ADVANCED ACCOUNTING AND TAXATION PhD Lecturer ADRIANA FLORINA POPA

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1. TAXATION IN BUSINESS DEVELOPMENT. JURIDICAL FRAMEWORK. FISCAL LEGISLATION. FISCAL MANAGEMENT

Selection of references

The Fiscal Code - Law no. 571/2003 The Fiscal Code Norms - Government Decision no. 44/2004 The Fiscal Procedure Code Government Ordinance no. 92/2003 Order no. 1802/2014 on approving the Accounting Regulations Regarding Individual and Consolidated Annual Financial Statements starting the 1st of January 2015 OMFP 3055/2009 on the Accounting Standards According to the European Directives until the 31st of December 2015

Paunescu M., ACCA Romanian Taxation System, ASE Publishing, 2014 Paunescu M., Paper F6 Taxation (ACCA) Romanian Variant Revision book 2014; Morosan Publishing, Bucuresti 2013 Kaplan, ACCA F6 Kaplan Publishing - Exam kit, Kaplan Publishing, UK, 2014 Popa A.F., Contabilitatea si fiscalitatea rezultatului intreprinderii, CECCAR Publishing, Bucharest, 2011 Bufan R., Minea M.S. (2013), Codul fiscal comentat, WoltersKluwer Publishing Web resources: www.mfinante.ro, www.biblioteca.ase.ro/ResurseElectronice - despre legislaie fiscal

Syllabus

1. Fiscal law sources 2. Principles of the taxation system 3. Structure of taxes, contributions and other budgetary revenues 4. Elements of the budgetary revenues 5. Rights and obligations of taxpayers 6. Fiscal mechanism 7. Fiscal system

1. FISCAL LAW SOURCES The main sources of the fiscal law are: 1. The legislative and regulatory sources; 2. The conventional sources; 3. The jurisprudential sources.

1. THE LEGISLATIVE AND REGULATORY SOURCES are the main source of the fiscal law. The Romanian constitution states that the taxes and contributions are set by laws. Therefore the law represents the main authority in the fiscal matter. The main sources are: the Fiscal Code, the Fiscal Procedure Code, the Methodological Norms for the enforcement of the Fiscal Code.

ADVANCED ACCOUNTING AND TAXATION PhD Lecturer ADRIANA FLORINA POPA

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The Fiscal Code came into effect on 1 January 2004. The code integrates key tax legislation and provides the basis for a more stable framework of tax legislation, by requiring amendments to necessarily follow a specific juridical route. The Fiscal Procedure Code constitutes the common law for administration of taxes. It regulates the rights and obligations of parties engaged in fiscal juridical relations regarding: administration of taxes (i.e., activities related to fiscal registration, declaration, assessment,

verification and collection of taxes, solving of appeals against fiscal assessments) provided by the Fiscal Code;

administration of customs duties; contributions, fines and other revenues of the general consolidated budget.

General principles for administration of taxes

Consistent application states the obligation of the fiscal authorities to apply in a consistent manner the provisions of fiscal legislation with a view to correctly assess taxes due by taxpayers.

Right to be consulted according to this principle, the fiscal authorities are obliged to allow the taxpayer to express the position in respect to the deeds and circumstances relevant for decision-making prior to making a decision. The Fiscal Procedure Code stipulates several exceptions from this general principle.

Confidentiality fiscal authorities are obliged to ensure the confidentiality of information pertaining to taxes and taxpayers.

General procedure provisions

Competence of fiscal authorities The fiscal authorities are empowered to administer fiscal claims, perform fiscal audits and issue application norms for the fiscal legislation. Customs authorities are empowered to manage customs related duties. The competent fiscal authority for administration of taxes is the fiscal authority of the district where the taxpayer or the income payer has fiscal residence. In case of taxpayers performing activities through a permanent Romanian establishment, the competent fiscal authority is determined based on the place where the turnover of the permanent establishment is obtained.

Correction of material errors The fiscal authority may proceed to correction of material errors identified in the fiscal administrative acts on its own initiative or further to an application submitted by the taxpayers. Material errors are errors or omissions in respect to the name, capacity of parties of the fiscal legal relationship, computation errors or other errors similar to these, and do not refer to the substance of the fiscal act. The corrected act will be notified to taxpayers.

Obligation to provide information Taxpayers or their appointed representatives are obliged to provide the fiscal authorities with the requested information, necessary for the determination of the actual facts regarding the fiscal position, in writing. The fiscal authorities may request information from other persons only when taxpayers have not clarified the facts scrutinized, such information being considered only if confirmed by other evidence.

