Q1 30 Marks

1. D 200, no later than 25 of May 2012; 1 mark

2. She is not entitled to deduct any of the car’s expenses nor depreciation as she
bought the car before starting the activity ( the car is her own asset, as a natural
person ) and she has no rental contract signed. 1 mark
3. Income obtained as a sole trader, both in UK and Romania, income from
property rights, selling shares and usually for rent, but not in her case as the
income tax declared and paid is final. 1 mark
4. ( 2 marks) She must pay health insurance for the income obtained as a sole
trader (computed based on the net income) and for the salary she obtained in
Romania. 1 mark
She must not compute health insurance contribution based on the property rights,
investment incomes and rent as she works as an employee ( even if part time),
Beside, she worked as a sole trader in Romania. 1 mark

5. At the beginning of the year, the estimated income tax based on her declaration
is 200,000 * 16 % = 32,000 lei. This amount is to be paid quarterly, in equal
amounts, no later than 15th of March, June, September and December 2011. So,
during the year, she’ll pay 8,000 lei for every quarter.

6. Lei
Amount Workings
1 Gross income 600,000 W1
2 Deductible expenses 270,278
Fully deductible expenses 252,325 W2
Interest rate for loan from ING @ 15 % 6,000
Interest rate for loan from her mother @ 10% 3,500
Expenses related to business 200,000
Mandatory contribution to CAFR 5,000
Expenses with mandatory professional development courses 5,000
( from CAFR)
Rent and utilities paid for 2011 12,000
Insurance expenses for BMW 4,000
Depreciation expense for BMW 6,200
Health insurance contribution 11,000
Protocol, sponsorship and voluntary contributions 17,953
Protocol 6,953
IIA – voluntary contribution 1,000
Sponsorship 10,000
3 Taxable base 329,722
4 Income tax 52,756

Workings 1

Gross income = income from auditing + income from consulting

1
Gifts are not to be considered taxable incomes

Working 2

W 2.1 Fully deductible expenses other than protocol, sponsorship and fees pad to
professional association:

W 2.1.1 Mandatory contribution = no more than 5% from the gross income

Deductible expense = min ( 5,000 lei and 5% * 600,000 lei ) = 5,000 lei
W 2.1.2 Deductible interest for the loan obtained from her mother = no more
than the one computed using BNR interest rate ( 6.25% )
Deductible expense = 50,000 * 6.25 % = 3,125
W 2.1.3 Deductible expense for rent & all = 24,000 * 50 % = 12,000
W 2.1.4 Deductible expenses related to the cars:

Exclusive Deductible or not

of VAT
1. Gas from January to May 1,000 lei NO – as there is no rental
contract signed
2. Gas from June to December 2,000 lei NO – according to the fiscal code
3. Insurance expenses for DACIA 1,000 lei NO
4. Insurance expenses for BMW 4,000 lei YES
5. Repairing expense of the first car 2,000 lei NO
DACIA
10,000 lei 4,000 lei

W 2.1.5 Deductible expenses with the depreciation:

Starting with May 2009, the VAT in case of cars’ acquisitions may not be
deducted so it becomes part of the acquisition cost.
Depreciable value of the car = 100,000 * 124% = 124,000 lei
Depreciation during 2009 starting with July = 124,000 * 6 / 120 months = 6,200 lei
( the useful lifetime is given on the cover pages)

Even if in some cases the sole trader deducted VAT without having the right
to do so, this has no impact on the income tax as the expense with penalties is not
deductible.

W 2.1.5 Deductible expenses with the mandatory contributions

As the sole trader is also an employee, he must only pay the health insurance
contribution. During the year this involves paying a even amount, computed based
on the estimated net income, 4 times a year: 15th of March, June, September and
December, so all the payments are tax deductible.
The deductible contribution is 200,000 * 5.5% = 11,000 lei

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 W 2.1.7 Fully deductible expenses

1 Interest rate for loan from ING @ 15 % 6,000

2 Interest rate for loan from her mother @ 10% 3,125
3 Expenses related to business 200,000
4 Mandatory contribution to CAFR 5,000
5 Expenses with mandatory professional development courses ( 5,000
from CAFR)
6 Rent and utilities paid for 2011 12,000
7 Insurance expenses for BMW 4,000
8 Depreciation expense for BMW 6,200
9 Health insurance contribution 11,000
Gross 252,325

