Answers

Fundamentals Level – Skills Module, Paper F6 (ROM) December 2009 Answers

Taxation (Romania) and Marking Scheme

Marks
1 Mrs Tomato

(a) Value of gross employment income for March 2009.

Lei
Revenue or benefit in kind Included in gross Value
employment income
Basic salary Yes 900 ½
Seniority bonus (10% x 900) Yes 90 1
Gift on 1 March Yes 300 ½
Gift on 8 March (W1) Yes, for what exceeds 150 lei 88 1
Use of company car (W2) Yes, for the private use 68 2
Allowance (W3) Yes, for the part that exceeds 2·5 x the limit for public institutions 35 2
Company canteen lunches Yes 800 1
Skirt bought at promotion No 0 ½
Stolen robes No 0 ½
–––––– –––
TOTAL GROSS INCOME 2,281 9
–––––– –––

(b) Income tax withheld by Garden SRL from March 2009 employment income.
Lei
Gross employment income 2,281
Social contributions (349 )
Social security contribution (9·5%) (W4) (213 ) 1
Health care insurance contribution (5·5%) (125 ) ½
Unemployment contribution (0·5%) (W5) (11 ) 1
Net employment income 1,932
Other deductions (180 )
Personal deduction (W6) (130 ) 1½
Union contribution (50 ) ½
––––––
Taxable base 1,752
––––––
Income tax for March 2009 at 16% 280 ½
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5
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(c) The prepayments of income tax due in 2009 for the independent tailoring activity
Estimated gross income = 12,000 lei
Estimated deductible expenses = 8,000 lei
Estimated taxable base = Estimated gross income – Estimated deductible expenses
= 12,000 – 8,000
= 4,000 lei ½
Estimated prepayments for income tax = 4,000 x 16% = 640 lei ½
The prepayments must be made in four quarterly equal instalments by the 15th of the last month of each
quarter. ½
Date Prepayment due
lei
15 March 2009 160 )
15 June 2009 160 )
15 September 2009 160 ) ½
15 December 2009 160 )
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 Marks
(d) Final income tax due for the year 2009 for the independent tailoring activity.
Lei
Gross income 18,440 ½
Sale revenue 18,000 1
Gain from selling the sewing machine (W7) 440 1
Deductible expenses (15,020 )
Raw materials (10,000 ) 1
Heating and energy (12,000 x 1/3) (4,000 ) 1
Depreciation (W7) (840 ) 1
Sponsorship (W8) (180 ) 1
–––––––
Tax base 3,420
–––––––
Final income tax liability in 2009 at 16% 547 ½
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7
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(e) Settlement against the prepayments made during the year

After declaring her annual income to the tax authorities by 15 May of the following year, Mrs Tomato
must wait for the ruling of the tax authorities which establishes the difference of income tax to be paid or
received. 1
The difference of income tax = Final tax – Prepayments of tax
= 547 – 640
= (93) lei 1
Thus, Mrs Tomato will not have to pay any additional income tax but will receive a repayment of the
difference of income tax of 93 lei. This amount shall be received within 60 days after receiving the ruling. 1
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3
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(f) Tax declaration obligations and the deadlines for submitting them.
(i) For her employment income:
Generally Mrs Tomato would not have any tax declaration obligation. ½
But, as she wishes to donate 2% of her income tax to a non-profit organisation she will have to submit
the tax form (form 210) she received from Garden SRL to the tax authorities together with an application
(form 230) for donating the 2%. The deadline is 15 May 2010. 1½
(ii) For the independent tailoring activity:
Mrs Tomato must declare:
– her estimated net income, using form 220, which must be submitted to the tax authorities
within a maximum of 15 days after she started the independent tailoring activity; and 1
– her realised net income, using form 200, which must be submitted to the tax authorities by
15 May 2010 1
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4
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30
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WORKINGS
(1) Valuation of the gift on 8 March
All employed women may receive from their employers a gift for the 8 March day. This gift should not
be included in the employee’s gross income if its value is less or equal to 150 lei. The value of the gift
that exceeds 150 lei shall be included in the employee’s gross income.
The value of the gift = 200 x 1·19 = 238 lei
lei
8 March gift not included in the gross income 150
8 March gift included in the gross income (238 – 150) 88
(2) Valuation of company car use
The value of the company car use is estimated at 1·7% of the car’s input value per month, times the
percentage in which it is used in personal interest.
The total use of the car = 1,200 km
The use of the car for private purposes = 200 km

