Legislative summary No. 11 - November 2018
In this issue:
Income tax and social contributions
· Tax on extra offshore revenue (established through Law no. 256/2018)
· State aid
· Update of the list of CRS reportable jurisdictions
· NATA Orders with respect to administration of taxpayers and related to individual tax obligations established through tax annual tax return and through tax decisions
· Accounting regulations
Income tax and social contributions
· The amendment and completion of some normative acts regarding the regime of foreigners in Romania
The Law transposes the European Parliament and Council’s Directive (EU) 2016/801 on the conditions for entry and residence of third-country nationals for research, education, training, volunteering services, student exchange programs / educational projects and “au pair” work.
Moreover, this normative act reduces the thresholds and simplifies the employment of foreigners in Romania.
Please refer to Tax Bulletin no. 30 November 9, 2018 for more details.
· Ratification of the Agreement between Romania and the Oriental Republic of Uruguay on social security
The purpose of the agreement is the recognition and the totalization of social security insurance periods realized on both states’ territories, determining the applicable legislation in the case of migrant workers, the equality of treatment, as well as the export of benefits.
Please refer to Tax Bulletin no. 35 of November 28, 2018 for more details.
· Adoption of certain normative acts
By Government Emergency Ordinance no. 15/2018, several normative acts were amended, among which we mention:
Government Emergency Ordinance no. 111/2010 on parental leave and child support indemnity, as subsequently amended, regarding the coverage under the social health insurance system, without payment of the social health insurance contribution, during the period of parental leave.
Law no. 416/2001 regarding the minimum guaranteed, as subsequently amended, regarding the coverage under the social health insurance system, without the payment of the social health insurance contribution for the self-employed persons, as well as the persons belonging to the families beneficiary of social aid.
By the Emergency Ordinance no. 116/2017 certain budgetary measures were approved, along with the amendment of Law no. 263/2010 on the unitary pension system, regarding the elimination of the maximum ceiling for the monthly basis of computing the social security contribution for the insured persons who conclude a social insurance contract, a base which can not be less than 35% of the average gross salary earnings used to substantiate the social security budget.
Furthermore, the Ordinance repealed the provisions by which the pension from the public pension system could not be cumulated with an old-age service / old-age pension governed by special laws.
Please refer to Official Gazette no. 984/ November 21, 2018 for more details.
The law approves the changes made to the Tax Code at the beginning of this year in order to keep the December 2017 net wages for the categories of people affected by the changes brought the Tax Code regarding the transfer of social contributions from the employer to employees (for IT employees, research and development, seasonal workers, people with severe disabilities).
Please refer to Official Gazette no. 1006/ November 28, 2018 and Tax Bulletin no. 9 of 9 February 2018 for more details.
Order 96/2018 amends and supplements several normative acts, among which we mention:
Law no. 53/2003 - Labor Code, as subsequently amended, regarding:
o awarding female employees, who meet the age conditions and the minimum contribution period at the age of 65, the option of continuing to work as employees;
o establishing through Government’s decision the minimum gross national salary differentiated by having in view payment the level of education and length of service.
Law no. 193/2006 on the granting of gift vouchers and crèche vouchers, as subsequently amended, on the annual increase with the inflation index of the monthly amounts granted as nurseries tickets.
Law no. 279/2005 regarding the apprenticeship at the workplace, as subsequently amended, regarding the conditions to access the apprenticeship at the workplace and the determination of the duration of the apprenticeship contract according to the qualification level for which the apprentice is to be trained.
Please consult the Official Gazette no. 963/ November 14, 2018 for more details
On 24 September 2018 the Council of the European Union adopted a directive amending the provisions of the European VAT Directive in respect of the period for applying the optional reverse charge mechanism in case of certain supplies of goods and services susceptible to fraud, as well as the quick reaction mechanism against VAT fraud.
According to the amendments, the application of the above-mentioned mechanisms by the Member States is possible until 30 June 2022.
Council of the European Union Directive in respect of the VAT rates applicable for electronic publications
Currently, Member States apply reduced VAT rates to paper based publications, while electronic publications are subject to the standard VAT rate.
On 6 November 2018 the Council of the European Union adopted a new directive which allows Member States to apply reduced VAT rates, which are currently applicable only for supplies of publications on physical support, also to publications in electronic format.
On 20 November 2018 a decision of the Court of Justice of the European Union regarding application “E-Curia” was published in the Official Journal of the European Union.
Starting with 1 December 2018, the application “E-Curia” cam be used and it will give the courts of the Member States the possibility to lodge or to receive procedural documents. This possibility will also be given to those persons who are authorised, under the national legislation, to represent one of the parties involved before the national courts.
