-taxable persons from another EU member state. The respective taxable persons can use the form if the value of the services provided does not exceed EUR 10,000, in order to opt to tax the services at the place where the beneficiary is established/domiciled or usually resides. The option will remain valid for two consecutive years.

Please refer to the Official Gazette no.  0559/9 July 2019 for more details.

 

·        Ammendaments to VAT registration/VAT number cancellation form

Order no. 1888/2019 for the approval of certain VAT registration/VAT number cancellation form

The main amendments brought by the Order are the following:

-         The 091 Form (applicable for the ‘special’ VAT registration) is updated in order to be used also for cases when taxable persons want to re-register for VAT purposes under the ‘special’ procedure.

-         The 094 Form (“Statement regarding the turnover of taxable persons having the calendar quarter as VAT period and with no intra-Community acquisitions of goods performed during the previous year”) should be submitted also by taxable persons returning to the calendar quarter as tax period.

Please refer to the Official Gazette no.  0592/18 July 2019 for more details.

 

EU case-law

Decision of the CJEU in the case C-273/18 SIA

The case analyses to what extent the input VAT deduction right can be granted to the beneficiary in the case of a chain supply of goods (intra-Community supplies of goods and domestic supplies of goods) where there is a suspicion of an abusive practice and which conditions should be met in order to qualify the transactions for which the input VAT deduction right was exercised as part of a tax fraud.

According to the Court of Justice of the European Union (“CJEU”), in order to find an abusive practice in the field of VAT, two conditions should be fulfilled, namely: first, the operations in question have as a result obtaining a tax advantage whose granting would be contrary to the objectives pursued by the VAT legislation and, second, taking into account a set of objective elements, it should result that the essential purpose of the operations at issue is limited to obtaining this tax advantage.

Moreover, the national tax authorities cannot determine the existence of an abusive tax practice and, consequently, they cannot refuse the input VAT deduction right based on the fact that an acquisition of goods took place further to a chain of succesive supplies between several persons and that the taxable person became the owner of the respective goods in the warehouse of a person who was part of the supply chain but was not the supplier of the respective taxable person.

Decision of the CJEU in the case C-2242/18 UniCredit Leasing EAD

The case analyzes on the one hand whether the Directive 2006/112/EC (the EU VAT Directive), in the event of early termination of a financial lease agreement, allows a reduction of the taxable base for VAT purposes established through an administrative act assessing tax liabilities and, on the other hand, under which conditions it is possible for Member States to derogate from the obligation to reduce the taxable base in case of refusal or non-payment of the lease instalments.

According to the CJEU, in the case at hand, the tax authority cannot charge a VAT amount higher than the one collected by the taxable person from the beneficiary. Therefore, even if the corrective decision issued by the tax authorities regarding the computation of the taxable base, equal to the sum of the lease instalments due for the entire duration of the lease agreement, represents a definitive tax deed, still the EU VAT Directive allows under such circumstances the reduction of the taxable base. This applies both for the amounts due by the lessee for the period prior to the termination of the agreement, as well as for the amounts due to the lessor as compensation for the early termination of the agreement (equal to the amount of the remaining lease instalments which would have been due until de lawful expiry of the agreement).

The Court also analyzes the VAT treatment applicable to the compensation due by the lessee, restating its conclusions in the decision issued in the case C-295/17 MEO. Thus, according to the Court, the amounts charged by the lessor from the lessee as compensation, equal to the value of the lease instalments due until the date when the lease agreement would have been duly terminated, represents in fact the remuneration due by the lessor for exercising its right to enjoy the fulfilment by the lessor of its contractual obligations, even if the lessee does not wish or cannot implement this right for a reason which is attributable to himself (such as non-payment of the lease instalments).

Consequently, this compensation represents payment for a supply of services within the VAT scope.

As regards the reduction of the VAT taxable base in case of non-payment of the services by the beneficiary, the CJEU restated its conclusions in the case C-246/16 Di Maura, specifying that the tax authorities should allow the reduction of the VAT taxable base in the situation where the taxable person proves the existence of a reasonable probability that the debt is not paid, a derogation by the member state concerned under such a situation not being permitted.

Decision of the CJEU in the case C-316/18 Cambridge University

The case analyzes whether the right to deduct VAT can be granted to an educational institution which performs both operations with credit and without credit, in relation to commission for the administration of an investment fund, where the donations and contributions received by the institution are placed, when the revenue generated by the fund are used for the purpose of financing the costs related to all the activities of the respective institution.

The Court ruled that the VAT deduction right is granted to the taxable person even in the absence of a direct and immediate link between a certain upstream operation and one or more downstream operations giving rise to a deduction right, when the cost of the goods or the services in question is part of the general expenses of the taxable person and, as such, are constituent elements of the price of the goods or services that it supplies, such costs having a direct and immediate link with the entire economic activity of the taxable person.