ADVANCED ACCOUNTING AND TAXATION PhD Lecturer ADRIANA FLORINA POPA

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Charge of proof Taxpayers are held responsible to prove the facts and deeds supporting their declarations and appeals to the fiscal authorities, whereas the latter have the obligation to motivate the amount payable by taxpayers. Interest and penalties on delays in payment of tax due Failure to pay taxes at the prescribed date is penalized with:

Interest rate for late tax payments - 0.03%/day Penalty level for late tax payments - 0.02%/day

2. THE CONVENTIONAL SOURCES are set by agreements, treaties and international conventions. For example, there are international conventions set between two states, which regulate the fiscal situation of the individuals or companies so that their income/revenues were taxed in only one state.

3. THE JURISPRUDENTIAL SOURCES represent fiscal reasoning by litigious jurisdictions and they often refer to the taxpayers litigations regarding the way the authorities interpret the laws.

The interaction of the Romanian tax system with other tax systems: - UE: the directives provide a common code of taxation (especially in the VAT field, freedom of movement of employees/capital, freedom to establish business operations within the EU) - other countries double tax treaties

2. PRINCIPLES OF THE TAXATION SYSTEM

The taxes and fees governed by the present code shall be based on the following principles:

neutrality of the fiscal rules as regards the various categories of investors and capitals, forms of ownership, by ensuring equal conditions for investors and for the Romanian and foreign capital;

certainty of taxation, by drawing up clear legal norms, which should not lead to arbitrary interpretations, whilst the deadlines, manner and amounts payable are clearly set for each payer, and such payers may follow and understand their fiscal burden and may assess the impact of their financial management decisions on their fiscal burden;

fiscal equity at the level of natural persons, by different taxation of income depending on the size of the incomes;

efficiency of taxation by providing long-term stability of the provisions of the Fiscal Code, so that such provisions do not to lead to unfavorable retroactive effects for the natural and legal persons, as compared to the taxation in force on the date when they adopt certain major investment decisions.

3. STRUCTURE OF TAXES, CONTRIBUTIONS AND OTHER BUDGETARY REVENUES

At the basis of setting the taxes and contributions is the states need to obtain resources in order to cover the expenses involved by its social economical role.

ADVANCED ACCOUNTING AND TAXATION PhD Lecturer ADRIANA FLORINA POPA

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The taxes are a form of collecting a part from the revenues and/or estate of the individuals and companies without getting anything back form the state, in order to cover the public expenses. The duties/levies represent the counterbalance of the services provided by the state at the request of the individuals and companies, their value being much higher than the service. The contributions are obligations of the taxpayer to the social security fund, healthcare fund, unemployment fund, being paid by the individuals or companies that use labor force. According to the budgetary classification, the taxes, duties and other budgetary revenues can be structured as follows: 1. Current revenues:

a. Fiscal revenues: - Direct taxes, which are knowingly paid by taxpayers; - Indirect taxes, which are generally supported by the final consumer through the prices of

products and services; b. Non fiscal revenues: - revenues from properties (payments from the net profit of the autonomous regies and national

companies); - interest revenues (interests related to the state treasury); - revenues from services and other activities (consular taxes, duties and other revenues from the

environment protection, revenues from the judicial stamp); - revenues from fines, penalties and seizures.

2. Capital revenues, which include revenues from the use of the state assets. 3. Encashment from the reimbursement of the granted loans

4. ELEMENTS OF THE BUDGETARY REVENUES

The subject (the taxpayer) is the individual or the entity that owns or obtains the taxing object; The tax bearer is the individual or the entity that bears the tax; The tax object is the actual element put to taxation. Depending on the type of tax, there are:

- the revenue: salaries tax; - the profit: income tax; - the wealth (asset): tax on buildings; - the price or tariff: VAT; - the acts and facts: the judicial stamps and the taxes for the notarial services.

The taxable base represents the element the computation of the budgetary revenue is based on. In most of the cases, the taxable base is the same with the object of the budgetary revenue, as it happens, for example, in the case of the revenues tax, income tax, VAT. In other cases, the taxable base differs from the object of the budgetary revenue: tax on buildings has as object the building itself, while the taxable base is represented by the taxable value of the building, differently settled for the individuals and entities.

The quota or the unitary tax represents the tax applied to a taxable unit. It can be: - fixed quota is expressed as a quantum applied to the taxable base or to a part of it. It is usually

applied when the base is a good, a fact or an act: the tax on the vehicles is expressed in lei/year/200 cm3;

- percentage quota can be proportional or progressive. The percentage proportional quotas stay unchanged reported to the taxable base and are mostly used for taxable bases such as value, revenues or income: VAT 19% or 9%. The percentage progressive quota change in relation with the taxable base: the tax on the revenue from sale of personal property, the excise on cigarettes, expressed as a sum between a specific excise and an ad valorem one.