No other expenses are deductible (except for voluntary contribution, sponsorship

and protocol)

W3

Compute the deductible expenses for voluntary contribution, sponsorship and

protocol

Computation base = gross income less fully deductible expenses = 600,000 –

252,375 = 347,625 lei

W 3.1
Deductible expenses for voluntary contribution = no more than 2 % from the
computation base
Deductible expense = min (1,000 and 2 % * 347,625) = 1,000

W 3.2
Deductible expenses for protocol = no more than 2 % from the computation
base
Deductible expense = min (20,000 and 2 % * 347,625) = 6,953
W 3.3
Deductible expenses for sponsorship = no more than 5 % from the
computation base
Deductible expense = min ( 10,000 and 5 % * 347,625) = 10,000 lei

7. Final tax due for 2011

7A) The salary income from UK is not to be declared or to be taxed in Romania.

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7B) The income obtained from UK as sole trader is to be declared in Romania.

Amount Workings
1 Gross income 84,000 4.2 lei / euro
2 Deductible expenses 50,400 4.2 lei / euro
3 Taxable base 33,600
4 Income tax payable in Romania 5,376
5 Income tax paid in UK 9,600 ( 32,000 * 30%)
6 Fiscal credit for taxes paid in UK (5,376) Min (5,376 and 9,600)
7 To pay / To receive 0

7C) For income obtained as a sole trader in Romania she paid during the year
32,000 lei ( based on D 220 declaration) and the final tax due is 52,697 lei, so she
must pay the difference of 20,697 lei.

7D) For intellectual property rights income, the payer of such income withholds 10
% from the gross amount and at the end of the year the final tax is computed with
a 16 % tax rate, but the author is entitled for deductible expenses amounting 20 %
from the income ( lump sum expense). There are no social security contributions
due, as this income is declared as incidental and Botulina is also an employee.

Amount
1 Gross income 20,000
2 Deductible expenses – 20 % 4,000
3 Taxable base 16,000
4 Income tax payable 2,560
5 Prepayments ( 10% income tax retained by the payer (2,000)
of the income )
7 To receive 560

7E) For the rent, Botulina declared the rental contract and paid in advance ( as
prepayments) the income tax. As no changes related to the rent occurred, no
differences are due. This income is not to be declared in D 200.

Amount
1 Gross income 6,000
2 Deductible expenses – 25 % 1,500
3 Taxable base 4,500
4 Income tax payable 720
5 Prepayments (720)
7 To pay / To receive 0

7F) For salary income she must not declare anything and she is entitled for PD
only for her and not for her boyfriend.

4
 Monthly Yearly
Gross income 1,340 16,080
Salary 1,000
Car - W 4 340
Social security contributions 165 1,980
Social security contributions 105 1,260
Health insurance 55 660
Unemployment 5 60
Net income 1,175 14,100
Deductions
Personal deductions 210 2520
Private pension
Taxable income 965 11,580
Income tax 154 1,853

Workings:

W4

Gross income = Salary agreed + Benefits in kind ( car usage)

Value of the BIK = 100,000 * 1.7% * 100 km / 500 km = 340

Gross monthly income = 1,000 + 340 = 1,340 lei

PD = 250 * ( 1 – ( 1340 – 1000) / 2000 ) = 210

There are no other related obligations to declare the income.

7 G) Gains from selling listed shares in 2011 are taxable with 16% and the
prepayments and tax declarations are the duty of the taxpayer ( quaterly). At the
end of the year, Botulina must declare the net income earned and the final income
tax.

Amount
1 Gain 12,000
4 Income tax payable 1,920
5 Prepayments (1,920)
7 To pay / To receive 0

7 H) Interest expenses from bank accounts in 2011 are taxable with 16% when the
interest is transmitted into the bank account. The one in charge for retaining the
final tax is the bank, so there is no other obligation for Botulina. Final income tax
for the interest – 2,000 * 16% = 320 lei.

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7 I) Dividends are considered investment income according to the fiscal code and
are to be taxed with 16% ( WHT) by the payer of the income.

Gross amount = 10,000 lei

TAX withheld (final tax) = 16% = 1,600 lei
Net income = 8,400 lei

There are no other related obligations to declare the income.

