Verification of Individuals with a High Tax Risk

The National Agency for Fiscal Administration has started verifying 5400 taxpayers presenting significant fortunes as part of the Tax Compliance Programme for individuals displaying high tax risk.

Additionally, tax authorities have targeted real estate purchases for the years 2011-2013, amounting approximately 150.000 Euros, and car purchases, from the same period, amounting almost 75.000 Euros.

The authorities divided the targeted taxpayers into 4 broad categories, as follows:

• Risk group 1 – wealthy shareholders/ members of “poor firms”. Individuals associated with this category have a major mismatch between possessed assets and a much lower declared income.
• Risk group 2 – people with significant assets, but without an acknowledged economic activity. In this case, the income may be obtained through undeclared legal or illegal activities (usury, human trafficking etc.);
• Risk group 3 – people with volatile income. This category is related to those individuals with an irregular income, without there being a permanent contract to track the compensation;
• Risk group 4 - other people who do not fall within the three categories above, but pose significant risks.

The decision made by NAFA management emerged as a result of a tax risk analysis conducted by the Tax Inspection Division in regards to individuals and based on declared income and funds allocation. Results showed that there are individuals other than the ones from Tax Compliance Programme with large fortunes.

The tax verification process can range from 6 to 12 months, if additional foreign information is required.

Registration Procedure for VAT Purposes

Order no. 1964/2015 adds a few changes in terms of the registration procedure for VAT purposes. In this context, the registration for VAT purpose is consider dismissed if correct and complete data are not provided as required and if companies can’t demonstrate the capacity to perform economic activities with VAT purpose.

Another change is the extension of the deadline for issuing the decision of the authority from one day to three days, a period calculated from the date of submission of the complete documentation.

Order approving content and format of Form 088

The Order approving the model of Form 088 -“Statement on own responsibility for the evaluation of the intention and capability of performing economic activity involving transactions subject to VAT” adds two more questions through which the authority covet to learn whether director/ shareholders have credited other companies, in which they held similar positions and whether or not they’ve filed other 088 declarations for the same firm.

Through the new form taxpayers are required to sustain the information entered in the declaration with supporting documents, such as diplomas of studies for the directors, copies of the account statements, employment agreement copies etc.

The Regulations came into force on August 3rd 2015, date of publication.

Order no.1966/2015 approving the model and content of Form 088 -“Statement on own responsibility for the evaluation of the intention and capability of performing economic activity involving transactions subject to VAT”.

Derogative Reporting Conditions

The present order modifies the provisions governing the derogative reporting conditions, which refer to the ability of economic agents to no longer file tax declarations during the period in which their activity is suspended.

Order no. 2097/2015 establishes that the derogative reporting conditions cease in the month when new reporting obligations are imposed on the taxpayer.

In order to qualify for the facilities of the derogative reporting conditions, the economic agent may not have employees and shall meet several conditions, cumulatively:

Temporary inactivity declaration has been extended to self-employed professions as well.  The request is made by submitting an application to the tax authority the tax records of which feature these as payers of taxes and contributions.

• Not to engage in any activity whatsoever;
• Not to derive operating income, financial income and/or extraordinary income and/or other items similar to income;
• Not to have hired staff or pay income subject to withholding tax;
• To be featured, in the tax records, with all the reporting and payment obligations as fulfilled;
• Not to have any pending receivable VAT with a reimbursement option or any pending application for the refund of taxes and contributions;
• Not to be the subject of any tax inspections in progress;
• Not to be featured on the list of inactive taxpayers;
• To have the temporary inactivity registered in the Trade Register.

Temporary inactivity declaration has been extended to self-employed professions as well. The request is made by submitting an application to the tax authority the tax records of which feature these as payers of taxes and contributions.

Order no. 2097/2015 amending paragraph 1 of Chapter B of Annex no. 1 to the Order of the President of the National Agency for Fiscal Administration no. 1221/2009 on the procedure approving the derogative reporting conditions¹.

Consolidated Annual Financial Statements

Under the Order of the Minister of Public Finance no. 1802/2014², consolidated annual financial statements shall be prepared this year by the 31st of August.

The law establishes that the parent company shall prepare the consolidated annual financial statements within eight months of the end of the financial year if it is part of a group and meets one of the following conditions:

• It holds the majority of voting rights of the shareholders or members in another entity, called a subsidiary;
• It is a shareholder or member of a subsidiary and has the right to appoint or revoke the majority of the members of the administrative, management or supervisory bodies of that subsidiary;
• It is a shareholder or member of a subsidiary and has the right to exercise a dominant influence over that subsidiary, under a contract concluded with the entity in question or a clause in the Articles of Incorporation or Association, if the legislation governing that subsidiary allows for such contracts or clauses;
• It is a shareholder or member of an entity and most members of the administrative, management or supervisory bodies of that entity (subsidiary), who have held such office during the financial year, during the previous financial year and until the date of preparation of the consolidated annual financial statements, have been appointed solely as a result of exercising its voting rights;
• It is a shareholder or member of an entity and holds by itself the control over the majority of the voting rights devolving on the shareholders or members of that entity (subsidiary), following an agreement with the other shareholders or members of that subsidiary.