The use of this application requires a username and a password, elements which are also used for signing documents in order for them to be deemed as original.
CJEU Decision in the case C-295/17 MEO – Serviҫos de Comunicaҫões e Multimédia SA
According to the decision of the Court of Justice of the European Union (“CJEU”), the amounts charged by an economic operator in the event of early cancelation of services agreements providing a minimum contracting period constitute remuneration received by the supplier for the services rendered, being thus subject to VAT.
This case is particularly relevant for companies that are providing minimum contracting periods for their services and the penalties are computed based on the value of the services related to the remaining period, in situations of early termination.
CJEU Decision in the case C-664/16 Lucrețiu Hadrian Vădan
In this case the CJEU analysed the possibility of a taxable person to deduct input VAT where the invoices related to the acquisitions performed by the respective taxable person are missing and there are no other documents proving the VAT amount paid by the taxable person to his suppliers.
According to the facts described in the present case, between 6 June 2006 and 8 September 2008, Mr. Vădan performed several real estate transactions. The total value of those transactions is about 4 million euros.
Considering that, as of 2006 Mr. Vădan exceeded the threshold provided under the law for applying the special VAT exemption regime for small enterprises, he had the obligation to register for VAT purposes and pay VAT to the state budget for the transactions performed. AS he did not comply with its VAT obligations, the tax authorities imposed at his level additional VAT liabilities, as well as late payment charges.
At the same time, Mr. Vădan was entitled to deduct the input VAT related to the acquisitions of goods / services performed for the purpose of constructing the immovable assets sold, however he did not hold invoices or other “readable” documents to prove the VAT amount paid to his suppliers.
Considering the impossibility of Mr. Vădan to deduct input VAT in relation to the acquisitions performed for the purpose of his taxable operations, the Court was asked whether the amount of VAT to be deducted could be determined on the basis of an expert report.
The Court decided that a taxable person who is unable to provide evidence of the amount of input VAT paid, by presenting invoices or other documents, cannot benefit from a right to deduct VAT solely on the basis of an assessment resulting from an expert report commissioned by a national court.
CJEU Decision in the case C-648/16 Fortunata Silvia Fontana
In the present case, Fortunata Silvia Fontana, a taxable person for VAT purposes, was subject to a VAT adjustment procedure covering the year 2010. In the context of this procedure, Ms. Fontana challenged the additional VAT imposed, based on a sector study regarding the revenues obtained by accountants and tax consultants.
The CJEU analysed whether the provisions of the VAT Directive, as well as the European VAT principles, preclude national provisions which allow the tax authorities to establish the turnover amount achieved by a taxable person based on sector studies.
The CJEU recalled that each Member State is under an obligation to adopt all legislative and administrative measures which are appropriate for ensuring the correct collection of the VAT due on its territory.
Therefore, the Court decided that national tax authorities may, in the event of serious differences between the revenues reported by a taxable person and the revenues estimated on the basis of sector studies, use a method based on such studies in order to determine the amount of turnover achieved by a taxable person and, consequently, to carry out a VAT adjustment procedure.
However, this VAT adjustment procedure should comply with the principles of tax neutrality and proportionality and it should respect the right of defence of the taxable, namely his right to challenge the results obtained by means of this method, on the basis of all of the evidence to the contrary available to him.
CJEU decision in the case C-495/17 Cartrans Spedition SRL
According to the CJEU’s decision, the VAT exemption for the supply of transport services directly linked to the export of goods, and respectively for the supply of services by intermediaries participating in this supply of transport services, should not be conditioned by the making available of the export customs declaration concerning the goods in question by the taxable person.
In this context, the TIR carnet, stamped by the customs authorities of the third country to which the goods are dispatched, presented by the taxable person, represents an element that the tax authorities should take into consideration accordingly, except for the where are clear grounds to challenge the authenticity or correctness of this document.
The case is relevant especially for the sector of transport services which are directly linked to the export of goods and refers to the conditions for applying the VAT exemption as regards the supporting documentation necessary in this respect.
On 6 November 2018, several amendments of the Order 1887/2016 regarding the Norms for the use of simplified customs declarations were published in the Official Gazette no. 935.
Considering these amendments, the discharge and the receipt of the goods is no longer a mandatory requirement as part of the procedure for the submission of simplified customs declarations.
All the previous related provisions, as well as those regarding differences found between the actual status of the goods received and the information included in the related documentation, were repealed.
For more information, you can consult the Official Gazette no. 935/06.112018.
Registration procedure of the wholesale distribution and trading activity of alcoholic bevereges and/or manufactured tobacco
Both procedures were amended by Order no. 2761/2018 published in the Official Gazette of Romania, Part I, no 943 of 08 November 2018, which states that economic operators who have been registered to carry out distribution and trading activities in wholesale or retail of energy products, as well as those registered for distribution and trading activities in wholesale of alcoholic beverages and/or manufactured tobacco, may submit to the competent authority a new application for registration with the relevant documents until 31 December 2018.