In this case, the Court found that the expenses related to the administration of donations and contributions placed in the investment fund are not incorporated in the price of certain downstream operations. Taking into account that the University of Cambridge is a non-profit educational institution and that the expenses in question are incurred for the purpose of generating resources that are used to cover the costs of all the  downstream operations, resources that allow the reduction of the price of goods and services supplied by the university, the respective expenses cannot be considered as constitutive elements of this price and are not  therefore part of the general expenses of the respective university.

In addition, the placement of donations is related to a financial investment activity, activity where the institution acts in the capacity of a private investor. Thus, the respective activity does not represent an economic activity that would allow input VAT deduction.

In conclusion, where there is no direct and immediate link between the respective costs and a certain downstream operation, nor between those costs and all the activities of the taxable person, the input VAT related to such expenses is not deductible.

Decision of the CJEU in the case C-388/18 Finanzamt A v B

The case analyzes the method for computing the turnover for the purpose of applying the special regime for small businesses provided by the EU VAT Directive.

The Court has established that the turnover used as reference for applying the special regime for small businesses, as provided by the EU VAT Directive, includes the total value of the supplies performed by a trader, being a taxable person, namely the value of the amounts cashe in by the latter and not its profit margin. A different interpretation would mean that large companies that achieve a high turnover and obtain a low profit margin would be able to apply the special regime and, thus, could obtain an unjustified competitive advantage.

Decision of the CJEU in the case C-26/18 Federal Express Corporation 

The case analyzes whether there is an obligation to pay VAT in a Member State as a result of an import customs debt due further to non-compliance with the customs legislation within the territory of that Member State.

The Court established that, when a good is introduced into the Union, the fact that the good was subject to a breach of customs legislation in a particular Member State which has given rise to an import customs debt is not sufficient in order to consider that good entered the economic circuit of the Union. Therefore, when it is proven that the same good was dispatched to another Member State, which represents its final destination, namely the place where it was ‘consumed’, the import VAT related to the respective good is due only in the Member State of destination.

 

·        Increase of limit for the tax credit granted in connection with sponsorship or mecenate

Law no. 156/25 July 2019 for the amending of Art. 25, para. (4), i) of Law no. 227/2015 regarding the Fiscal Code was published in the Official Gazette no. 625

The law brings amendments in respect of the fiscal credit granted in relation to sponsorship and mecenate performed by corporate income tax payers, specifically the limit of 5‰ of turnover was increased to 7.5‰, the other conditions remaining unchanged.

The new limit has entered into force as of 29 July 2019.

 

·        Tax on assets

Government decision no. 524/2019 for approval of the Methodological Norms regarding the determination of the market share, the interest margin, the net financial assets and those deducted from the taxable base, as well as the reporting of the indicators required for computation of the tax on assets

The Methodological Norms contain provisions regarding the following aspects:

·        Determining the relevant net financial assets and the net financial assets which are deducted from the taxable base of the tax on assets

·        Computation method of the market share of banking institutions

·        The mechanism of reducing the tax on assets - the interest margin and the creditor balance

Please refer to Tax Alert no. 28/August 2019 for more details.

 

·        Legislative amendments in respect of the fiscal electronic cash registers

Law no. 136/2019 for the repeal of para. (1), (2) and (4) of Art. 40 of the Government Ordinance no. 27/2011 regarding road transportation, as well as for amending and supplementing the Government Emergency Ordinance no. 28/1999 (GEO no. 28/1999) regarding the obligation of economic operators to use electronic fiscal cash registers

Among others, the changes brought to GEO no. 28/1999 concern the obligation of the economic operators who sell products and services through automatic commercial machines to equip them with electronic fiscal cash registers until 31 December 2019. However, it is not mandatory for these to incorporate the printing device and the client display (except for the ones used for delivery of energy products).

Also, is introduced the obligation to equip the vehicles with which the road transport operators perform services, with electronic fiscal registers, within six months from the date of entry into force of this law, namely until 20 January 2020 (for the road transport operators that carry out the transport of persons through regular services in the national transport, with the exceptions provided by GEO no. 28/1999).

Exception from the obligation of using the fiscal electronic cash register represents the localpublic subway service, as well as local passengers transportation services through regular local routes, provided based on printed tickets or subscriptions.

Please refer to Official Gazette no. 587/17 July 2019 for more details.

 

·        NAFA Orders

NAFA Order no. 1886/2019 approving the Order no. 49/2019 regarding the model, wording, submission and administration process of the „Annual Tax Return for Income Tax and Social Security Contributions due from individuals.”

The main amendment brought by the NAFA Order no. 1886/2019 consist in providing the taxpayers with the option to file the annual tax return by both electronic and hard-copy means.

As such, for taxpayers who have the obligation to report income from multiple sources and opt for filing the annual tax return in hard-copy, an annex to be appended along with the standalone annual tax return is now available, for each distinct income to be reported.