ADVANCED ACCOUNTING AND TAXATION PhD Lecturer ADRIANA FLORINA POPA

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The payment (settlement) date represents the date until when the tax must be paid to the state. If the payment term is an interval (month, trimester, year), the settlement will be the last day of the interval, if the legislation doesnt mention something else.

The easements granted at payment include: - the exemptions generally have economic and social purposes: the exemption of the religious

cults from payment; - the reductions are applied in order to stimulate some activities, as in the case of the reduction

of the taxable base for VAT by rebates, refunds, discounts, and other price reductions granted by suppliers directly to customers in order to stimulate the sales;

- the cash discounts which are granted in order to stimulate some taxpayers to prepay the debts, usually until the first payment term;

- the delays and installments plans are set by the fiscal authorities. The delays imply to postpone the payment terms, while the installments plans refer to the division of the fiscal debt in several parts, each of them being paid at certain terms.

5. RIGHTS AND OBLIGATIONS OF TAXPAYERS

The taxpayers mainly have the following rights: The right to pretend the correct application of the legislation; The right to compensate the supplementary payments with the fiscal duties to be paid at the next

settlement dates; The right to receive back the supplementary sums which cant be compensated. The reimbursement

is done at the request of the taxpayer. The competent fiscal authority has to pay back the solicited sums in a specified term;

The right to litigate against the measures decided by the fiscal control or taxing reports issued by the fiscal inspection authorities.

The obligations of the taxpayers are: The right computation and the complete payment and in term of fiscal duties, the taxpayers being

responsible for the rightness of the calculus and payments; The right completion of the fiscal statements, according to the regulations. The information must be

clear, readable and complete and the statements must be deposed in term at the competent fiscal authority;

To register to the fiscal authorities as taxpayers in the beginning of their economic activity and to request the removal from the fiscal evidence at the end of their activity;

To correctly reflect in their own accounting all the necessary elements for the exact and timely computation of the budgetary revenues and, when the law expressly provide, to also organize special fiscal evidences for certain taxes and duties.

To supply the fiscal authorities with all the necessary justification for identifying the operations achieved at the main business quarters, as well as to the secondary ones, in order to check the rightness of the data included in the fiscal documents. Besides that, the taxpayers have to show all the documents and required information to the fiscal inspection authorities, any refuse being ratified by law.

The sanctions are applied in case the fiscal law is broken. The most common sanctions are the delay penalties (increased amounts) for untimely payments or for not paying the fiscal duties and the conventional or fiscal fines imposed by the legislation. The conventional fines are applied when the

ADVANCED ACCOUNTING AND TAXATION PhD Lecturer ADRIANA FLORINA POPA

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deeds are done in such conditions that they cant be considered criminal law violations. Therefore, in the fiscal domain the criminal responsibility can also appear.

Fiscal period In Romania, the fiscal year is the calendar year.

Tax domicile It depends on the statute of the person. For individuals the address of domicile or the address where they actually live, if it is different (more than 183 days in a calendar year) For legal persons independently developing economic activities or exercising liberal professions the registered office / the office where the main activity develops effectively / the office where the administrative management and the business management develop effectively.

In case fiscal domicile cant be determined the place where the majority of assets is located.

6. THE FISCAL MECHANISM

The fiscal mechanism is the set of methods and assessment techniques regarding the fiscal revenues, as well as the assessment/taxing instruments. The assessment/ taxing refers to the identification of all types of individuals or entities, that detain or realizes a certain taxable object, to the valuation of the computation base of the tax and to the its right determination. It can be: The self assessment the taxpayers set the taxable base and the tax on their own responsibility

(VAT, income tax); The direct assessment the direct valuation of the taxable object by the fiscal authorities based on

the declaration of the taxable object by the taxpayer (tax on buildings, tax on land, tax on vehicles); The indirect assessment appears when the competent fiscal authority based on information

directly or indirectly obtained from third parties does the valuation of the taxable object. For example, for determining the tax on the revenues from rent, the information obtained from the renter, who declares the paid rent, is used.

