Contexpert considers that the verification of high incomes will intensify in 2015 and thereafter. The new fiscal entities established this year in each regional of the National Agency for Fiscal Administration (NAFA), meant to verify high incomes, as well as the new provisions in legislation will enable inspectors to check more thoroughly the personal incomes and assets both in the country and abroad.
The verification of the high incomes was initiated by NAFA two years ago. So far there have been selected two samples of individuals. The first one includes 400 persons with very large incomes. The second one, that includes 4,600 persons with significant incomes, will be investigated starting this year.
As a rule, there are investigated the individuals that declare incomes 10% lower than those estimated by the inspectors, but not less than 50,000 lei.
! During the verification, taxpayers have the possibility to appeal to professsional or legal assistance as long as the main purpose of the fiscal authorities is the voluntary compliance of the individuals with high incomes. Contexpert team has the expertise and experience to provide this support. Obviously, those who do not comply to the rules should know they expose themselves to the rigors of the law.
How does NAFA check?
The persons who have a significant patrimony are targeted. The inspectors determine their fiscal situation, checking: the level of personal expenses, bank accounts, turnovers, information on real estate and personal property, financial and accounting documents of companies held by the checked persons, investment tools, financial interests nationally and internationally etc.
Mainly, three indirect methods of verification are used:
• Method of source and spending fund: here cash flows are considered. The incomes evaded from taxation are determined by comparing personal expenditures with the declared income in the period under examination.
• Method of cash flows: they analyze the inflows and outflows from the bank accounts, as well as the incomings and the outgoings of cash. The undeclared incomes are identified by analyzing the value and frequency of deposits in bank accounts and the sources of the bank deposits.
• Method of heritage: they analyze the net assets as well as the effects they have on the net acquisition of fixed assets, liabilities and expenses out of sources of income not declared as taxable.
What are the rights of the verified individuals?
The verification cannnot begin without a notice sent by the tax authority at least 15 days before, informing the individual about: the legal basis of the verification, the starting date of the verified period, the possibility of postponing the verification, but only once, the place of the verification and the contact person, the relevant documents for verification. Within 60 days, the notified person must submit documents to clarify the personal tax situation. The verified person may request only one extension of deadline for the verification.
Note! During the verification, the taxpayers are entitled to professional or legal assistance. The verification may take place at the headquarters of the verified person or of the person that offers professional assistance, at the request of the taxpayer.
The verification can be done once for the income tax for each taxable period, however, exceptionally, the NAFA may decide rechecking a certain period if further data appears later. The taxpayer has the right to be informed during the fiscal checking over the findings of the inspector, having the possibility to express his point of view.
The verification of incomes in the context of global exchange of information
The verification of the personal incomes should be seen in a wider context. The exchange of tax information with other countries, according to the Fiscal Procedure Code, gives the inspectors access to information on bank accounts abroad. After the financial crisis, Organisation for Economic Cooperation and Development (OECD) aims to detect the undeclared incomes, not only by companies, but also by individuals.
Romania joined the Global Forum on Transparency and Exchange of Fiscal information at the end of 2013. Romania also has taken over OECD guidelines and EU directives which oblige the exchange of information with Member States for several incomes. Last year, Romania joined the Multilateral Agreement for the automatic exchange of financial information signed in Berlin which will provide authorities information on bank accounts. It may be added here also the legislative proposal, that was not approved yet, of the Ministry of Finance to impose automatic exchange of information with banks.
Under the Multilateral Agreement for the automatic exchange of financial information, NAFA will find information about accounts abroad:
• name, address, fiscal identification code of the person
• account number or a functional equivalent
• name and identification number (if any) of the financial institution
• account balance or value of the account
• for a custodian account: gross amount of the interests, dividends or other incomes
• the gross amount from the sale or redemption of financial assets
Now, NAFA has access to any tax information it needs from other European countries, but also from other states outside the EU. The exchange of tax information may be: automatic, on request and spontaneous. The exchange of information on request is in Romanian legislation from 2012, the automatically exchange was set from 2014, and the spontaneous exchange from 2015.
Therefore, from 2014, Romania automatically exchanges fiscal information with other EU countries relating to
• income from employment;
• remuneration paid to managers and other persons;
• life insurance products not covered by other legal instruments of the EU in the case of the exchange of information and other similar measures;
• pensions;
• ownership of immovable property and income from immovable property.
Conclusion: The verification and the detection of undeclared incomes entered into a new stage. The whitening of the incomes has become a huge stake to all tax authorities. Romania, as part of a global system, will also make radical transformations. In this context, those who will be prepared for the new approaches will not be taken by surprise!
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