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 The value of the employee’s benefit in connection with the company car used for personal purposes =
200
1·7% x 24,000 x –––––– = 68 lei
1,200
(3) Valuation of the allowance received
Because Garden SRL is not a company which pays corporate income tax, the allowance given to the
employees should be included in the employee’s gross income if it exceeds 2·5 x the limit for the
allowance given to public institutions’ employees
The limit for the allowance given to public institutions’ employees = 13 lei/day/person
The maximum allowances non-taxable is 2·5 x 13 lei/day/person = 32·5 lei/day/person.
Allowance is given for a person for a two-day trip.
The allowance that may be received and not be included in the gross income = 32·5 lei/day/person x
2 days = 65 lei
lei
Allowance not included in the gross income 65
Allowance included in the gross income (100 – 65) 35
(4) Social security contribution
The social security contribution is paid on the gross income received by the employee. Except that
social security contribution shall not be paid on the daily allowances received by the employees.
lei
Gross income 2,281
Allowance included in the gross income (35 )
––––––
Income for which social security contribution is due 2,246
––––––
Social security contribution (9·5% x 2,246) 213
(5) Unemployment contribution
The unemployment contribution is paid on the gross income received by the employee. Except that
unemployment contribution shall not be paid on the daily allowances received by the employees.
lei
Gross income 2,281
Allowance included in the gross income (35 )
––––––
Income for which unemployment contribution is due 2,246
––––––
Unemployment contribution (0·5% x 2,246) 11
(6) Personal deduction
As Mrs Tomato has only one employment contract, she will benefit from the personal deduction at
Garden SRL.
The personal deduction to which Mrs Tomato is entitled depends on the number of persons that can
be considered, from a tax point of view, to be dependent on her and the value of her gross employment
income.
The general rule is that for a person to be considered as dependent, s/he must not have an income
higher than 250 lei/month. It is not relevant if the dependant lives in the same apartment with the
taxpayer or not.
Thus, analysing the situation of her mother and her mother-in-law, it can be concluded that:
– The mother may not be considered as dependent, as her income is higher than 250 lei/month.
– The mother-in-law may be considered as dependent, as her income is less than 250 lei/month.
Based on the above, we conclude that the number of dependent persons for Mrs Tomato from a tax
point of view is one.
As Mrs Tomato’s monthly gross income is between 1,000 and 3,000 lei, her personal deduction will
be computed as follows:
 2,281 – 1, 000 
Personal deduction = 350 x 1 –
 2, 000  = 125·83 ≈ 130 lei

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 Marks
(7) Asset: depreciation and sale
Purchase value = 7,200 lei
Number of years of depreciation = 5
Yearly depreciation = 7,200/5 = 1,440
Monthly depreciation = 1,440 lei/12 = 120 lei
Depreciation from 1 June to 31 December 2009 = 120 x 7 = 840 lei
On 1 December 2009 the sewing machine is sold:
Selling price 6,800 lei
The non-depreciated value (7,200 – 840) 6,360 lei
The gain (6,800 – 6,360) 440 lei
(8) Sponsorship
The deductibility of sponsorship expenses is limited to 5% x (gross income – deductible expenses, other
than sponsorship, protocol and professional fees)
Lei
Gross income 18,320
Deductible expenses, other than sponsorship, protocol and professional fees (14,720 )
Raw materials (10,000 )
Heating and energy (12,000 x 1/3) (4,000 )
Depreciation (W7) (720 )
–––––––
3,600
–––––––
Deductibility limit for sponsorship expenses (5%) 180
Deductible sponsorship expenses 180
Non-deductible sponsorship expenses (1,000 – 180) 820

