Legal & Tax Updates

NNDKP CELF Alert no. 1/2022 – Significant tax inspections, April 2022

17.06.2022 – Significant tax inspections, April 2022

The General Directorate for Tax Control Coordination within the National Agency of Fiscal Administration published a report on the significant findings by the tax inspection in April 2022

Executive summary:

The main tax findings of the tax audit are the following:

• Tax inspections regarding legal entities:
  •  non-compliance with the arm’s length principle and transfer pricing adjustment in respect of acquisitions of raw materials and know-how from affiliated parties;
  • non-recognition of income obtained from real estate sales and reporting them as advance payments from clients in the accounting books;
  • non-recognition of the right to deduct VAT on service acquisitions as no supporting documents were made available;
  • failure to withhold related tax to income obtained by non-residents from Romania and to make available tax residency certificates;
  • non-payment of the contribution representing 50% of the minimum gross salary multiplied by the number of jobs during the period in which the taxpayer did not employ disabled persons;
  • non-recognition of the right to deduct VAT on intra-Community acquisitions for which no supporting documents were made available.
• Tax inspections regarding individual taxpayers:
  • failure to declare the income obtained from self-employment and the related mandatory social contributions;
  • failure to declare income obtained from transactions with cryptocurrencies.

Detailed presentation of the issues identified by the tax audit:

• Tax audits carried out on legal entities – significant cases:
  • Taxpayer operating in “Manufacturing of electrical and electronic equipment for vehicles and vehicles motors”. From a transfer pricing perspective, the tax audit identified the non-observance of the arm’s length principle regarding the acquisition of raw materials and know-how from affiliated companies. As regards the acquisition of know-how, the tax authorities considered that the sample of transactions used by the taxpayer to determine the royalty was not significant and proceeded to determine another transfer pricing analysis.

The tax audit body adjusted both the expenditure on the acquisitions of raw material and the royalty rate, thus establishing additional taxable basis for the computation of profit tax.

• • Taxpayer operating in “Construction works of residential and non-residential buildings”. The tax audit found that the company had registered advance payments in accounting as the value of real estate sales, although ownership had been already transferred in-full to the buyers. Thus, the tax inspection replenished the taxable profit base and established additional profit tax related to the “Clients advances” account. It was also established that the ceiling for micro-enterprises tax was exceeded, so that the tax inspection bodies established additional profit tax that was not declared.

From a VAT perspective, the audit denied the right to deduct VAT related to certain service acquisitions for which no supporting documents attesting the nature of the service, the persons who provided these services, place, time interval, orders on the basis of which they were provided, but also that they were carried out for the purpose of taxable operations were made available.

• • Legal entity operating in “Other insurance activities (except life insurance)”. The tax inspection findings were the following:
    • erroneous registration of certain amounts under “other non-taxable income”, which determined the decrease of the taxable profit;
    • lack of justification for acquisitions of services for the purpose of the economic activity through supporting documents attesting the nature of the service, the persons who provided these services, the place, the time interval, the orders based on which they were provided and the need to provide them;
    • lack of a tax residence certificate for non-resident taxpayers for which no income tax was withheld.
    • failure to follow the conditions established within insurance agreements and policies and the provisions of the court regarding the payment of “damages”.
  • Legal entity operating in “Protection and guard activities”. The tax inspection bodies determined that the taxpayer did not observe the provisions of Law no. 448/2006 on the protection and promotion of the rights of persons with disabilities as regards the payment of the contribution representing 50% of the minimum gross salary multiplied by the number of jobs for which the taxpayer did not employ persons with disabilities. The tax authorities have established additional payments in this respect.
  • Taxpayer legal entity operating in “Telecommunication activities through cable networks”. From a VAT perspective, the tax inspection determined the lack of justifying document in case of intra-community acquisitions such as transport documents, delivery-receipt reports, custody contracts, as well as lack of inventory of goods transported for installation. Thus, the tax inspection adjusted the deducted VAT.
• Tax inspections carried out on individual taxpayers – significant cases:
  • Individual taxpayer, registered for VAT purposes by option, operating in “Construction works for residential and non-residential buildings”. The tax inspection adjusted the deducted VAT (from acquisitions of materials and services) related to the construction of a building that was not finished. Based on the purchase and sales journals, the tax inspection established additional VAT, but also additional social contributions. From the perspective of personal income tax, it was determined that the audited taxpayer did not submit the single declaration.
  • Individual taxpayer obtained income from transaction with crypto currency. The tax inspection noted that these represent taxable income that falls into the category of income from other sources and established the related personal income tax. The tax inspection established that, since the payer of the income could not be identified, the beneficiary had the obligation to establish, declare and pay the related income tax.

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