Emergency Ordinance No. 24 / 2012 amending Law 571 / 2003 regarding the Fiscal Code and reglementation of certain fiscal-financial measures - published in Official Gazette 384 / 07 June 2012

Fiscal Code Amendments

Amendments to the Fiscal Code introduced by Emergency Ordinance No. 24 / 2012 enter into force starting from 1 July 2012, with certain exceptions.

The main amendments to the Fiscal Code include the following:

Corporate Income Tax

Expenses with limited deductibility

Provisions limiting deduction right for fuel expenses have been extended to other expenses related to motor road vehicles (e.g. expenses with operation, maintenance, repairs). Thus, according to the new provisions, deduction of expenses related to certain types of vehicles, which are not exclusively used for business purposes, is limited to 50%. Also, it is mentioned that, for vehicles used for certain specifically mentioned activities (e.g. used for suplying services against consideration, used as merchandise for commercial purposes, used by sales and purchase agents, etc.) the expenses related to such vehicles are fully deductible.

Expenses with operation, maintenance and repairs related to vehicles used by persons having management positions within the legal entity are deductible at not more than one vehicle per person having such attributions, within the limit mentioned above.

Provisions

Provisions/impairment adjustments for receivables taken over from credit institutions for recovery purposes are deductible, under certain conditions, within the limit of the difference between the value of debt taken over and the amount to be paid to the transferor.

Income tax

Income from independent activities

Deductibility of expenses related to motor road vehicles not used only for business purposes is limited to 50%. Moreover, expenses related to vehicles used for certain specifically mentioned activities (e.g. used for supplying services against consideration, used as merchandise for commercial purposes, used by sales and purchase agents, etc.) are not subject to this provision since these expenses are fully deductible for income tax computation purposes.

For owned or in use motor road vehicles which do not fall under this limitation, the general rules of deductibility shall apply according to the norms.

Investment income

The main amendment brought by Ordinance No. 24 / 2012 is that, starting 1 January 2013, no advance income tax payments shall be made during the fiscal year in relation to transactions with titles (other than shares and transferable securities in case of closed companies).

As such, starting 1 January 2013, taxpayers incurring gains/losses from such transactions will submit only the statement regarding the income obtained, by the 25th of May inclusively of the year following the one during which the income/loss incurred. Also, among others, each broker or income payer shall have the obligation to transmit to each taxpayer, in writing, information regarding the total gains/losses for the transactions performed during the year, by the last day of February of the current year for the previous year.

In addition, the income tax due by the taxpayer for the taxable gain, if the case, will be computed by the relevant tax authority based on the statement regarding the income obtained.

For gains/losses derived from these transactions up to 1 January 2013, the tax obligations in force at the moment they are obtained shall apply.

Withholding tax

Starting 1 January 2013, the chapter related to exchange of information on direct taxes, transposing the old Directive No. 77/799/CEE is repealed. The new Directive No. 2011/16/EU on administrative cooperation in the field of taxation will be implemented starting 1 January 2013 through Government Ordinance 92/2003 on the Fiscal Procedure Code. Please refer to our Tax Alert No.4 of January 2012 for more details on this topic

Excise duty

Amongst others, new conditions for distribution and sale of excise products have been introduced, i.e. marking of fuel oils classified under codes 27101961 to 27101969 and other energy products assimilated, for excise purposes, to the above mentioned fuel oils. Legislative changes regarding excise duty are applicable starting 1 August 2012.

Value Added Tax

VAT deduction

The right to deduct VAT related to purchase, intra-community acquisition, import, rental or leasing of motor road vehicles, along with VAT deduction right for expenses on certain types of vehicles owned or used by the taxable person, is limited to 50% if such vehicles are not used exclusively for business purposes.

However, vehicles used for certain specifically mentioned activities (e.g. used for rendering services against consideration, used as merchandise for commercial purposes, used by sales and purchase agents, etc.) are not subject to such provision.

Special exemption regime for small enterprises

The threshold for applying the special exemption regime for small enterprises has been increased to EUR 65.000. The equivalent of this threshold in national currency is determined based on the exchange rate announced by the National Bank of Romania at the accession date and shall be rounded to the next thousand, i.e. RON 220,000.

For newly established taxable persons, starting activity during the calendar year, the exemption threshold will be maintained at the same level, without being pro-rated to the number of months of existence.

Cancellation of VAT registration ex officio

Clarifications have been introduced on the cancellation of VAT registration ex officio for taxable persons failing to submit VAT returns during a 6-month period/2 quarters consecutively.

New provisions for rescheduling the payment of tax liabilities

A new Article has been introduced in Emergency Ordinance No. 29 / 2011 on rescheduling on payment of the tax liabilities on whose payment depends maintaining the authorization, agreement or other similar administrative act applicable to a taxpayer.

According to this Article, for taxpayers which requested rescheduling on payment and have to pay the tax liabilities in a specified period, as well as during the validity of the rescheduling on payment, the competent authority shall not suspend / revoke the authorization and shall not execute the related guarantees.

Clarifications are given for cases when the rescheduling request was rejected or for cases when taxpayers have rescheduling on payments in progress at the date of entry into force of the present Emergency Ordinance.

By Venkatesh Srinivasan, Partner – Head of Tax and Legal, Ernst & Young Romania

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