2 Seed SRL

(a) Corporate income tax due for 2009

Lei
Total revenues 244,000 ½
Total expenses (W1) (199,200 ) 1
Non-taxable revenues (14,500 )
Revenues generated by the revaluation of long-term securities (4,500 ) 1
Dividend revenue (W2) (8,000 ) 2
Revenue generated by the reimbursement of paid fine (2,000 ) 1
Tax depreciation (12,000 ) ½
Legal reserve (W3) (1,675 ) 2
Non-deductible expenses 94,800
Management services 5,000 1
Withholding tax for royalties paid to non-resident 1,600 1
Stolen tangible assets 25,000 1
Pleasure trip of Mr Eggplant in Dubai (W4) 30,000 1½
Services rendered by an inactive taxpayer 10,000 1
Energy and heating 7,000 1
Corporate income tax expenses 1,200 ½
Accounting depreciation 12,000 ½
Fine 3,000 1
––––––––
Taxable income for 2009 111,425
Reported loss (10,000 ) 1
––––––––
Final taxable income 101,425
––––––––
Income tax at 16% 16,228 ½
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(b) Deadline for declaring the final corporate income tax for 2009
The fact that the company did not declare, for the fourth quarter of 2009, a sum of corporate income tax
equal to the sum of corporate income tax due for the third quarter of 2009, suggests that it had decided that
it would be able to finalise its financial statements by 15 February 2010. Thus, the final corporate income
tax must also be declared by 15 February 2010. 1

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 Marks
If the company fails to declare its income tax by 15 February 2010, then it will have to declare it by 15 April
2010 and pay late payment penalties for not paying the tax due for the fourth quarter. 1
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2
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(c) Settlement against the prepayments made during the year

The final corporate income tax for the entire year 2009 is computed at the end of the year and is settled
against the quarterly prepayments made during the year. ½
Thus, the company may subtract from the amount of the corporate income tax calculated for the entire year
2009 (16,228 lei) the amounts paid during the year (1,200 lei) and pay the difference (15,028 lei). ½
The settlement must be made by 15 February 2010, at the latest, as the deadline for presenting the
corporate tax return for the year ending 31 December 2009, in Seed SRL’s situation, is 15 February 2010. 1
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2
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(d) Measures that Seed SRL could take

– Having a contract with the supplier of management services and others supporting documents. This
would make the expenses for the management services deductible so it would add 5,000 lei to the
deductible expenses.
– If in the royalty contract with the US supplier the gross amount that Seed SRL has to pay (i.e. the net
amount that the American company will receive plus the withholding tax) could be stipulated, then,
when invoicing the amount, the American company could issue an invoice for the total amount and
stipulate that the tax shall be withheld by Seed SRL. This would have two effects: Seed SRL could apply
the double tax treaty between Romania and the USA, thus withholding only 10%, instead of 16% tax
and the withholding tax will be entirely deductible;
– Seed SRL could insure its tangible assets, so if they are stolen the expense with their non-depreciated
value would be deductible;
– Seed SRL could transform the heating contract directly into its name so the invoices will be issued in
its name or it could convince Mr Fennel to issue an invoice to Seed SRL for the amount of heating
expenses. This would add 7,000 lei to the deductible expenses.
1 mark for each correct point, up to 3 marks 3
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25
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WORKINGS
(1) Total expenses
The value of the tax on dividends paid for Mr Eggplant’s pleasure trip to Dubai (as explained in W4)
must be added to the total expenses of the company.
Lei
Total expenses before the tax on dividends 194,400
The expense with the tax on dividends (W4) 4,800
––––––––
Final total expenses 199,200
––––––––
(2) Dividend revenue
Dividend revenues from Romanian companies are non-taxable revenues. Thus, the dividends received
from Salad SA (3,000 lei) and from Oil SA (5,000 lei) are non-taxable revenues.
Dividend revenues from companies resident in other EU member states received after 1 January 2009
are non-taxable if:
– The participation share is more than 10%;
– The above participation is held with no interruption for at least two years at the time of registering
the dividend revenue.
The participation held by Seed SRL in Soup Co is 18%, but at the time of registering the dividend
revenue (July 2009) this participation was held for only one year and four months (April 2008 to July
2009). Thus, the dividends received from Soup Co are taxable revenues.
Lei
Dividend revenues that are non-taxable 8,000
Dividend revenues that are taxable 12,000