7 J) Gains from selling real estate are taxable irregardless of the outcome ( gain or
loss). The taxable value is the price as it is higher than the value market estimated
by the notary.

Taxable value = 800,000 lei

Income = 200,000 * 2 % + 600,000 * 1% = 10,000 lei

8) Botulina should know that starting with 1st of May 2009 she may not deduct the
VAT for the car and gas expenses unless she fulfills the conditions set by the fiscal
code ( limited condition).

6
 Q2 25 marks

a)

Workings
Incomes 890,000
Expenses -320,000
Gross accounting profit 570,000
Amounts assimilated to revenues 17,000 W1
* April 2010 7,000
* September 2010 10,000
Tax relieves 27,000 W2
* tax depreciation 20,000
* interest from the past 5,000
* legal reserve 2,000
Not taxable incomes 100,000 W3
Income from provisions for fixed 50,000
assets
Incomes from reversal of penalties to 40,000
the state budget
Incomes from UK dividends 10,000
Not deductible expenses 111,775 W4
Social expenses 2,000
Depreciation expenses 36,000
Interest expenses 6,875
Protocol expenses 0
Sponsorship expenses 5,000
Expenses with provision for bad debt 6,900
Profit tax expenses 40,000
Fines 15,000
Taxable profit before fiscal losses 571,775
Fiscal losses -22,000 W5
Taxable profit before fiscal losses 549,775
Profit tax before sponsorship 87,964
Sponsorship 1,800 W6
Profit tax after sponsorship 86,164
Prepayments 40,000
Fiscal credit 13,200 W8
Profit tax to be declared 32,964

7
Workings

W1. Amounts assimilated to taxable income

In April 2010 when the reserve was used from the 15,000 lei revaluation reserve:
- 2,000 lei are already taxed ( during May 2009 – April 2010)
- 6,000 lei are not taxable for the moment ( this is the initial balance of the
used revaluation reserve as of 30th of April 2009). This amount is to be
taxed when the reserve is used.
- 7,000 lei is taxable when the asset is sold

In September 2010 when the company used another revaluation reserve, this
amount becomes taxable as it was not taxed before.

Taxable amount = 7,000 + 10,000 = 17,000 lei

The company will tax 1,000 lei ( 6,000 lei – 5,000 lei ) when it will use the reserve.

W2 Tax relieves – 27,000 lei

W 2.1 Legal reserve = min ( 20% from share equity, 5 % from ( Gross accounting
profit less non taxable income, except the income from provisions and cancellation
of previously non deductible expenses, plus non deductible expenses related to
non taxable incomes plus profit tax expense));

Deduction for legal reserve = min ( (20% * 100,000) – 18,000) and 5 % (570,000–
40,000+ 40,000)) = 2,000 lei

W 2.2 Interest from the past

Compute the indebtedness grade = credit from the mother company ( longer than
1 year) / equity = 400,000 lei / ( 100,000 + 18,000 + 30,000 + 570,000 / 2) < 3

Deductible interest from the past = 5,000 lei

W 2.3 Fiscal / tax depreciation

Period TAX VALUES ACCOUNTING

VALUE
January 2009 – December 180,000 ( 360 * 50 %) 36,000 ( 360 * 10 %)
2009 Depreciation
2010 - 2018 20,000 ( 180 / 9 ) 36,000 ( 360 * 10 %)

Tax depreciation for the year = 20,000 lei

8
W3. Non taxable incomes = Income from provisions for fixed assets + Incomes
from dividends + Incomes from reversal of penalties to the state budget ( not
actually owed ) = 50,000 + 40,000 + 10,000 = 100,000 lei

W 4 Non deductible expenses

1 Social expenses 2,000

2 Depreciation expenses 36,000
3 Interest expenses 6,875
4 Protocol expenses 0
5 Sponsorship expenses 5,000
6 Expenses with provision for bad debt 6,900
7 Profit tax expenses 40,000
8 Fines 15,000
111,775

W 4.1 Social expenses – deductible in the limit of 2% from the salary expenses
Deductible expense = min (4,000 and 2 % * 100,000 ) = 2,000 lei
Non deductible expense = 4,000 - 2,000 = 2,000 lei

The gift granted to the manager is fully taxable as it is assimilated to salary

W 4.2 Accounting depreciation ( see W 2.3 )

Non deductible expense = 36,000

W 4.3 Interest expense

For the loan obtained from a non authorized company = 200,000 * ( 20 % - 6.25 %
) / 4 = 6,875 lei;
The rest of the interest is deductible.

