Zero regulation: Tax risk with 50%
The successive changes of the Tax Code from this year, have left in suspense the application of some stipulations that, although it should have been completed by secondary legislation, are not clarified yet.
An exemple is the law 187/2015 regarding the approval of the Government Emergency Ordinance 6/2015 for the amendments and the completion of the Law 571/2013 regarding the Tax Code.
Contexpert draws the attention that, until the apparition of all the regulations, the economic substance of transactions (transactions reclassified as artificial) can be a very delicate subject for a dispute with the Tax authorities.
The law 187/2015 amended the article 11, regarding the reconsideration of transactions by the tax authorities. The implications on establishing taxes and contributions, following an inspection ,can significantly affect the business. For the nonresidents incomes, for example, the tax rate goes up to 50% if a transaction is not taken into consideration After the emergence of the law 187/2015, it should be developed and published by the National Agency for Fiscal Administration, the procedure for implementing the provisions of paragraph 1 from Article 11, which states that:
“In determining the amount of a tax or a mandatory social contribution, the tax authorities may not consider a transaction which has not an economic purpose, adjusting the transaction’s tax effects, or it can reclassify the form of a transaction / activity in order to reflect its economic content The tax authority is obliged to motivate in fact the tax decision issued as a result of non taking into consideration a transaction, or, by case, as a result of the reclassifying a transaction ‘s form a, by indicating the relevant elements regarding the purpose and content of the transaction, which is the subject for not taking into consideration / reclassifying, , as well as any evidence considered for it. “
Without the procedure, the article can not be implemented, which creates problems of interpretation and therefore it is an additional tax risk. On the other hand, the obligation imposed by law to the tax authorities to justify its decision, supports the taxpayers.
Which were the previous provision?
Before the changes in the law 187/2015, the article showed that
“In determining the amount of a tax in accordance with the present code, the tax authorities may not take into consideration a transaction that has no economic purpose or can reclassify a transaction’s form in order to reflect its economic content. If the transactions or a series of transactions are qualified as being artificial, will not be considered part of the scope of double taxation conventions
The artificial transactions mean transactions or series of transactions that have no economic content and can not be normally used within certain business practices, the essential purpose of these transactions being to avoid the tax or to obtain tax benefits that otherwise could not be granted. “
As you can see, the previous article defined the artificial transactions as being without economic content and which can not be normally used within normal economic practices. In the new version, the explanations disappear and the secondary legislation had the role to clarify.
Who is affected?
In the Article 116 c ^ 1, where it is stipulated the 50% rate applied to the gross incomes obtained by the nonresidents from Romania, it is referred to transactions qualified as neing artificial according to art. 11. But, according to the version amended by Law 187/2015 , Article 11, does not include the word artificial transactions.
The Incomes may be provided from interests, royalties, fees, services (management, consultancy, marketing, technical assistance, research and design, advertising and publicity in whatever form they are made), and independent professions.
Also starting from Article 11 stipulations, any transaction between related parties may be reconsidered, with repercussions on the entire business process.