21
 Marks
(3) Legal reserve
The legal reserve may be deducted when computing the corporate income tax. The amount that may
be deducted may not exceed:
– 5% of the accounting profit, before corporate income tax, adjusted with non-taxable revenues and
the expenses related to them OR
– 20% of the owner’s equity
Lei
Total revenues 244,000
Total expenses (199,200 )
Expenses with corporate income tax 1,200
Non-taxable revenues (12,500 )
Expenses connected with non-taxable revenues 0
–––––––
Adjusted accounting profit 33,500
5% x Adjusted accounting profit 1,675
20% x Owner’s equity 4,000
–––––––
Deductible legal reserve 1,675
Note: The non-taxable revenues taken in consideration for computing the limit of 5% do not include the
non-taxable revenues generated by the annulment of previous non-deductible expenses.
(4) Pleasure trip of Mr Eggplant in Dubai
Because Seed SRL paid for a pleasure trip of Mr Eggplant in Dubai, it must consider this as a
dividend distribution. Thus, it must compute the tax on dividends for this amount and pay it to the tax
authorities.
Lei
Net dividends 25,200
Gross dividends (25,200/0·84) 30,000
The tax on dividends (30,000 x 0·16) 4,800
Total non-deductible expenses with the pleasure trip (25,200 + 4,800) 30,000

3 Rice SRL

(a) Monthly or quarterly VAT returns in 2009

Whether monthly or quarterly VAT returns are prepared depends on the sales volume in 2008:
– if the sales volume in 2008 > EUR 100,000, then in 2009 it will prepare monthly VAT returns;
– if the sales volume in 2008 < EUR 100,000, then in 2009 it will prepare quarterly VAT returns 1
Sales volume in 2008 = 450,000 lei
Exchange rate: 31 = 3·65 lei
Sales volume in 2008, in EUR = 450,000/3·65 = EUR 123,288 1
Thus, in 2009, Rice SRL must prepare monthly VAT returns. 1
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3
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 Marks
(b) VAT arising from the transactions in March 2009
Base VAT
Lei Lei
Supplies
Output VAT
Conferences organised in Romania (W1) 20,000 3,800 1
Intra-community acquisition of equipment (W5) 10,950 2,081 1
Phone repairing (W7) 730 139 1
Non-taxable or exempt transactions
Rent office 5,000 – 1
Adjustments
Insolvent client(W8) – (2,280 ) 2
–––––––––
Total output VAT 3,740
–––––––––
Acquisitions
Input VAT
Electricity (W3) 1,200 228 1
Intra-community acquisition of equipment (W5) 10,950 2,081 ½
Phone repairing (W7) 730 139 ½
Non-taxable or exempt transactions
Accommodation in Paris (W4) 1,310 – 1
Cookies, candies and fruit juices (W6) 2,380 – 1
Adjustments
Adjustment of input VAT for the rented building (W2) – (144,400 ) 2
––––––––– –––
Total input VAT (141,952 )
–––––––––
12
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WORKINGS
(1) VAT for events organising services
The place of supply for the service of events organising is where the event is organised. Thus, the place
of supply for both invoices is in Romania, so Rice SRL should collect VAT. It does not matter that one
of the invoices is issued to a company in another EU member state.
(2) VAT for renting of building
The rented building was bought in January 2008, when Rice SRL deducted all the input VAT, on the
purchase of 800,000 x 19% = 152,000 lei. The VAT adjustment period for buildings bought after
1 January 2007 is 20 years. In March 2009, Rice SRL rents the building applying the exemption from
VAT with no right of deduction. Thus, the building is used for an activity with no right of deduction
which generates the need of VAT adjustment.
VAT deducted when the building was bought 152,000 lei
Adjustment period 20 years (2008–2027)
The year when the building was changed
to an activity with no right of deduction 2009
Number of years for which VAT must be adjusted 19 years
Adjusted VAT (152,000 x 19/20) 144,400 lei
Thus, 144,400 lei must be registered as non-deductible VAT.
(3) VAT for electricity invoices
Electricity is considered a continuous service. The chargeability of VAT for a continuous supplied service
is the invoice date. Thus, only the electricity bill issued on 25 March 2009 should be included in the
VAT return for March 2009. The invoice issued on 25 February 2009 should be included in the VAT
return for February 2009
The total value of the electricity bill 1,428 lei
The value of the electricity bill exclusive of VAT (1,428/1·19) 1,200 lei
The VAT of the electricity bill (1,200 x 1·19) 228 lei
(4) VAT for accommodation in Paris
The accommodation in Paris is a service linked to immovable property. Thus, its place of supply
is where the hotel is located, respectively in France. This means that the service is non-taxable in
Romania and it will be presented in the VAT return just for information in the section of non-taxable
events.

