EY ROMANIA

  |  21.01.2016

Main amendments brought by the methodological norms for the application of the new Tax Code

Government Decision no. 1/2016 for the approval of the methodological norms for the application of the new Tax Code has been published in the Official Gazette no. 22 on 13 January 2016.

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Title I - General Provisions

 

The methodological norms for the application of the new Tax Code contain provisions similar to the methodological norms for the application of the Tax Code which was in force up to 31 December 2015. Nevertheless, several amendments have been introduced, amongst which:


Clarifications regarding the concept of independent activity

 

Further clarifications have been brought in respect of the contractual arrangements between parties for assessing an activity as being an independent one. The contractual arrangements shall mandatorily include conditions on the agreed scope of work, rights and obligations of both parties so that it does not result in the existence of a subordinating relationship but of the individual’s freedom to decide as regards the performance of activities.


The criterion regarding the freedom of the individual to choose the place, the way of conducting activities and the working schedule is met so long as its three components are met cumulatively.


The parties can agree upon the date, place and working schedule depending on the activity’ specificity and other activities the supplier is performing.


It is clarified that an individual has the freedom to perform the activity only for one client so long as there is no exclusivity clause.


Clarifications in respect of transfer pricing

 

Clarifications have been introduced concerning the concept of control, within the meaning of the provisions for determining related party relationships.


Also, clarifications have been brought for the application of the procedure for the avoidance of double taxation between related parties further to ajustments/estimations performed by tax authorities for reflecting the arm’s length price of products, merchandise and services.

 


Clarifications related to the special provisions for the application of the Tax Code

 

Clarifications are provided concerning the interpretation of the term transaction without economic purpose within the meaning of art. 11, para (1) of the Tax Code, such term indicating any transaction/activity which is not designed for generating economic advantages, benefits, profits and which artificially or conjecturally determines a more favourable tax position.

 

 

Title II - Corporate income tax

 

Computation of tax result

New examples of items similar to income and expenses were introduced.


A part of the new examples of items similar to income are represented by the legal reserve and the reserves for tax incentives, the amounts recorded in the retained earnings which are taxable as per the provisions of the new Tax Code, the amounts representing the reduction or cancellation of the prudential filters that were deductible for the purpose of the computation of the taxable profit, etc.


The amounts recorded in retained earnings which are deductible as per the provisions of the new Tax Code, certain amounts transferred to retained earnings as a result of the application of the accounting regulations compliant with the European directives, etc. are among the new examples of items similar to expenses. In addition, it is expressly mentioned that the losses from the cancellation of own shares do not represent items similar to expenses.


Provisions regarding the computation of the taxable result were introduced for the taxpayers for which the modified tax year includes periods from both 2015 and 2016.
These categories of taxpayers will apply the tax treatment in force for the periods before / after 1 January 2016 for the income, expenses, similar items recorded before / after 1 January 2016.


Provisions were introduced in respect of the way in which the adjustments / price estimates, established by the tax authorities at the level of the other related party, are treated in the profits tax computation by the Romanian related party.

 

Non-taxable income


Clarifications were brought regarding the non-taxable income represented by the amount of the new participation titles or by the increase in the nominal value of the existing participation titles, recorded as a result of the incorporation of reserves, as well as explanations in respect of the tax value of these participation titles. Examples regarding the computation of the tax result upon the disposal of these participation titles were also introduced.


The cases under which the amounts received as a refund of the contribution share of the shareholders / associates as a result of a share capital reduction are considered as non-taxable income in the computation of the tax result were elaborated.

 

Expenses


Certain types of expenses are provided as examples of expenses incurred for business purposes, such as advertising expenses incurred to promote the company, expenses for travel and accommodation inside the country and abroad, marketing expenses, research expenses, expenses representing the value of the receivables disposed of, expenses resulting from the subsequent evaluation and execution of derivative instruments, etc.
The list of the expenses incurred for business purposes included in the methodological norms for the application of the new Tax Code is not exhaustive.


The expenses assimilated to salaries are deductible for the computation of the tax result irrespective of the tax regime applicable at the individual’s level.


Clarifications regarding the application of the 50% limit for the expenses representing foreign exchange differences booked further to a lease agreement were introduced.

 

The condition regarding the destruction of inventories or depreciable fixed assets enabling the deductibility of the expenses with the inventories or depreciable fixed assets discovered as missing or damaged, shall be considered observed both in case when the destruction is carried out by own means, as well as when these are delivered to specialized units.


Provisions, depreciation adjustments and reserves


The legal reserve set up once again, in the same limit, after its use for covering losses or distribution in any form would be considered deductible for the computation of the tax result.


Explanations were introduced regarding the tax deduction of the adjustments for doubtful receivables, in respect of the date (i.e. 1 January 2016) starting with which the receivables, other than those towards customers, should be recorded in order to be taken into consideration and, respectively, in respect of the tax period in which these can be deducted for corporate income tax purposes. In addition, it is mentioned that the bad debt adjustments are deductible within the limit of 30% of the amount of the outstanding debt, including VAT.


Rules were introduced regarding the reserves and provisions transferred during reorganization processes in the sense that a document has to be provided to the beneficiary regarding the reserves and provisions transferred, which were deducted and not taxed.

 

Tax depreciation


For motor vehicles for which the tax depreciation is limited to RON 1,500/month, the deductible value upon write-off is computed as the number of months left from the normal useful life multiplied by RON 1,500.


Tax payment and submission of tax returns


Certain reserves should not be included in the computation of the tax result by the taxpayers ceasing their activity following the liquidation operations, such as the reserves from net profit, amounts relating to reductions in tax rate or tax exemptions, etc.

 

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