Paper F6 (ROM)

Fundamentals Level – Skills Module

Taxation
(Romania)
Monday 6 December 2010

Time allowed
Reading and planning: 15 minutes
Writing: 3 hours

ALL FIVE questions are compulsory and MUST be attempted.

Tax rates and allowances are on pages 2–5.

Do NOT open this paper until instructed by the supervisor.

During reading and planning time only the question paper may
be annotated. You must NOT write in your answer booklet until
instructed by the supervisor.
This question paper must not be removed from the examination hall.

The Association of Chartered Certified Accountants

SUPPLEMENTARY INSTRUCTIONS

1. Calculations and workings should be made to the nearest lei, unless instructed otherwise.
2. All apportionments should be made to the nearest month.
3. All workings should be shown.

TAX RATES AND ALLOWANCES

The following tax rates, allowances and values are to be used in answering the questions.

Personal income tax

General tax rate 16%

Income from employment

Personal deduction
Number of dependent Monthly income (MI) – lei
persons for the taxpayer Below 1,000 Between 1,000 and 3,000 Above 3,000
⎛ MI – 1, 000 ⎞
0 persons 250 250 x ⎜1 – 0
⎝ 2, 000 ⎟⎠
⎛ MI – 1, 000 ⎞
1 person 350 350 x ⎜1 – 0
⎝ 2, 000 ⎟⎠
⎛ MI – 1, 000 ⎞
2 persons 450 450 x ⎜1 – 0
⎝ 2, 000 ⎟⎠
⎛ ⎞
3 persons 550 550 x ⎜1 – MI – 1, 000 ⎟ 0
⎝ 2, 000 ⎠
⎛ MI – 1, 000 ⎞
4 persons and more 650 650 x ⎜1 – 0
⎝ 2, 000 ⎟⎠
Note: The value of the personal deduction resulting from this calculation should be rounded up to 10 (e.g. both 212
and 217 should be rounded to 220).

Income from the sale of immovable property owned by an individual

For immovable properties sold in less than three years from their acquisition
Income Tax rate
Up to 200,000 lei 3%
Above 200,000 lei 6,000 lei + 2% for what exceeds 200,000 lei

For immovable properties sold in a timeframe longer than three years from their acquisition
Income Tax rate
Up to 200,000 lei 2%
Above 200,000 lei 4,000 lei + 1% for what exceeds 200,000 lei

Income from renting

Lump-sum deductible expenses quota 25%

Copyright income
Lump-sum deductible expenses quota for:
– monumental works of art 50%
– other 40%

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 Self-employed income
The allowance accepted for public institutions’ employees 13 lei/day/person
The limit of deductibility for protocol expenses 2%
The limit of deductibility for subscription expenses
other than the compulsory ones 2%

Investment income
Tax rate for capital gain from the sale of shares
– Prepayments 1%
– Final tax
– For shares sold in less than 365 days after acquisition 16%
– For shares sold in more than 365 days after acquisition 1%

Prizes
Tax rate for prizes income 16%
Non-taxable value 600 lei

Corporate income tax

General tax rate 16%
Minimum tax applicable to night clubs, discotheques, casinos
or sport betting activities 5%
Reference interest rate set by the Romanian National Bank
for loans denominated in lei 11% p.a.
Maximum accepted interest rate set by the Tax Code for loans
denominated in foreign currency 8% p.a.
Inflation rate for prepayments of corporate income tax in 2009 5·5% p.a.
The allowance accepted for public institutions’ employees 13 lei/day/person
The maximum value of deductible expenses for employees:
– voluntary pension contributions €400/tax year/employee
– private healthcare insurance contributions €250/tax year/employee
The maximum value of deductible expenses with subscriptions to
non-profit organisations other than those which are compulsory or due
to the chambers of commerce and to employers’ organisations 4,000 euro/year
The limit of deductibility for protocol expenses 2%
The limit of deductibility of social expenses 2%
The maximum value of the tax credit for sponsorship expenses 20% of the corporate income tax but no
more than 3‰ of sales revenue

Straight-line depreciation periods

(for tax and accounting purposes)
Class of asset Period in years
Buildings 50
Machines and equipment 10
Computers 3
Note: The straight-line depreciation method on the above periods should be used in all cases, except where a question
specifically indicates another method and/or period is to be used.