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 Marks
The total value of accommodation invoice EUR 300 x 1·196 = EUR 359
Exchange rate: 31 = 3·65 lei
The total value of accommodation invoice EUR 359 x 3·65 = 1,310 lei
(5) VAT for intra-community acquisition of equipment
For an intra-community acquisition the VAT is due by the buyer where the goods arrive. As the goods
arrived in Romania, Rice SRL is the person liable to pay VAT in Romania for this acquisition. The
payment shall be made by reverse charge. Thus, Rice SRL has to register both output and input VAT
for this intra-community acquisition.
The value of acquisition (euro) EUR 3,000
Exchange rate: 31 = 3·65 lei
The value of acquisition (lei) 10,950 lei
Input and Output VAT 2,081 lei
(6) VAT for cookies, candies and fruit juices
The VAT for the acquisition of cookies, candies and fruit juices used for entertaining shareholders is
non-deductible. Thus, the entire value of the acquisition should be put down in the section of non-
taxable or exempt activities.
The total value of cookies, candies and fruit juices purchases = 2,000 x 1·19 = 2,380 lei
(7) VAT for repairing phones
The place of supply of repairing mobile goods is where the customer is established, because the
goods were sent into another member state, repaired in that other member state, and then returned to
Romania. Thus the place of supply of the repairing service is in Romania. Rice SRL is the person liable
to pay VAT in Romania for this service. The payment shall be made by reverse charge.
The value of acquisition (euro) EUR 200
Exchange rate: 31 = 3·65 lei
The value of acquisition (lei) 730 lei
Input and output VAT 139 lei
(8) VAT for a insolvent client
Because Rice SRL is not able to obtain payment from its client and the Court decided definitively and
irrevocably that this client is insolvent, Rice SRL is allowed to make an adjustment of the output VAT
in the sense of decreasing the value of output VAT with the amount corresponding to the invoice issued
on this client’s name.
Value exclusive of VAT for invoices issued to the insolvent client 12,000 lei
VAT for invoices issued to the insolvent client 2,280 lei

