Tax alert 18 – Amendments brought to the Methodological Norms for the application of the Tax Code

In this issue:

  • Amendments brought to the Methodological Norms for the application of the Tax Code

Government Decision no. 354 / 16 May 2018 for amending and completing the Methodological Norms for the application of the Tax Code, published in the Official Gazette no. 442 / 25 May 2018

We have summarized below the main amendments and completions brought by the Government Decision no. 354 / 25 May 2018 to the Methodological Norms for the application of the Tax Code.

  • Corporate income tax

Clarifications are provided for the period of application of the provisions of art. 25 par. (3) letter n) of the Tax Code, regarding the limitation of 30% on the deductibility of expenses representing the value of alienated receivables (i.e. period between 1 January 2018 and 26 March 2018).

According to the application norms, for the period in question, only 30% of the value of the alienated receivables is granted irrespective of whether the de-registration from accounting books of these receivables has been accounted for through expense accounts or not. In case of the assignment of the receivable by the transferee, the value of the alienated receivable is its acquisition cost.

In addition, to the extent that they have not been accounted for as income, the write-off of specific provisions / impairment adjustments or, as the case may be, of the amounts of expected losses corresponding to to alienated receivables, which have been previously deducted, as well as the assignment price of receivables, will be considered elements similar to income.

Apart from the above, clarifications are provided regarding the application of the interest limitation rules regarding interest and other costs economically equivalent to interest.

For example, the newly introduced norms specify that for profits tax payers under the quarterly declaration and payment system, the deductible threshold of EUR 200,000 is determined by using the exchange rate communicated by the National Bank of Romania for the last day of each quarter and for the last day of the tax year.

Furthermore, clarifications are also provided in relation to the case of taxpayers for which the tax year comprises periods both in 2017 and 2018. More specifically, for determining the deductible level of interest expenses and net foreign exchange losses recorded up to 31 December 2017, respectively, to determine the deductible level of interest and other costs economically equivalent to interest in accordance with the provisions in force as of 1 January 2018, these taxpayers will take into account the income, expenses (and other items) corresponding to each distinct period.

Additionally, the newly introduces norms clarify that the provision regarding the non-inclusion in the tax value of interest costs and other costs economically equivalent to interest applies only to assets produced and / or acquired after 1 January 2018.

In addition, the new rules also introduce a computation example for the application of the interest limitation rules regarding interest and other costs economically equivalent to interest.

  • Microenterprise income tax

The Methodological Norms have been amended in order to be aligned with the new provisions of the Tax Code applicable from 1 January 2018.

It is also clarified that micro-enterprises which meet the conditions imposed by the law will be able to opt for the application of profit tax in any quarter subsequent to 1 April 2018, while the calculation and payment of the profit tax will be made by the micro-enterprises that choose to apply profit tax should be made taking into account the revenue and expenses incurred starting with the quarter in which they exercised this option.

In addition, according to the new rules, the individual labour contracts / individual labour conventions concluded under the special laws, as well as the suspended contracts, according to the law, will also be taken into account in determining the number of employees, for establishing the tax rate.

  • Value Added Tax

It details the rules applicable regarding to the inclusion or not in the VAT sphere of research and development operations. Also, it is mentioned that as long as the research and development will be carried out in order to carry out the economic activity, the taxable persons can exercise their right to deduct VAT related to the acquisitions made for this activity.

Provisions are made regarding to fact that the collective management bodies for copyright and related rights (as defined in relevant legislation) are taxable persons for VAT purposes. In addition, it is clarified what type of remuneration perceived by these bodies fall or do not fall within the scope of VAT.

  • Excises and other special taxes

The provisions of the Methodological Norms are correlated with those of the Fiscal Code regarding the establishment of the competent authorities that carry out the authorization of the fiscal warehouses, of the registered recipients, of the registered consignors and of the authorized importers. Thus, the authorization is made by the local tax authority defined according to the provisions of the Tax Code.

At the same time, the economic operators who extract coal, produce coke, and those who make intra-Community acquisitions or import such products as well as producers, distributors or re-distributors of electricity and natural gas distributors or re-distributors, are registered with the local tax authority defined according to the provisions of the Tax Code.

The following formula has been established for the complete denaturing of alcohol in alcohol per hectolitre of pure alcohol:

  • 1 litre (chemically pure) of methylethylketone;
  • 1 litre (chemically pure) of isopropanol;
  • 1 gram (chemically pure) of denatonium benzoate.

It was implemented the procedures and conditions for granting the refund of the non-harmonized excises paid to the state budget in Romania for heated tobacco products, manufactured in the Romanian fiscal warehouses and subsequently subject to intra-Community supplies or export.

  • Income tax

Through these amendments, the Methodological Norms were correlated with the new provisions of the Tax Code, in force as of 1 January 2018.

Also, the Methodological Norms have been correlated with the amendments brought by the Ordinance no. 25/2017 for the amendment and completion of Law 227/ 2015 and the Emergency Ordinance no. 18/2018 regarding the simplification of the reporting obligations for individuals.

Income from independent activities

Amongst other amendments of the above mentioned nature, a new provision states that the contribution in cash and/ or in nature from the personal patrimony to the business one performed at the beginning of activities or during their progress does not represent a gross income.

Salary and other income

Most of the changes were made in the sense of correlating with the new provisions of the Fiscal Code as regards: the tax rate, the personal deductions and the health insurance provided in the form of a subscription, the option of distributing by the employers of a quota of 2% or 3.5% for non-profit entities or private scholarship units.

Annual tax and social security return and computation and payment of estimated and final annual income tax

The Methodological Norms have been correlated with the provisions regarding the annual tax and social security return. Also certain examples are included, as regards: the computation of the estimated income tax due for certain types of income, the tax reductions provided by the Emergency Ordinance no. 18/2018 (under certain conditions) as well the fiscal credit application in case of income earned from abroad.

Supporting documents related to the tax reconciliation for income earned from Romania for activities carried out abroad as well as or those related to the application of the double tax avoidance methods provided by the Double Tax Treaties, in case of income earned from abroad, should kept by the taxpayer and should no longer be annexed to the annual return.

  • Social charges

Most of the changes were made in the sense of correlating with the new Tax Code provisions related to the declaration, calculation and payment of social contributions for income from independent activities, intellectual property, rent, etc. A number of examples have been introduced as regards the application of these provisions.

  • Local taxes

As regards building tax, the newly introduced norms specify the documents which need to be submitted to the tax authorities by the owners or administrators of buildings classified as historical, architectural or archeological monuments in order to apply the tax exemption.

As regards land tax, the main amendments to the Methodological Norms relate to the alignment with the new provisions of the Tax Code applicable from 1 January 2018.

 

For additional information, please contact:

Alex Milcev, Partner – Head of Tax & Legal

Email: office@ro.ey.com

 



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