3 [P.T.O.
 Corporate tax for very small companies
Year Rate
2008 2·5%
2009 3·0%

Minimum tax applicable starting from 1 May 2009 for both Corporate income tax and Corporate tax for very small
companies
Annual revenues recorded in the previous year Minimum annual tax
lei lei
0 – 52,000 2,200
52,001 – 215,000 4,300
215,001 – 430,000 6,500
430,001 – 4,300,000 8,600
4,300,001 – 21,500,000 11,000
21,500,001 – 129,000,000 22,000
Over 129,000,000 43,000

Social security and other insurance contributions

Employed persons
Employee Employer
Social security fund 10·5% 20·8%
Health care insurance fund 5·5% 5·2%
Unemployment fund 0·5% 0·5%
Work accident fund – 0·15%–0·85%*
Health insurance indemnities fund – 0·85%
The fund for guaranteeing salary payments – 0·25%
Self-employed persons
Social security fund 31·30%
Health care insurance fund 5·50%
Unemployment fund 1·00%
Work accident fund 0·15%–0·85%*
Health insurance indemnities fund 0·85%
* The exact value will be specified in the question, where necessary
Notes:
1. These rates should be used in answering the questions, irrespective of the time period the question refers to.
2. When computing the contributions paid by the employer or the self-employed person, the labour book handling fee
should be ignored.

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 Value added tax (VAT)
Standard rate 19%
Reduced rates 9% and 5%

Exchange rate
Euro/lei €1 = 4·20 lei
Note: This rate should be used in all cases except where a question specifically indicates another rate is to be used.

Penalties
Penalty rate for late tax payments 0·1%/day

Note: certain other details may be included in the relevant question for ease of reference.

5 [P.T.O.
ALL FIVE questions are compulsory and MUST be attempted

1 Circle SA is a Romanian credit institution authorised in the field of credit activities by the National Bank of Romania.
Circle SA is established in Romania and has its premises in Bucharest. It is listed on the Romanian Stock Exchange
Market for 45% of its equity. The remaining 55% of Circle SA’s equity is held by a Romanian legal person,
Mathematics SA. In 2008, Circle SA registered total revenues of 23,000,000 lei and corporate income tax of
1,600,000 lei. Circle SA is not registered for value added tax purposes as it carries out only VAT exempt activities.
During 2009, Circle SA registered the following revenues and expenses from Romania, excluding any amounts paid
as corporate income tax expenses during 2009:
Note Lei
Revenues
Interest revenue 1 18,000,000
Revenue from investment 2 560,000
Revenue from provisions 3 100,000
–––––––––––
18,660,000
–––––––––––
Expenses
Interest expense 1 12,000,000
Salary expense 720,000
Social security contributions 199,800
Protocol expenses 102,000
Nursery school expenses 4 36,000
Subscription to a non-profit organisation 5 23,800
Office expenses 6 235,000
Fuel expenses 7 9,600
Service expenses 8 27,200
Gift vouchers 9 2,000
Depreciation expense 10 10,000
–––––––––––
13,365,400
–––––––––––
Notes:
1. Interest revenue and expense
Interest revenue represents the interest charges made by Circle SA upon the credits given to its clients.
Interest expense represents the interest paid by Circle SA upon deposits constituted by its clients and upon
financing obtained from other credit institutions.
2. Revenue from investment
In 2007 Circle SA invested in the shares of Point SA. In 2009 Point SA increased its owners’ equity by
incorporating its profits into share capital. As a result, Circle SA received additional shares from Point SA valued
at 560,000 lei. Circle SA booked this investment increase as revenue.
3. Revenue from provisions
On 31 December 2008 Circle SA registered an expense provision of 100,000 lei for the impairment of fixed
assets in order to revalue them to market value. On 31 December 2009 Circle SA again revalued its fixed assets
and found that the market value had increased so much that it exceeded the impairment registered in 2008.
Therefore, it registered revenue from cancelling provisions of 100,000 lei and also a reserve from revaluation of
50,000 lei.
4. Nursery school expenses
As many of its employees have children under the age of five, Circle SA opened a nursery school within its
premises, available only to its own employees, for which it incurred expenses of 36,000 lei in 2009.
5. Subscription to a non-profit organisation
In 2009 Circle SA paid a subscription of 23,800 lei to a non-profit organisation called ‘The association for a
better bank environment’ which is a professional association that has as its aim ‘to improve the dialogue between
all credit institutions and to promote their cooperation in solving common problems in the banking area’.

