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Deloitte study: Romania vs. EU – Tax rules applied to losses from selling bad loans

de Adrian N Ionescu , 16.4.2018

Deloitte Romania, at the request of the Romanian Banking Association, conducted a study for analysing the tax treatment of the sale of receivables and the recovery of tax losses by credit institutions.

Regarding the tax regime of losses incurred following the sale of bad loans, the main findings of the study for the other EU member states are:

  • 22 member states grant full deductibility in the calculation of corporate tax for losses incurred by credit institutions following the sale of receivables arising from bad loans
  • Three other member states, namely the Czech Republic, Slovakia, Poland, impose certain limitations but also grant the possibility of full deductibility under certain conditions
  • Greece grants full deductibility, but after the sale, and Lithuania grants it based on an anticipated tax solution or an opinion of tax authorities

By a comparative analysis of the tax rules applied by each EU member state for the sales of receivables, the study shows that most countries grant full deductibility for losses. Some states impose limitations and grant full deductibility under certain conditions. Changing tax rules in the Romanian legislation starting 2018 will have the effect of increasing tax costs in the case of the assignment of credit claims. In some situations, costs will exceed the sale price and will put transactions into question,” said Dan Badin, Tax and Legal Services Coordinator Partner, Deloitte Romania.

Tax regime applicable in Romania starting 2018:

The tax regime for the deductibility of disposed receivables has been amended as of January 1, 2018, initially by OG 25/2017 and later by Law 72/2018 on approving this ordinance, published on March 23, 2018.

Under the law, deductibility is capped at 30% of the net loss that represents the difference between the sale price and the value of the debt sold.

Financial institutions will be required to pay a tax on 70% of the difference between the sale price and the value of receivables taken out of the balance and disposed accounts.

In the specific case of transactions with distressed debt taken out of the balance account, financial institutions owe the tax on the amount they collect from the buyer and on about 70% of the difference between the value of the receivable sold and its sale price.

“Comparative study at the EU level. Tax treatment of the sale of receivables” was based on the information received from the companies of Deloitte network from other EU member states valid in 2017 and represents an indicative analysis.

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