Paper F6

TAXATION
(Romanian variant)

PROGRESS TEST

Lecturer: Ms. Mirela Paunescu

All 5 questions must be attended

1. Furla is a Romanian company incorporated in 2004. It paid profit tax since its
incorporation. Its main activity is sales. For the first two quarters of 2011the following
information is available.

All the amounts are presented cumulatively from the beginning of the year

Note Quarter 1 2
Incomes
Turnover 500,000 800,000
Dividends 1 10,000 10,000
Provisions 2 20,000 20,000
Income from selling an equipment 3 30,000 30,000
Reimbursement of a fine 4 1,000
560,000 861,000

Expenses
Raw materials 200,000 250,000
Services received from affiliated parties 5 5,000 5,000
Salaries 80,000 120,000
Social security contributions 20,000 30,000
Protocol expenses 5,000 6,000
Social expenses 6 4,000 4,000
Sponsorship 1,000 2,000
Depreciation expense 7 1,800 3,600
Expenses with the equipment sold 3 50,000 50,000
Interest expenses 8 15,000 30,000
Bad debt provision 9 10,000 10,000
Fines 4 2,000 2,000
393,800 512,600
Accounting profit 166,200 348,400

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 1. Dividends received

Dividends were received from a Romanian company ( 50%) and a UK company –

the rest. The shares in the UK company are held since 3 years ago, and the equity
held is 20%.

2. Reversal of provision

The initial provision was recognized for good execution warranty based on written
contracts.

3. The asset sold

The net accounting book value of the equipment sold was 50,000 lei ( same as the
fiscal value).

4. Fines

In the first quarter the company paid 1,000 lei as penalty to the state budget and
1,000 lei to a Romanian supplier, according to the commercial contract concluded.
In May 2011, the fine paid to the state budget was reimbursed as it was proved to
be not owed (1,000 lei).

5. Services from related parties

The market price for such services is 3,000 lei.

6. Social expenses

Social expenses were made in the benefit of the employees ( gifts for kids according
to the law, indemnities for losing a relative and so on), according to the law;

7. Depreciation expense

The company bought in 2010 May an equipment amounting 36,000 lei. The
equipment was first used in December 2010. For fiscal purposes the company uses
the accelerated method ( amortizare accelerata). For accounting purposes it uses
the straight line method on 5 years.

8. Interest expense

For the first and the second quarter the company reported:

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No Q1 ( average Q2 ( average
value) value)
1 Share capital 100,000 100,000
2 Revaluation reserve 50,000 40,000
3 Legal reserve 20,000 20,000
4 Loan from BCR @ 20% interest, for 2 200,000 200,000
years
5 Loan from the mother company @ 100,000 100,000
16.25% interest rate per year, for 6
months ( from January until June 2011)
6. Loan form a subsidiary, interest free, for 3 300,000 300,000
years

The rest of the interest expense related to a financial leasing contract, concluded
according to the law.

9. Bad debt provision

The provision was recorded for a customer that declared bankruptcy. The debt
amounts 10,000 lei ( VAT excluded from this amount), is from 2010, is not
guaranteed, was recorded as taxable income and the customer is not related the
company.

Additional information
10. From the past the company reported 5,000 lei representing interest to be
deducted when the indebtedness degree decreases below 3.

11. A fiscal loss was reported from the past ( from 1 year ago ) amounting 3,000
lei

12. In June 2011 the company offsets an accounting reported loss with a
revaluation reserve for a previously sold asset in the limit of 10,000 lei ( the
amount was in “ Other reserve account” ). The revaluation was tax deductible
when it was recorded and the reserve from revaluation was not taxed in the
past.

