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Legislative Summary - October 2019

In this issue:

·        The definition of the franchise

·        The approval of the model, content, filing procedure of the “Statement regarding the payment obligations related to social contributions, income tax and the nominal record of the insured persons”

·        Nursery tickets 

·        Law on amending the Law no. 227/2015 regarding the Fiscal Code

·        VAT - ECJ jurisprudence

·        Draft law for the modification and completion of art. 291 of Law no .227 / 2015 on the Fiscal Code

·        Regulation on the Combined Nomenclature of goods

·        The definition of the franchise

Law for the amendment of  Government Ordinance no. 52/1997 regarding the legal regime of the franchise, as well as for the amendment of art. 7, point 15 of Law no. 227/2015

The amendments concern the legal regime of the franchise, including the definition of the franchise. As a consequence, the Fiscal Code is also amended with the new definition of the franchise.

According to the new definition, the following are provided:

-         the right and the obligation of the franchisee to operate the business in accordance with the franchisor's concept;

-         the fact that such right authorizes and obliges the franchisee, in exchange for a direct or indirect financial contribution, to use the brands of products and / or services, other protected intellectual or industrial property rights, know-how, copyright, as well as traders marks;

-         the franchisee benefits from a continuous contribution in terms of commercial and / or technical assistance from the franchisor, during the franchise contract.

For more details, you may consult the Official Gazette no. 829/11 October 2019.

·        The approval of the model, content, filing procedure of the “Statement regarding the payment obligations related to social contributions, income tax and the nominal record of the insured persons”

Order no. 3.063/1.376/1.430/2019

The Order on the updated form of the Statement 112 provides, inter alia, for the reporting method for the following cases:

-    tax incentives in construction sector;

-    employees’ assignment between two Romanian companies;

-    employees’ assignment to/from Romania within EU/EEA/ Switzerland and third countries;

-    reclassification of independent activities into dependent ones;

-    benefits in cash and in kind received from third parties as a result of an employment relationship generating salary type of income. 

For more details, please see Tax alert no. 33.

·        Order 3.175/1.308/2019 regarding the monthly value applicable to nursery tickets

The value of nursery tickets was increased from RON 450 to RON 460. The new value shall be valid as of October 2019 to March 2020.

For more details, you may consult the Official Gazette no. 841/16 October 2019.

·        Law 172/7 October 2019 on amending the Law no. 227/2015 regarding the Fiscal Code

The amendments concern the VAT regulations, as follows:

1. An exception to the rule according to which the transfer of the right of property over the goods, following the forced execution is considered as delivery of goods, is established. Namely, if the immovable property is transferred by a taxable person to a public institution for the purpose of extinguishing an outstanding fiscal obligation, this transfer is not considered a supply of goods.

2. Certain provisions related to deemed supplies of goods are repealed. Thus, the acquisition by a taxable person of tangible movable property acquired or produced by it, other than the capital goods referred to in art. 305 para. (1) lit. a) from Fiscal Code, to be used for the purpose of operations that do not give as a complete deduction, if the tax related to the respective goods was deducted in whole or in part at the date of purchase is no longer assimilated to a delivery of goods made with payment.

·        VAT - ECJ jurisprudence

Joined Cases C‑573/18 and C‑574/18 C GmbH & Co. KG și C‑eG

Both cases analyze if a subsidy that is linked to the price is subject to VAT.

The cases reach the ECJ with the following preliminary questions:

In case of a producer organisation supplies goods to the producers that are its members and receives for this from the producers a payment which does not cover the purchase price:

1.  Is an exchange with a cash supplement deemed to exist because the producers, in return for the supply, have contractually undertaken vis-à-vis the producer organisation to deliver fruit and vegetables to the producer organisation for the duration of the earmarking period, with the consequence that the taxable amount of the supply is the purchase price for the capital goods paid by the producer organisation to the upstream suppliers?

2. Is the entirely of the amount which the operational fund actually pays to the producer organisation for the supply a ‘subsidy directly linked to the price of such supplies’, with the consequence that the taxable amount also encompasses the financial assistance which has been granted to the operational fund by the competent authorities on the basis of an operational programme?

ECJ decided that, if a ‘producer organisation’ purchases goods from input suppliers, supplies those goods to its partner members and obtains from them a payment not covering the purchase price, the amount that an operational fund pays to that producer organisation for the supply of those goods to producers is incorporated in the consideration for that supply and must be regarded as a subsidy directly linked to the price of that supply, paid for by a third party.

ECJ Joined Cases C-4/18 and C-5/18 Winterhoff Eisenbeis

The case deals with the possibility of VAT exemption for postal services regarding the transmission of formal notifications of documents performed for courts and administrative authorities.