On 29 November 2018 the Order no. 3626/2018 was published in the Official Gazette, order which regulates the replacement of the Annex no. 2 of the minister of Public Finances Order no. 221/2016 for the approval of the configuration of the excise duties code and of the Nomenclature of the codes for harmonised excisable products.
For more information, you can consult the Official Gazette no. 1011/29.11.2018.
On 12 November 2018 the Decision no. 874/2018 was published in the Official Gazette, order which includes additions on the exemption from excise duties for energy products intended for use as aviation fuel by state owned institutions involving defense, public order, public health, national security and safety.
For more information, you can consult the Official Gazette no. 954/12.11.2018.
Tax on extra offshore revenue, established through Law no. 256/2018 regarding a series of measures necessary for implementation of oil operations by titleholders of oil agreements with regards to offshore oil perimeters
Amongst others, the law establishes that titleholders of oil agreements with regards to offshore oil perimeters, including their subsidiaries and/or belonging to the same economic interest group, which effectively carry out both extraction activities as well as activities consisting in the sale of natural gas extracted from these perimeters, are required to compute, declare and pay tax a on extra offshore revenue.
Extra offshore revenue = (average weighted price of natural gas sold from own internal production of offshore perimeters - purchase price of natural gas from domestic production for households and non-households in 2012 (RON 45.71 / MWh)) * volumes of gas sold from internal production from offshore perimeters.
The extra offshore revenue tax is computed by applying one or more percentages (as mentioned by the present law), as the case may be, on the extra offshore revenue from the sale of natural gas extracted from offshore perimeters, out of which the value of investments in the upstream segment is deducted.
The tax on extra offshore revenue takes into account the reference price established by National Agency for Mineral Resources (“ANRM”) for the computation of royalties. The transactions performed at a price below the ARNM reference price are taxed at the reference price.
The tax computation percentages are computed based on the natural gas sell prices applied by the titleholders of oil agreements with regards to offshore oil perimeters based on the price grid mentioned in the present law (for example, 30% of the extra revenue for the prices up to RON 85 / MWh), which are annually adjusted starting January 1st 2019 with the annual consumption price index.
The maximum limit for deducting investments in the upstream segment may not exceed 30% of the total tax on extra offshore revenue.
The economic operators which are liable for this tax should compute, declare and pay the tax on extra offshore revenue on a monthly basis, until the 25th day of the month following the one for which the tax is due.
The investments taken into account for applying the deduction when computing the tax on extra offshore revenue should not taken into account for the purpose of the computation of the taxable profit in relation to corporate income tax, as they would not be accepted for any reduction/ tax exemption or deduction of costs – these being treated as non-deductible for corporate income tax purposes.
Starting with the date of entry into force of Law no. 256/2018, in the case of offshore oil agreements, the provisions of the Government Ordinance no. 7/2013 on the introduction of the tax on the extra revenue obtained as a result of the deregulation of prices in the natural gas sector and the provisions of the Government Ordinance no. 6/2013 on the introduction of special measures for the taxation of the exploitation of natural resources, other than the natural gases.
Please refer to Official Gazette no. 964/14 November 2018 for more details.
Please refer to Official Gazette no. 954/12 November 2018 for more details.
Please refer to Official Gazette no. 935/6 November 2018 for more details.
Update of the list of CRS (Common Reporting Standard) Reportable Jurisdictions
Exchange of information with respect to residents of the newly introduced jurisdictios will be performed starting 2019 for Azerbaijan; Bonaire, Sint Eustasius și Saba; Canada; Grenada, Macao - China, Panama and starting 2020 for Hong Kong – China.
Please refer to Official Gazette no. 998/26 November 2018 for more details.
Medium-syzed taxpyers selected/organized up to the date of entry into force of the order fall in the competency of administration of county-level tax administration offices covering the area in which the medium-sized taxpayer’s tax domicile is located, as well as in the competency of the tax administration for medium-syzed taxpayers organised at level of DRGFP Bucharest, for medium-sized taxpayers having their tax domicile in Bucharest.
Please refer to Official Gazette no. 937/6 November 2018 for more details.
The Order provides amendements in the payment procedure of tax obligations for large and medium-syzed taxpayers following the changes related to competency administration of such taxpayers’ category.
For large and medium-syzed taxpayers, transfer operations are performed through automatic forwarding of erroneous payments, based on information provided by National Center of Financial Information, up to
31 March. Ater this date, any potential payments erroneously made by taxpayers to the State Treasury units to which they were assigned before 1 January will be returned to the taxpayers.
