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Document: Government amended Tax Code

de Victor Bratu , 12.11.2017

 

The Government adopted the Emergency Ordinance on amending the Tax Code and maintained all the provisions lately contested by the business community and trade unions.

Among the most important are: the transfer of most of the social contributions to the employee, the taxation of companies on the turnover below one million euros, or the restrictions targeting the foreign-owned companies and the banks regarding the deduction of expenses, including the interest and indebtedness.

The following are provided:

  • Transferring the payment obligation for most of the social contributions from the employer to the employee and cutting their total by 2 percentage points to 37.25%;
  • Introducing the work insurance contribution (CAM) of 2.25% payable by the employer to the general consolidated budget. CAM replaces the unemployment contribution (0.5% payable by the employee and 0.5% by the employer), the medical leave contribution (0.85% payable by the employer), the contribution to the salary guarantee fund (0.25%) and the insurance contribution for accidents and occupational diseases.
  • Introducing CAS calculated based on the minimum national wage, on the revenues obtained from independent activities.
  • Reducing the income tax from 16% to 10% for employees, pensioners, rents, interest income, copyright, other income, excluding the dividend income. The measure is intended to alleviate the risk of a decrease in the net wages.
  • The monthly taxable pension income is obtained by deducting the monthly non-taxable amount of 2,000 lei from the pension income.
  • Taxation of 1% on the turnover in all companies with a turnover below one million euros, double the previous threshold.
  • Tax authorities may refuse the VAT deduction if they can demonstrate “that the taxable person knew or should have known that the transaction put forward to justify the right to deduct was involved in a VAT related fraud occurring upstream or downstream in the delivery/supply chain”
  • Restrictions on tax optimization of credit institutions and foreign-owned companies: Directive 2016/1164 / EU is translated into the national legislation. New rules are established on:
    • the limitation in the deductibility of interest expenses and other equivalent costs: “The taxpayer has the right to deduct, within a fiscal period, the excess costs of indebtedness up to the deductible threshold represented by the equivalent in RON of 200,000 euros calculated at the BNR exchange rate from the last day of the quarter/fiscal year, where applicable”;
    • the tax regime of asset transfers, of a tax residence and/or economic activity carried out through a permanent establishment, on which Romania loses the right to tax;

Finance Minister Ionut Misa said in a press conference after the government meeting that the measure regarding the interest deductibility would discourage the “intra-group financing with an excessive interest rate” and the transfer of profits abroad.

The ordinance provides that “if an entity or a permanent establishment is considered a <<controlled foreign company>>, the taxpayer who controls it shall include in the taxable base the entity’s undistributed income deriving from the following:

  • interest or any other income generated by financial assets;
  • royalties or any other income generated by intellectual property rights;
  • dividends and income from the transfer of units;
  • financial leasing income;
  • income from insurance, banking or other financial activities;
  • income from companies that obtain it from goods and services which are purchased from associated companies and sold to them without any economic value or a low added value.”
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