Please refer to Official Gazette no. 561/9 July 2019 for more details.

 

·        Social security contributions

Approval of Law no. 127/2019 on Public Pension System

The Law no. 127/2019 will entry into force on 1 September 2021 and will represent the governing legal framework for the Public Pension System, repealing Law no. 263/2010.

Concerning reference pension point value it will start producing effects as of 1 September 2019. As such, the following successive increases are envisaged:

o   RON 1,265 as of 1 September 2019;

o   RON 1,775 as of 1 September 2020;

o   RON 1,875 as of 1 September 2021.  

Amongst other relevant provision which will enter into force starting with 1 September 2021, the following should be considered:

•                   The pension benefit would be determined by multiplying the total number of points achieved by the insured with the value of the reference point;

•                   The master and doctoral periods would be considered as assimilated contribution periods assimilated.

•                   Mothers with more than 3 children, under certain conditions, could also benefit of additional contribution period recognition and benefits;

•                   Contribution period could also be gained through payments made based on voluntary insurance contract, subject to certain conditions;

•                   The minimum pension would be set on a percentage basis, with minimum and maximum thresholds, considering the minimum gross salary and contribution period, as following:

o   The minimum percentage considered would be of 45% - related to the minimum contribution period;

o   An additional 1% for each contribution year for every year exceeding the minimum contribution period of 15 years is cumulated, but limited to 75%.

Please refer to Official Gazette no. 563/9 July 2019 for more details.

 

·        Miscellaneous

Completions to Law no. 52/2011 on exercise of occasional activities by day-laborers

The Emergency Ordinance no. 56/4 July 2019 brings the following completions to Law no. 52/2011:

-         Unities subordinated to the Ministry of Youth and Sport are also included in the category of public institutions that may qualify as work beneficiaries, for working areas provided by Law no. 52/2011;

-         The list of activity areas in which daily workers can be used has been expanded with the following fields:

o   Hotels and other accommodation facilities;

o   Accommodation facilities for holidays and short-term periods;

o   Youth camps organized by the ministry of youth and sport;

o   Activities of sports facilities;

o   Activities of sports clubs.

Please refer to Official Gazette no. 552/4 July 2019 for more details.

 

Amendments and completions brought by Law no. 132/15 July 2019 to Law no. 52/2011 on exercise of occasional activities by day-laborers

Law no. 132/2019, brings several amendments and completions to Law no. 52/2011, as following:

-         Amongst the previously provided working areas where day laborers can be used, the following ones were added:

o   Research and development activities in social sciences and human sciences – class 7720 (archaeological excavations);

o   Growth of planting material – growing of ornamental plants including lawn for transplantation, tree care / cleaning operations, nurseries activities, except for forest trees – class 0130;

o   Child camps organized by the Ministry of Youth and Sports, directly or through its subordinated units – class 5520.

-         The list of excepted working areas for which the laborers can exercise their activities for a period exceeding 90 days during a calendar year for the same beneficiary is extended with certain areas like forestry, winery, and livestock farming through cattle grazing. Also, the list is extended with the research and development activities specific to the agricultural program of the Academy of Agricultural and Forestry Sciences “Gheorghe Ionescu – Șisești” (and institutes, centers and locations set under its subordination);

-         The beneficiaries would be allowed to use the day-laborers in the benefit of a third party, should a contract signed under certain conditions is in place;

-         For day-laborers who exercise their activities in the areas concerning extensive livestock farming through traditional seasonal razing of sheep, goats or cattle, the provisions would be applicable:

o   The beneficiary has the obligation to perform a flat rate payment representing 10% of the gross minimum salary per country, for each worker, considering certain specific aspects;

o   The hourly gross remuneration for the workers exercising their activities in the aforementioned areas should not be less than 50% of hourly rate of the gross minimum salary per country.

Please refer to Official Gazette no. 575/15 July 2019 for more details.

 

Order no. 2425/2019 on the amendment and completion of the Methodological norms for the application of the Government emergency ordinance no. 146/2002 regarding the formation and use of resources carried out through the state treasury

The Order contains amendments regarding the procedure of obtaining an account statement for the accounts owned by the taxpayer at the State Treasury Unit. In order to receive the account statement on paper format, the taxpayer should submit a request and certain fees are charged.

Please refer to Official Gazette no. 548/3 July 2019 for more details.

 

Prepared by:
Inga Ţîgai – Senior Manager, People Advisory Services
Răzvan Ungureanu – Senior Manager, Direct Taxes
Cătălina Cambei – Manager, Indirect Taxes

 

For additional information, please contact:
Alex Milcev, Partner – Head of Tax&Legal

 

Ernst & Young SRL

Bucharest Tower Center Building,

22nd Floor, 15-17 Ion Mihalache Blvd.,

Sector 1, 011171, Bucharest, Romania

Tel: (40-21) 402 4000, Fax: (40-21) 310 7124

Email: office@ro.ey.com

 

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