For medium-sized taxpayers which upon entrance into force of the Order are administered by county tax administration offices, the transfer operations performed through automatic forwarding of erroneous payments are made up to 31 December 2018. After this date, any potential payments erroneously made by taxpyers to the State Treasury units to which they were assigned before 1 November 2018 will be returned to the taxpayers.
Please refer to Official Gazette no. 1008/28 November 2018 for more details.
The payments erroneously made by taxpayers in the sole accounts 20.A.47.01.00 "Amounts cashed for the state budget in the sole account, in course of distribution" and 55.02 "Money available for the social security and special funds budgets, in course of distribution” will be redistributed until 31 December 2018. After this date, the payments will be paid back to the taxpayers.
Please refer to Official Gazette no. 1.008/28 November 2018 for more details.
For the two orders previously mentioned, the Ministry of Finance issued on 29 November 2018 an information note which can be found here.
The Order approves the procedure whereby incentives of 10%, under certain conditions, will be granted for:
- the annual income tax on income earned by individuals in 2017;
- the individual social insurance contribution due by individuals, for the period 2016-2017;
- the individual contribution of health insurance due by individuals, for the period 2014-2017.
Please refer to Official Gazette no. 1,005 /November 27, 2018 for more details and Tax Bulletin no. 36 of 3 December 2018.
In connection with the granting the tax incentices, NATA issued a press release on 10 December 2018, which can be found here.
Order 2937/2018 establishes the Methodology for distribution of the amounts paid by individual taxpayers in the sole account and for settling tax liabilities
Tax liabilities due by individual taxpayers for realized / estimated revenues:
- until 31.12.2017 shall be paid separately in the existing budget accounts for each source of income;
- after January 1, 2018 will be paid into the sole account opened for individuals.
Please refer to the Official Gazette no. 1,005 /November 27, 2018 for more details and Tax Bulletin no. 36 of 3 December,2018.
Order 2936/2018 approves the Nomenclature of tax liabilities to be paid into the sole account by individual taxpayers and which are related to the annual tax return
In the sole account for individual taxpayers, the tax obligations related to the annual statement that will be paid are:
- income tax
- social security charges
- health insurance contributions
Please see Official Gazette no. 1.006 /28 November 2018 for more details and Tax Bulletin no. 36 of 3 December 2018.
For the last two orders mentioned above, the Ministry of Finance issued on November 29, 2018 a circular information that can be accessed here.
The order introduces amendments and additions to the following regulations:
- Accounting regulations regarding the annual individual financial statements and the annual consolidated financial statements, approved through the Ministry of Public Finance Order no. 1802/2014
- Accounting regulations compliant with the International Financial Reporting Standards, approved through the Ministry of Public Finance Order no. 2844/2016
- Accounting regulations for not-for-profit legal entities, approved through the Ministry of Public Finance Order no. 3103/2017
Amongst the main provisions of the order are the following:
· Entities subject to non-financial disclosures
The entities which, at the financial statements date, exceed the criteria of having an average of 500 employees during the financial year shall include a non-financial statement in the Directors’ Report addressing aspects related mainly to environment, social and personnel aspects, human rights and anti-corruption policies.
Furthermore, entities that are parent companies for a group and which exceed, at the date of the consolidated balance sheet, the criteria of having an average number of 500 employees during the financial year, shall include in the consolidated Directors’ Report a consolidated non-financial statement.
· Revising the fixed assets depreciation method
According to the amendments brought by the Order 3456/2018, the depreciation method shall be included under accounting estimates, similar to the useful life of fixed assets, and not under accounting policies. Thus, the provisions which were limiting the possibility of amending the depreciation method only if it was caused by an error in estimating the way in which the benefits of the respective tangible asset were consumed, were repealed.
The entities may revise the amortization method when there is a material change in the expected pattern of consumption of the future economic benefits of depreciable assets.
· New regulations regarding the accounting treatment of lease contracts
The Order introduces new provisions resulting from the new IFRS 16 "Leases", which will be applicable only to entities that fall within the scope of accounting regulations in accordance with International Financial Reporting Standards, approved by the Order of the Minister of Public Finance no. 2.844 / 2016, as subsequently amended and supplemented.
The new provisions introduced into the legislation regard the registration of the rights to use the underlying assets that are the subject of the leasing contracts, as well as of the assistive assets leased, the accounts specific to the leasing contracts and their complete function.
The above mentioned provisions of the Order shall be applied starting with 1 January 2019, except for the entities that have chosen a financial year different from the calendar year. These entities shall apply the provisions of this Order from the beginning of the first financial year thus chosen, which begins after 1 January 2019.
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