4 Mr Cucumber

(a) Prepayments of tax due in 2008 for the income from the sale of shares
Date Shares No. of Buy price/ Sell price/ Profit/loss Prepayment
shares share share of tax
(lei) (lei) (lei) (lei)
0 1 2 3 4 5 (2 x 4 – 2 x 3) 6 (5 x 1%)
13 January 2008 CO1 500 10 12 1,000 10 ½
15 February 2008 CO2 600 5 4 (600 ) – ½
13 May 2008 CO3 500 8 13 2,500 25 ½
14 November 2008 CO2 1,400 5 8 4,200 42 ½
20 November 2008 CO1 500 10 9 (500 ) – ½
3 December 2008 CO4 800 11 13 1,600 16 ½
–––
Total 93
–––
The prepayments of tax must be made by the broker who will withhold the tax from the income paid to
Mr Cucumber. 1
The tax must be paid to the tax authorities by the 25th of the month following the transaction. 1
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5
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24
 Marks
(b) Final income tax due in 2008 for the income from the sale of shares
Date Profit/loss Holding Net annual Net annual
period income for income for
shares held for shares held for
more than less than
365 days 365 days
(lei) (days) (lei) (lei)
13 January 2008 1,000 165 1,000 ½
15 February 2008 (600 ) 128 (600 ) ½
13 May 2008 2,500 122 2,500 ½
14 November 2008 4,200 401 4,200 ½
20 November 2008 (500 ) 477 (500 ) ½
3 December 2008 1,600 297 1,600 ½
–––––– ––––––
Total 3,700 4,500
–––––– ––––––
Lei
The final income tax for shares held for more than 365 days (3,700 x 1%) 37 ½
The final income tax for shares held for less than 365 days (4,500 x 16%) 720 ½
––––
Total final income tax 757
–––– –––
4
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(c) Settlement against the payments made during the year

Mr Cucumber has to declare the net income generated by the transactions in shares performed in 2008 by
15 May 2009. 1
After declaring his income to the tax authorities, Mr Cucumber must wait for the ruling of the tax authorities,
which establishes the difference in the income tax to be paid or received.
The difference of income tax = Final tax – Prepayments of tax
= 757 – 93
= 664 lei 1
Mr Cucumber has to pay the additional income tax due of 664 lei within 60 days after receiving the ruling. 1
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3
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(d) Tax paid on the winnings from quiz-shows.

Gross income Non-taxable amount Net income Tax rate Tax
(lei) (lei) (lei) (%) (lei)
1,000 600 400 16% 64 1
20,000 600 19,400 16% 3,104 1
500 600 – – 0 1
–––––– –––
Total 3,168
––––––
3
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5 Potato SRL

(a) Direct and indirect taxes

Obligation Direct tax Indirect tax It is not a tax
Corporate income tax X ½
Value added tax X ½
Income tax on employees’ salaries X ½
Social contributions for employees X ½
Tax on dividends X ½
Tax on royalties paid to non-residents X ½
Direct taxes are paid on a person’s income or wealth. ½
Indirect taxes are included in the price of goods and services purchased. ½
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4
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 Marks
(b) Declarations and deadlines
Declaration Obligations included in the Deadline for submitting the
declaration declaration
Declaration regarding the Corporate income tax 25 July 2009 2
obligations payable to the Income tax on employee’s salaries 25 June 2009
state budget (form 100) Tax on dividends 25 June 2009
Tax on royalties paid to non-residents 25 June 2009
Declaration regarding the Social contributions for employees 25 June 2009 1
obligations payable to the
social funds (form 102)
Declarations regarding the Tax on royalties paid to a non-resident 28 February 2010 ½
withheld taxes Tax on dividends 30 June 2010 ½
VAT return (form 300) Value added tax 25 June 2009/July 2009 1
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5
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(c) Penalties for late payment

Assuming that Potato SRL is a monthly VAT payer, then for all Potato SRL’s obligations to the state and social
security budget, except corporate income tax, the deadline for payment is 25 June 2009 (see (b) above).
If Potato SRL does not pay the obligations to the tax authorities until 8 July 2009, it will have to pay late
payment penalties as follows:
Total amount to be paid to the budget 17,500 lei
Number of days of delay (26 June to 8 July 2009) 13 days 1
Penalty rate 0·1%/day
Total penalty due (17,500 x 13 x 0·1%) 228 lei 1
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2
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(d) The companies to which Potato SRL is affiliated

According to the transfer pricing rules a company is affiliated to another company if the percentage of holding
of one company in another is at least 25%. 1
Thus, Potato SRL is affiliated with:
– Earth Ltd; ½
– Land SRL. ½
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2
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(e) Transfer pricing rules applicability

The transfer pricing rules should only be applied to transactions made between Potato SRL and Earth Ltd
because:
– Potato SRL and Earth Ltd are affiliated; AND 1
– Potato SRL and Earth Ltd are resident in different countries. 1
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2
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