The main novelty proposed by this Order is a reclassification of economic entities into the categories of micro-entities, small entities and large entities. According to this classification, each one shall prepare abridged financial statements or financial statements with several components.

Order approving the Procedures of Annulment of Tax Liabilities and of the Health Insurance Contribution for Certain Categories of Individuals

The Order provides for four procedures that may take into account the classification of a taxpayer in one or several situations provided for by Law no. 209/2015 on the annulment of certain tax liabilities, namely:

• The procedure for the preparation and submission by the tax inspection structure of the list of tax liabilities that may be subject to annulment under Law no. 209/2015 on the annulment of certain tax liabilities contained in taxation decisions issued and communicated to the taxpayer before the entry into force of the law;
• The procedure of identifying individuals eligible for the annulment of the health insurance contribution, under article 4 of Law no. 209/2015 on the annulment of certain tax liabilities and Law no. 225/2015 on the annulment of the health insurance contribution for certain categories of individuals;
• The procedure of annulment, at the request of the individual, of the health insurance contribution, under Law no. 225/2015 on the annulment of the health insurance contributions for certain categories of individuals;
• The procedure for the issue of the decisions annulling tax liabilities, under Article 5 of Law no. 209/2015 on the annulment of certain tax liabilities, and Law no. 225/2015 on the annulment of the health insurance contributions for certain categories of individuals.

Order no. 2202/2015 approving the procedures of annulment of tax liabilities subject to Law no. 209/2015 on the annulment of certain tax liabilities and Law no. 225/2015 on the annulment of the health insurance contribution for certain categories of individuals³.

Law no. 219/20154 has established two new types of legal entities in Romania for the first time ever: social enterprises and social integration enterprises.
The law provides for the obligation for the two types of enterprises to ensure employability for the people from vulnerable groups (individuals or families who are at risk of losing their ability to meet their daily needs) and their involvement in social and/or economic activities.

About social enterprises

The law states that both first tier and credit cooperatives, as well as associations, foundations, mutual companies for employees or pensioners, agricultural companies, and any category of private legal persons carrying out activities in the scope of social economy may be social enterprises. They are certified by being given a social enterprise certificate and they operate under the following criteria:

• They act for a social purpose and/or in the general interest of the community;
• They allocate at least 90% of the profit made to the social purpose and the statutory reserve;
• They undertake to transfer the assets remaining after liquidation to one or several social enterprises;
• They enforce the principle of social equity in relation to their employees, ensuring fair pay levels, with no differences which may exceed the 1/8 ratio.

About social integration enterprises

A social integration enterprise is defined by the law as a social enterprise which has at all times at least 30% of the hired staff from the vulnerable group, so the cumulative working time thereof accounts for at least 30% of the total working time of all the employees, and one which fights against exclusion, discrimination and unemployment.

This is certified by being given a social mark, which includes the certificate attesting the status of social integration enterprise, with a validity of three years from the date of issue, and a specific element of visual identity that shall be applied on the products made or the documents proving the provision of a service.

The law provides for a number of benefits for social integration enterprises such as:

• Financing from national or international public and/or private sources;
• The free issue of the social mark and free registration with the Unique Register of Social Enterprises;
• The allocation of premises and/or land from the public domain of territorial and administrative units/subdivisions in view of performing the activities for which the social mark has been granted;
• Support in promoting the products made and/or supplied, the services rendered or the works executed in the community and in identifying sales markets for them;
• Support in promoting tourism and its related activities, by capitalising on the local historical and cultural heritage;
• Other facilities and exemptions from taxes granted by the local public authorities, under the law.

This law comes into force starting from 27 August 2015, and, within 60 days, the Ministry of Labour, Family, Social Protection and the Elderly shall develop its detailed implementing rules.

Order approving the Procedure on the List of Individuals registered in the Unique Register of the Insured

Order no. 1987/513/2015⁵ approves the Procedure on the method of submission of information between the National Agency for Fiscal Administration and the National Health Insurance Fund with respect to the list of individuals registered in the Unique Register of the Insured from the Computer Platform for health insurance.

The procedure provides for the categories of people covered by insurance without paying contributions under Law no. 95/2006 on the healthcare reform, plus the PhD students referred to in Article 164 of the National Education Law no. 1/2011. The legislative act also establishes the structure of the information reporting file, as well as the frequency of its transmission by the National Health Insurance Fund to the National Agency for Fiscal Administration.

The Order enters into force starting from 19 August 2015.

Order on the Documents from the Supervisory and Control Activity in the Field of Excisable Products of the Directorate-General for Customs and Subordinated Customs Structures

Order no. 1959/2015⁶ approves the template and content of the forms and documents used in the supervisory and control activity in the field of excisable products so the legislative act determines the structure of the following:

• The Control order;
• The Minutes;
• The Minutes of collection/return of documents;
• The Minutes of sealing/unsealing;
• The Invitation;
• The Explanatory Note.

The Order comes into force on 7 August 2015.