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6. Office expenses
These include expenses for paper, pens and other office expenses. From the suppliers of these materials Circle
SA has invoices for 200,000 lei and fiscal receipts (bonuri fiscale) of 350 lei each for 35,000 lei. The fiscal
receipts are accompanied by proper accounting documents (Note de intrare-receptie and Deconturi de cheltuieli )
approved by the company’s manager.
7. Fuel expenses
All the fuel expenses are for a passenger car which has five seats and weighs 2,000 kg. The car is used
exclusively by the general director and only for going from his home in Bucharest to Circle SA’s premises and
back. Circle SA can prove from the drivers’ logbooks (foi de parcurs) that this was the only use of the car. Yet,
the general director could have used public transportation for going to his home, as this was available.
8. Service expenses
In 2009 Circle SA received an invoice of 27,200 lei from Square SRL for a marketing study performed by
Square SRL for one of Circle SA’s clients. According to their agreement, Circle SA should have re-invoiced this
amount to the final client. Due to a legal misunderstanding Circle SA did not re-invoice the amount to the client
and registered it as an expense of its own.
9. Gift vouchers
On the occasion of 8 March, Circle SA gave each of its 20 women employees gift vouchers (tichete cadou) of
100 lei/employee.
10. Depreciation expense
Before it revalued its assets in December 2008 (see note 1) the net value of Circle SA’s fixed assets was
300,000 lei for both accounting and tax purposes. On 1 January 2009, the remaining period of depreciation of
these assets was 20 years for both accounting and tax depreciation, using the straight-line depreciation method.
After the revaluation, the net accounting value of the assets decreased to 200,000 lei, so Circle SA registered an
accounting depreciation expense for 2009 of 10,000 lei. The revaluation made in 2008 was the first revaluation
ever made to its fixed assets by Circle SA
Additional information
(i) Permanent establishment in Hungary
Circle SA has a permanent establishment in Hungary. In addition to the above figures recorded by Circle SA, the
Hungarian permanent establishment of Circle SA recorded interest revenue of 1,000,000 lei and expenses as
follows:
– interest expense of 750,000 lei;
– materials expenses of 150,000 lei; and
– corporate income tax expense, paid in Hungary for 2009, of 19,000 lei.
(ii) Dividend payment
In April 2008 Circle SA’s shareholders approved its financial statements for 2007. They also approved that 80%
of the profit obtained in 2007 would be allocated to dividends. In June 2009 Circle SA paid to Mathematics SA
the dividends allocated in April 2008 from the profit made by Circle SA in 2007. Mathematics SA has been a
shareholder of Circle SA since May 2007.

Required:
(a) Explain how Circle SA will compute the corporate income tax payments due for 2009, determine the
amounts payable and state when the payments are due. (3 marks)

(b) Determine the corporate income tax liability of Circle SA for 2009.
Note: ignore the legal reserve calculation. (21 marks)

(c) State how and when Circle SA’s corporate income tax liability for 2009 will be settled and determine the
amount of tax difference to be paid to/received from the state budget. (2 marks)

(d) State, giving reasons, how the tax on the dividends paid to Mathematics SA would have been paid to the
state budget, clearly identify when any payments would be made and any exemptions that would apply.
(4 marks)

(30 marks)
7 [P.T.O.
2 Mrs Rhombus is an individual, resident in Romania. She started her own business in the field of cosmetic services
as an independent activity on 1 July 2008. The business is carried out in the house where she lives, 70% of the
house being dedicated to her beauty salon. In 2008 she chose to apply the income quotas in determining her income
tax liability. The annual income quota for Mrs Rhombus’ type of business as established by the tax authorities is
30,000 lei.
At the beginning of 2009, after six months of activity Mrs Rhombus thought it would be better for her to apply the
real system in determining her income tax liability, as she estimated that in 2009 her gross revenue would be
120,000 lei and her deductible expenses 110,000 lei.
The following information is available regarding Mrs Rhombus’ activity in 2009:
(1) In January she bought a cash register for which she paid 800 lei.
(2) Every month she had 100 clients. Each client pays her an average of 120 lei per month for their visits to her
salon.
(3) Starting with 1 March 2009 Mrs Rhombus hired a hairdresser for a monthly gross salary of 720 lei.
Mrs Rhombus pays the salary to her employee and the social contributions to the state, on the 25th of the
month following the month for which the salary is due. The work accident fund contribution for beauty activities
is 0·159%.
(4) She pays rent for the house where she lives and where the salon is, of 1,890 lei per month. She also pays
250 lei per month for electricity and water for the whole house.
(5) For the materials she needs, Mrs Rhombus pays 6,000 lei per month.
(6) On 10 February 2009 Mrs Rhombus paid the second instalment of income tax due for 2008. This amount was
in fact due on 15 December 2008, but Mrs Rhombus forgot to pay it on the due date, the amount she paid on
10 February 2009 included the related late penalties.
(7) To keep her clients Mrs Rhombus serves them with coffee and tea for which she paid a total amount of 369 lei
in 2009.
(8) To keep in touch with everything that is new in the field of beauty services Mrs Rhombus became a member
of the ‘Beauty Salons Association’, a non-profit organisation that aims to better inform its members of any news
in the field. In 2009 she paid a subscription of 1,200 lei to the ‘Beauty Salons Association’. The carrying on
of Mrs Rhombus’ activity is not conditional on being a member of this association.
(9) Mrs Rhombus wanted to invest in new equipment. In October 2009 she contracted a credit of 12,000 lei from
a bank. The interest rate for the credit is 10% per year. The interest is payable monthly starting on 1 November
2009. The credit must be reimbursed completely after one year. In December 2009, Mrs Rhombus bought
equipment for 12,000 lei and paid in full using the credit.
(10) Mrs Rhombus made contracts for social security, health care insurance and unemployment insurance for
herself. The total amount of social contributions due for 2009 under these contracts was 6,500 lei, but she
failed to pay any contributions in 2009.
Note: ignore any value added tax (VAT) implications.