The preliminary questions addressed to the ECJ by the national courts were the following: 

1. Is the formal notification of documents pursuant to provisions of public law a universal postal service?

2. Is an undertaking which effects the formal service of documents pursuant to provisions of public law a ‘universal service provider’, supplying a universal postal service in whole or in part, and is such service exempt from VAT?

The ECJ ruled that the providers of services consisting in the service of items of correspondence, such as those at issue in the main proceedings, who, in their capacity as holders of a national license, are required to perform the formal service of court or administrative authority documents, must be regarded as ‘universal service providers’. Thus, these services are exempt from VAT as services performed by the ‘public postal services’.

ECJ case C-692/17 Paulo Nascimento Consulting

This case analyzes the VAT exemption regarding the transactions relating to the granting, negotiation and management of credit

The ECJ ruled as follows:

Article 135(1)(b) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the exemption laid down by it in respect of transactions concerning the granting, negotiation or management of credit does not apply to a transaction which, for the taxable person, consists in assigning, to a third party, for consideration all the rights and obligations deriving from the taxable person’s position in enforcement proceedings for recovery of a debt recognised by a judgment, a debt the payment of which was secured by a right over immovable property awarded to that taxable person and made the subject of attachment.

ECJ Case C‑653/18 Unitel

The case analyzes if the tax authorities may refuse the VAT exemption for an export operation, if the buyer of the goods is not identified.

ECJ ruled as follows:

1. Article 146(1)(a) and (b) and Article 131 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax and the principles of fiscal neutrality and proportionality must be interpreted as precluding a national practice, such as that at issue in the main proceedings, which consists in considering in all cases that there is no supply of goods, within the meaning of that former provision, and in refusing as a result the value added tax (VAT) exemption, where the goods concerned were exported to a destination outside the European Union and where, following their exportation, the tax authorities found that the person acquiring those goods was not the person stated on the invoice issued by the taxable person but another entity which has not been identified. In such circumstances, the VAT exemption provided for in Article 146(1)(a) and (b) of that directive must be refused if the failure to identify the person actually acquiring the goods prevents it from being proved that the transaction at issue constitutes a supply of goods within the meaning of that provision or if it is established that that taxable person knew or ought to have known that that transaction was part of a fraud committed to the detriment of the common system of VAT.

2. Where there is a refusal to grant the VAT exemption, the transaction in question should be considered not to constitute a taxable transaction and, accordingly, not to confer entitlement to the deduction of input VAT.

ECJ case C-42/18 Cardpoint GmbH

The case analyzes whether the technical and administrative services corresponding to cash withdrawals benefit from the VAT exemption for financial services.

For more details, please see Tax alert no. 32.

ECJ case C-329/18 Altic

The case analyzes the possibility of deducting VAT by the taxable person who has not carried out checks of his suppliers in order to establish the traceability of the food products and regarding their registration with the competent authorities.

For more details, please see Tax alert no. 35.

·        Draft law for the modification and completion of art. 291 of Law no. 227/2015 on the Fiscal Code

The draft law that reduces the standard VAT rate from 19% to 16% was tacitly adopted by the Senate on 21 October 2019, being sent to the Chamber of Deputies, the decision-making chamber.

For the supply of beverages, with the exception of alcoholic beverages, intended for human consumption, the VAT rate of 9% remains applicable. For the supply of food for human and animal consumption, live animals and birds of domestic species, seeds, plants and ingredients used in food preparation, products used to supplement or replace food, the VAT rate decreases from 9% to 5%.

The draft law introduces also provisions related to the reporting and payment methods of the tax liabilities arising for benefits in cash and/or in kind granted by third parties, Romanian residents/non-residents, further to a contractual relationship generating salary type of income. Thus, the obligation to report and pay the salary taxes due (income tax and social charges) stays either with the entity granting the benefits, or with the Romanian resident employer (if granted via the latter), or the individual.    

For tourist expenses (including also transportation and/or treatment related) borne by the employer for its employees and family members during the vacation period, as provided by the employment contract, the annual tax free treshhold has been set at the level of the average national gross salary. 

Please contact us for more details.

·        Commission Implementing Regulation (EU) 2019/1776 of 9 October 2019 amending Annex I to Council Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff

Regulation implements the Combined Nomenclature of goods in force starting 1st of January 2020.

Prepared by:
Claudia Chiran – Manager, Direct Taxes
Cristina Galin – Senior Manager, Indirect Taxes
Alex Slujitoru – Senior Manager, Tax Policy and Controversy
Stela Andrei – Director, People Advisory Services

 

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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