W 4.5 Expenses with provision for bad debt

VAT recorded as a provision – not deductible – 1,900 lei

Non deductible ( for the advance paid – it did not generate revenues in the past ) =
5,000 lei

W 4.6 Protocol expenses = deductible in the limit of 2 % ( gross accounting profit +

protocol expense – non taxable income + expenses related to non taxable incomes
+ profit tax expense ) = min ( 6,000 and 2 % ( 570,000 – 100,000 + 10,000 +
40,000 + 6,000) = 6,000

All the protocol expense is deductible.

W5 Fiscal loss = 10,000 + 12,000 = 22,000

9
W6 Sponsorship expenses = min ( 20 % from 87,964 lei and 0.3 % from
Turnover ) = 1,800 lei

W 8 Fiscal credit

For the royalties paid in Spain the fiscal credit is 100,000 * 10 % = 10,000 lei
For the interest paid in Germany the fiscal credit is 20,000 * 16% = 3,200 lei

Total fiscal credit = 13,200 lei

b) Until 25th of April, July and October the company must submit D 100 and pay the
profit tax computed quarterly. If the company has employees, the D 112
declaration is to be submitted monthly for the salary income and social security
contributions, no later than 25th of the following month.

c) If the company finishes the computation before 25 February 2012, the income
tax amounting 32,964 lei is due until 25 of February, and also the final profit tax
declaration for 2011 ( D 101).
If the company does not finish the profit tax computation until 25 of February 2012,
it must pay until 25 of January 2012 an amount of 30,000 lei ( equal to the one paid
for the third quarter of 2011. After the final tax declaration ( submitted until 25 of
April 2012 ).

10
Q3 15 marks

a)
Lei Lei
Input VAT Output VAT See W
1 5,040 5,040 1
2 1,008 2
3 3,024 3,024 3
4 0 0 4
5 0 0 5
6 1,008 1,008 6
7 19,200 24,000 7
8 95 8
- 95
9 2,400 1,900 9
- 2,400

Workings

W1. Intra community acquisition. VAT is not to be paid but to be recorded both
as an Input VAT and as an Output VAT (reverse charge mechanism). 5,000 *
4.2 * 24 %

W2. As the buyer does not communicate a valid VAT number, the place for the
delivery is in Romania and VAT is to be charged in Romania. 1,000 * 4.2 *
24%.

W3. Services, place = Romania, reverse charge mechanism 3,000 * 4.2 * 24 %

W4. Simplifying measures, no VAT to be collected, no VAT to be recorded.

W5. NO Simplifying measures, but intra community delivery. Place = Romania,

but since the buyer communicated the VAT number, the transaction is
exempted from VAT with the right of deducting the input VAT.

W6. Services, place = Romania, VAT to be recorded using the reverse charge
mechanism. When the computers are sent to be repaired we are talking about
a non transfer and the company must record this non transfer in the Register /
Journal for non transfers, and when the goods return they must also be
recorded in the register.
Input VAT and as an Output VAT (reverse charge mechanism). 1,000 * 4.2 * 24
%

W7. As the company did not deduct VAT in 2009 but sold the car with VAT in
2011, the company may adjust the VAT in its benefit.

Are we in the period of adjustments ? Yes ( less than 5 years).

11
 Adjusting period : 3 out of 5 years.
Input VAT in 2007 = 200,000 * 24 % = 48,000 lei
Collected VAT in 2011 from selling the car = 100,000 * 24 % = 24,000 lei
Amount to be adjusted = min ( 48,000 * 3 / 5 ; 24,000 ) = 24,000 lei

W8. Starting with 1st of May 2009 the company may deduct VAT for cars and
fuel only in certain limited condition. The input VAT is to be declared in the VAT
form, but adjusted subsequently so no deductible VAT for the fuel.

W9. Starting with 1st of May 2009 the company may deduct VAT for cars and
fuel only in certain limited condition. Fr new cars bought in Romania the VAT is
due always in Romania, so the company must apply reverse charge. The input
VAT is to be declared in the VAT form, but adjusted subsequently so no
deductible VAT for the car.