Ignore the VAT impact.

i) Compute the profit tax payable for the first 2 quarters; (27 marks)
ii) Briefly state the fiscal obligation related to payment and tax forms.
(3 marks)

30 marks

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2. For December 2011 Gigel obtained the following incomes and advantages
from his job at SC Molly SRL, where he declared his main job:

Gross salary – 2,000 lei;

Bonuses for his age – 500 lei;
Bonuses for non competition with the company after terminating his work contract–
500 lei;
Fitness fee – 200 lei;
Mobile phone ( gift for personal use) – 300 lei ( VAT is not included in this amount);
Car to be used – 100,000 lei, depreciated for 20 %; used 300 km for job related
purposes, 100 km home- office and 100 km for personal purposes;
Gasoline used for the month – 600 lei ( VAT included);
Meal tickets – 20 pieces * 9 lei each;
Gift for his kids ( for Christmas) - 200 lei / for each kid ( 2 kids );

In order to benefit from personal deduction for as many relatives as possible, Gigel
brought to the paying company all the documents required by law proving the
following:

1. Gigel is not married but he has an unemployed girlfriend;

2. His mother is under his care, she has no pension but she is the owner of 20,000
m2 of land and sells flowers.
3. His father is retired and receives monthly a 100 lei pension, but luckily in
November gained 1,500 lei as a result of gambling;
4. His sister is not leaving with him, she has no income, but she obtained in March a
dividend amounting 12,000 lei;
5. One of his kids is 10 years old, and receives scholarship amounting 500 lei /
month;
6. The other kid is a 17 years old student and works for Microsoft Romania.
7. Gigel is a member of union so he pays 50 lei / month;
8. Gigel contributes for a private pension plan – 200 lei / month;
9. He also pays private health insurance – 100 lei;

Gigel also works for SC Holly SRL for 2 hours / day and he receives an income
amounting 1,000 lei.

Starting with July 2011, Gigel published monthly an article in a famous magazine for
which he receives 2,000 lei a monthly gross fee.

Also from July he commenced trading on Bucharest Stock Exchange Market (BVB).
For the first trading quarter (July – September) he reported a loss amounting 3,000
lei, but for the second one (October – December ) he gained 5,000 lei. The figures
are given for every quarter separately.

1. Compute the gross income received from SC Molly; (5 marks)

2. State the personal deduction he is entitled for every person under his care;
(5 marks)

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 3. Compute the tax on income retained by SC Molly SRL and by SC Holly SRL
in December 2011 for Gigel; (3 marks)
4. Could you advise Gigel in order to maximize his net income ? (2 marks)
5. Compute the net income obtained by Gigel from property rights in December
2011; (2 marks)
6. Compute the tax paid by Gigel in 2011 ( for third and forth quarter) for the
income obtained from trading on BVB; (4 marks )
7. What are Gigel’s obligation relating to tax form for the income obtained in
2011 ? (4 marks)

3. SC Barbette SRL, a Romanian company registered for VAT purposes in

Romania, asks your opinion in order to compute both input VAT and output
VAT for March 2011. Also in March the company submits the financial
statements for the last year. You received the following information:

1. It sells a new car to John, a British young man, and delivers the car in UK.
Price received 20,000 euro;
2. It sells peasant clothes ( costume populare ) to Rhianna in US – 2,000 euro
and delivers the merchandise in US;
3. It sells Romanian specific food ( sarmalutze) to GodFather, a Italian resident (
private person), and delivers the food in Italy. The remote sale ceiling was not
exceeded in Italy – 1,000 euro;
4. It sells cheese ( telemea ) to a French restaurant, registered for VAT
purposes in France and delivers the food in France – 5,000 euro;
5. It sells wood to a Romanian VAT registered company for 200,000 lei;
6. It cashes an advance of 3,720 lei for which it issues the invoice in March;
7. It sells computers to a Bulgarian company, not a VAT payer but registered for
intra community acquisition in Bulgaria, who sent the special VAT registration
number - 4,000 euro;
8. It offers services related to a house in Romania – 10,000 euro. The customer
is registered for VAT purposes in Spain.
9. It receives consulting services amounting 1,000 euro. The supplier is
registered for VAT purposes in Germany. All the documents proving the VAT
registration number in Romania were sent.
10. It offers tax related services for a bank, registered for intra community
transaction purposes, resident of Spain – 10,000 euro;
11. It bought goods sent by a Polish company registered as VAT payer in Poland
– 2,000 euro;
12. It received repairing services amounting 3,000 euro for its own computers.
The supplier is a small Hungarian company, not registered as a VAT payer.
The Hungarian company sent the Hungarian VAT registration number for
intra-community transactions purposes.
13. Protocol expenses for the last year that exceeded the deductible limit are
2,000 lei. The company deducted VAT in the previous year for protocol
expenses.