The most used instruments of assessment in case of the entities are: The registration statement (010) at the set up and whenever changes appear in the fiscal vector

of the entity. Any taxable person must declare the beginning, change and termination of his activity as a taxable person;

The assessment statement the taxpayer inform the fiscal authority about the taxable object and other elements to be taken in consideration for setting the sums to be paid: the statement regarding the obligations to the general consolidated budget (100), the statement regarding the obligations to income tax, the social securities and special funds (112), the final profit tax statement (101),

The statement for indirect taxes such as VAT; The customs statement is the document through which the importer declares information

regarding the imported goods, their value, the owed taxes, as well as the correct computation of the VAT. In most of the cases, this statement imposes the taxes payment in the customs. There are though situations of deferred payments (for 30 days), for example for luxury goods such as furs;

The protocols are completed by the fiscal authorities at the end of the control procedures;

ADVANCED ACCOUNTING AND TAXATION PhD Lecturer ADRIANA FLORINA POPA

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The fiscal administrative act is issued by the competent fiscal authority when it sets the assessment base: fiscal administrative acts for the anticipated payments and the annual fiscal administrative act for the revenues from rent and from the independent activities; the administrative acts for the VAT reimbursements and others.

7. THE FISCAL SYSTEM

The fiscal activity of the state includes the legislative part, which is accomplished by the Parliament and the executive part accomplished by the Government through its specialized public administration institutions. The fiscal system is included in this last part.

The central tax authority is the Ministry of Finance, in charge with managing the public incomes and expenses, as well as with the fiscal policy. The competent tax authorities are the tax authorities within the Ministry of Public Finance and the specialized offices of the local public administration authority, as the case may be, that are in charge with tax-related issues Tax is administrated by ANAF National Agency for Fiscal Administration.

The main objectives of ANAF are: The collection of the fiscal revenues; The unitary appliance of the legislation regarding the taxes, duties, social contributions an other

budgetary revenues; The exercise of the prerogatives set by law by applying an equitable treatment to all the taxpayers; The appliance of the legislative particular measures in the customs domain. The ANAF president approves by order, for its own system and for the administrative structures, criteria for applying the legislation regarding the collection of the budgetary claims. It includes: Fiscal Control General Directorate Anti Fiscal Fraud General Directorate, National Customs Authority, General Tax Administration Directorates of the Public County General Tax Administration Directorate of Bucharest General Tax Administration Directorate for Large Taxpayers

8. Tax avoidance / Tax evasion

Tax evasion = seeking ways of paying little tax by deliberately misleading ANAF by: Hiding information on which they are entitled (failing to notify ANAF about taxes

to be paid, omitting to disclose a relevant fact, understating revenues or gains) Sending them deliberately false information (deduction of expenses which are not

real) According to Law 241/2005 on tax evasion, situations are: Deliberately not recreating accounting documents that were destroyed; Refusing to declare the documents and assets to tax authorities in order to prevent

tax audits;

ADVANCED ACCOUNTING AND TAXATION PhD Lecturer ADRIANA FLORINA POPA

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Forbidding tax authorities to access in companys office in order to prevent tax audits;

Not paying for more than 30 days the taxes withheld at source from the taxpayers; Using or issuing false fiscal documents; Fraudulently and deliberately, directly or in association, declaring or the intent to

declare false taxes in order to obtain money from the public budget as reimbursement;

Hiding taxable assets or incomes; Not declaring all the taxable income or taxable transactions involved in during the

period; Recording fake expenses or bogus transactions; Destroying on purpose accounting documents; Using alternative accounting evidence in order to fake the taxes payable; Avoiding tax audits by not truly declaring the business offices; Hiding assets taken into possession by the tax authorities.

Tax avoidance - more difficult to define - any legal method of reducing your tax burden (eg taking advantage of tax shelter

opportunities) - ingenious arrangements to produce unintended tax advantages for the tax payers.

The response of ANAF: to mend the loopholes in the law as they are discovered. (eg. the case of Romanian individuals building and selling houses without paying VAT)

Starting point for discussions

The relation between accounting and taxation Stakeholders Shareholders/State Authorities Accounting principles/Fiscal Principles

Accounting/Fiscal adjustments Accounting/fiscal documents

The Fiscal Code TITLE I. GENERAL PROVISIONS

CHAPTER I. Purpose and scope of the Fiscal Code Art. 1. Purpose and scope of the Fiscal Code Art. 2. Taxes and levies governed by the Fiscal Code

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CHAPTER II. Interpretation and amendment of the Fiscal Code Art. 3. Principles of taxation Art. 4. Amendment and completion of the Fiscal Code Art. 5. Implementing norms, instructions and orders Art. 6. Set-up and operation of the Central Tax Commission

CHAPTER III. Definitions Art. 7. Definitions of common terms Art. 8. Definition of permanent establishment

CHAPTER IV. General rules of implementation Art. 9. Currency for payment and calculation of taxes and levies Art. 10. Income in kind Art. 11. Special provisions for implementation of the Fiscal Code Art. 12. Income earned in Romania Art. 121. Special provisions regarding exchange of information with the Member States of the EU