Input VAT = Output VAT 2,400 lei

Input VAT - 2,400 lei

b) Threshold recomputed: 35,000 * 4.2 * 6 / 12 = 80,000 lei

Income from selling fixed assets is not part of the turnover;
Turnover according to the fiscal code = 300,000- 100,000 = 200,000 lei

No later than 10th of December the company must notify the fiscal body that its
exceeded the threshold, and starting with 1st of January 2012 the company is a
VAT payer

c) As in the previous year the turnover was less than 100,000 euro, the company is
to submit VAT form quarterly. Since the threshold of 100,000 euro was exceeded
during the year, starting with 1st of January next year, the company is to submit
VAT form monthly.

12
Q4 Answer: 15 marks

a) For every transaction we shall analyze if the tax is to be withheld by the payer
and due to the budget, and what tax rate is applicable:

1. It paid interest for a loan obtained from mother company .

According to the fiscal code for royalties and interest paid to another company,
resident in EU, which holds for more than 2 years more then 25 % from the share
equity issued, the tax rate is 0 %. Since the beneficiary of interest proved its
residency, a minimum rate between 00 % and 15 % ( according to the DTT ) is
applicable.

Tax on interest for incomes paid to non residents = 0 lei

2. It paid royalty (1,000 euro) to another shareholder, a German resident, natural

person, proving his residency with a fiscal certificate.

According to the fiscal code for such income paid to another natural person, the tax
rate is 16 %. Since the beneficiary of income proved its residency, a minimum rate
between 16 % and 10 % ( according to the DTT ) is applicable.

Tax on interest for incomes paid to non residents = 1,000 euro * 4.2 * 10 % = 420
lei

3. It paid a fee for consultancy services to an audit company from Portugal.

According to the fiscal code for every income paid to a non resident the payer must
withhold taxes and the standard tax rate is 16 %. Since the beneficiary of income
proved its residency, the requirements of DTT between Romania and Portugal are
applicable. Since, according to the DTT, other incomes, not explicitly mentioned by
the DTT are to be taxed only in Portugal, no taxes are to be withheld by the
Romanian payer company.

4. It paid a fee to a company from Austria representing a financial leasing.

According to the fiscal code for such interest paid to another non resident company
the tax rate is 16 %. Since the beneficiary of income proved its residency, a
minimum rate between 16 % and 3 % ( according to the DTT ) is applicable.
Actually the tax is payable for the interest and not for the entire amount paid.

Tax on interest for incomes paid to non residents =400 euro * 4.2 * 3 % % = 50 lei

5. It In paid royalty to a company, Bulgarian resident, without retaining the WHT.

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Taxes due = 16 % * 1,000 * 4.2 / 84 % = 800 lei

For dividends:

The British man became a Romanian resident for tax purposes so the applicable
tax rate is 16 %.

Shareholder Percentage of Tax rate Tax on

the capital ( lei) dividends (lei )
Spanish company 50,000 0% 0
German natural person 10,000 15% 1,500
British natural person 20,000 16% 3,200
Romanian company 18,000 0% 0
ALFA
Romanian company 2,000 16% 320
BETA
Total tax on dividends

b) The due time for the payment is 25 of January 2012 ( 25 of the month that
follows the one in which the payments were performed )

c) The company should change the contract and should include the gross amount
recomputed payable to the Bulgarian company. For instance, here a new amount
should have been negociated: 1,000 * 4.2 / 84% = 5,000 lei

14
Q5 15 marks

The interest payable to the bank is fully deductible

Deductible = 550,000 * 30% = 165,000

Step 1

Compute the nondeductible interest expense for loans obtained from un authorized
persons:

The value of the loans from the shareholders:

- 100,000 lei @ 20 % a current loan ( only for 3 month ) ;

Deductible 100,000 lei @ 6.25 % * 3 / 12 = 1,563

Non deductible 100,000 lei @ ( 20 % - 6.25 %) * 3 /12 = 3,437

- 200,000 lei @ 25 % a long term loan, due in 6 month next year;

Deductible 200,000 lei @ 6.25 % * = 12,500

Non deductible 200,000 lei @ ( 25 % - 6.25 %) = 37,500

- 400,000 lei @ 22 % a short term loan. The loan is 2 years old because the
contract was changed and the reimbursement was deferred;