VAT is excluded from the above amounts unless otherwise stated.

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 a) For every of the above transaction state the input/output VAT involved (13
marks);
b) Briefly state the obligation of a Romanian company starting with 1st of July
2010 that intends to be involved in intra – community transaction and the fine
in case it fails to assume it. (2 marks)

4. You are a tax adviser ( registered as a sole trader ) and during the year 2011 you
invoiced incomes from consultancy amounting 700,000 lei, from which you received
in bank only 600,000 lei ( the rest of the amount is to be cash in the next year).
For financing your business you took 100,000 lei as loan from your friend ( 20 %
interest rate ); 200,000 lei – loan from BRD @ 20 % interest rate and you received
50,000 lei a gift from your mother, for your birthday.
During the year the expenses recorded were:

200,000 lei (related to business) from which you paid only 150,000 lei;

20,000 lei spent for food, clothes and personal medical care;

500 lei fines for paying late last year income tax;

1,500 lei differences for income tax from the last year;

10,000 lei protocol expenses;

20,000 lei –sponsorship;

4,000 lei – mandatory contributions paid to professional associations;

500 lei – professional dues paid to IFA( not mandatory).

In June 2010 you bought a car for 240,000 lei for your independent activity ( straight
line depreciation).
At the beginning of the year 2011 the estimated net income declared by you was
300,000 lei.
As you are not employed anywhere, you’ve concluded a contract with the House of
Pensions for social contribution ( pension). The level of income declared was 1,500
lei.
All the social contributions ( pension and health insurance contribution) were paid
right on time. As for the unemployment contribution, as you were not as sure about
the obligation, you decided not to pay it.

a) Compute the income tax for 2011 and the difference ( if any ) payable. Ignore the
VAT impact. (12 marks)
b) Briefly describe your fiscal obligation related to your independent activity ( initial
declarations, payments, final declaration and so on ) (3 marks).

(15 marks)

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5. A very small company records during the year 2011 the following incomes and
expenses:

Q1 Q2 Q3 Q4
Turnover (revenues other
than consultancy) 100,000 200,000 100,000 300,000
Income from selling fixed
asset 10,000 15,000 10,000 20,000
Dividends from Italy 50,000
Reversal of provision for
fixed assets
25,000 50,000
185,000 265,000 110,000 320,000

Current expenses 100,000 20,000 50,000 50,000

Protocol expenses 4,000 10,000 12,000
Sponsorship expenses 5,000 5,000 5,000 10,000
105,000 29,000 65,000 72,000
Accounting profit 80,000 236,000 45,000 248,000
No. of employees 2 1 0 0

1. The Italian subsidiary is held for 5 years for 100% share capital held.
2. In the 3rd quarter the only employee left the company and no other
employee was hired in 2011.
3. The company bought in May 2011 a cash register for 5,000 lei.
4. The company recorded in 2008 ( year of incorporation, when it was a
profit tax payer) a tax loss amounting 10,000 lei and an accounting loss of
8,000 lei. In 2009 the company opted to pay income tax instead of profit
tax.
5. Last year, when the company was still a very small company it recorded
an accounting loss amounting 5,000 lei.

i) Compute the tax payable for every quarter; (10 marks)

ii) Briefly state the fiscal obligations during the year ( due dates, tax
forms etc.); (2 marks)
iii) Is it better to start a very small company instead of a sole trader
(independent activity)? Justify with as least 3 reasons (3 marks)