Deductible 400,000 lei @ 6.25 % * = 25,000

Non deductible 400,000 lei @ ( 22 % - 6.25 %) = 63,000

Deductible interest = 165,000 + 1,563

Probable deductible interest = 12,500 + 25,000
Non deductible interest = 3,437+ 37,500 + 63,000

Step 2

Compute the indebtedness degree

( 200,000 + 400,000 + 300,000 ) / ( 100,000 + ( 50,000 + 60,000 ) / 2 – 20,000 + (

40,000 + 60,000 ) / 2 = 900,000 / 185,000 = 4,86 > 3

The probable deductible expenses in the period are to be deducted in the future
when the indebtedness degree falls below 3.

15
ii) Define the permanent establishment and enumerate some situations ( 3 THREE
at least) in which a company is not considered to have a permanent establishment
in Romania. ( 5 marks)

Definition of the permanent office

A permanent office is a location through which the activity of a non-resident is
wholly or partly carried out, either directly or through a dependent agent.
A permanent office includes a place of management, branch, office, factory, shop,
workshop, as well as a mine, oil or gas well, quarry or other place of extraction of
natural resources.
A permanent location includes a building site, a construction, assembly or
installation project or supervisory activities related to them, only if the site, project,
or activities last more than 6 months.
A permanent location does not include the following:
a) the use of a facility solely for the purpose of storage or display of products or
goods belonging to a non-resident;
b) the maintenance of a stock of products or goods belonging to a non-resident
solely for the purpose of storage or display;
c) the maintenance of a stock of products or goods belonging to a non-resident
solely for the purpose of processing by another person;
d) the sale of products or goods belonging to a non-resident that have been
displayed during a non-permanent or occasional fair or exhibition if the products or
goods are sold no later than one month after the conclusion of the fair or exhibition;
e) the maintenance of a fixed place of activity solely for the purpose of purchasing
products or goods or collecting information for a non-resident;
f) the maintenance of a fixed place of activity solely for the purpose of carrying out
for a non-resident any activity of a preparatory or auxiliary nature;
g) the maintenance of a fixed place of activity only for any combination of activities
provided in lett. a) – f), provided that the entire activity carried out at such fixed
place is preparatory or auxiliary in nature.
A non-resident is considered to have a permanent location in Romania with
respect to activities which a person, other than an agent with independent status,
undertakes on behalf of the non-resident if the person is acting in Romania on
behalf of the non-resident and if one of the following conditions is satisfied:
a) the person is authorized and exercises in Romania the authority to conclude
contracts on behalf of the non-resident, unless the activities in question are limited
to those provided in letter. a) - f) above;
b) the person maintains in Romania a stock of products or goods from which the
person delivers products or goods on behalf of the non-resident.

A non-resident is not considered to have a permanent location in Romania merely

because it carries out activity in Romania through a broker, agent, general
commissioner or any other agent intermediary with independent status, provided
that the activity is the regular activity of the agent according to the description in
the constitutive documents. If the activities of such agent are carried out wholly or
almost wholly on behalf of the non-resident and conditions exist between the non-

16
resident and the agent in their commercial and financial relations which differ from
those which would exist between independent persons, then the agent is not
considered to be an agent with independent status.
A non-resident is not considered to have a permanent location in Romania merely
because it controls or is controlled by a resident or by a person that carries out an
activity in Romania through a permanent location or otherwise.

(c) The situations that may cause a company to cease applying the special
scheme of corporate tax for very small companies are:

(1) It registers revenues from consulting and management activities

Corporate income tax shall be applicable starting with the same quarter when the
ceiling was exceeded;
(2) It registers total annual taxable revenues of more than €100,000. Corporate
income tax shall be applicable starting backward, with the beginning of the year;
(3) It has more than nine employees or no employees. Corporate income tax shall
be applicable starting with 1 January of the next year after this situation is met;
(4) It changes its ownership to state ownership. Corporate income tax shall be
applicable starting with 1 January of the next year after this situation is met;
(5) It changes its activity field into banking, insurance, casinos etc. Corporate
income tax shall be applicable starting with 1 January of the next year after this
situation is met.

17