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Required:
(a) Determine the total income tax due by Mrs Rhombus for 2008, state when the tax will be paid and the
amount payable at each payment deadline. (3 marks)

(b) Determine the prepayments of tax due by Mrs Rhombus for 2009 and state the dates when these
prepayments are due. (3 marks)

(c) Determine the final income tax due by Mrs Rhombus for 2009. (12 marks)

(d) State how and when the final income tax due by Mrs Rhombus for 2009 will be settled. (3 marks)

(e) State, giving reasons, if it would have been possible for Mrs Rhombus to have continued to pay income tax
based on the income quota in 2009. (2 marks)

(f) Determine the monthly employee’s social security contributions and income tax due in respect of the
hairdresser hired by Mrs Rhombus in 2009.
Note: ignore any available personal deduction. (2 marks)

(25 marks)

9 [P.T.O.
3 Oval SRL is a company registered for value added tax (VAT) purposes in Romania, which provides business
consultancy and learning courses in the field of business consultancy. Oval SRL is authorised by the Ministry of
Education for the learning activity.
At the beginning of 2009 Oval SRL, estimated a VAT pro-rata deduction of 45%. During 2009 the company registered
the following transactions in its sales and acquisition journals:
No. lei
Sales
1 Business consultancy activities 250,000
2 Learning activities 350,000
3 Car #1 28,000
Acquisitions
4 Materials used for business consultancy 113,000
5 Materials used for learning activities 140,000
6 Energy, heating and water consumption for Oval SRL’s premises, where
both activities are carried on 80,000
7 Video and audio equipment for learning activities 100,000
8 Telephone and internet services used for both activities 24,000
9 Car #1, used for both activities 45,000
10 Fuel for car #1 12,000
11 Leasing invoices for car #2 3,600
12 Fuel for car #2 1,800
Additional information
(i) All values are stated exclusive of VAT.
(ii) All the transactions made by Oval SRL in 2009 have their place of provision in Romania and are performed with
Romanian companies registered for VAT purposes in Romania. All purchases are supported by invoices including
VAT at the standard rate.
(iii) Car #1 was bought by Oval SRL in May 2009. The car has five seats and weighs 2,500 kg. It is used by the
manager of Oval SRL for all business purposes: going to clients, to suppliers, to the bank and to other business
events. In August 2009, Oval SRL decided to sell car #1, as the manager considered that it would be more
suitable for the company’s needs to lease a car rather than to buy it. Therefore, starting with October 2009,
Oval SRL signed a financial lease contract for car #2. The financial lease contract is for a three-year lease period,
at the end of which Oval SRL may opt to buy car #2 for a price of 2,000 lei. During the lease period, the monthly
lease instalments are 1,200 lei, exclusive of VAT. Car #2 will be used in exactly the same manner as car #1.
(iv) Car #1 is a capital good that was used by the company to carry on its economic activity.

Required:
(a) For each of the above transactions (1 to 12) determine the value of any input/output VAT that Oval SRL
should have registered when the transactions took place. If no VAT arises from a transaction, state why.
(11 marks)

(b) State, giving reasons, the VAT adjustment that needs to be made in December 2009 and calculate the
amount of the adjustment. (4 marks)

(15 marks)

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4 Mrs Triangle is a professor at the University of Economics, a public institution entirely financed from the state budget.
This is Mrs Triangle’s basic activity. According to her employment contract, Mrs Triangle received a monthly base
salary of 2,200 lei in 2009.
Mrs Triangle also has a part-time job at Consultant SRL a private company liable for corporate income tax, where
according to her employment contract she received a monthly gross income of 1,300 lei in 2009. Also in 2009,
separate from her employment contract, she received from Consultant SRL, on the occasion of 1 June a gift of
500 lei for her son.
Mrs Triangle published in 2009 her research work in different revues, as follows:
– In February 2009, an article in the ‘University of Economics’ Revue for which the University paid her a gross
income of 2,500 lei, as income from intellectual property;
– Each month an article in the ‘Teachers in Economics’ Revue. According to the contract with the revue,
Mrs Triangle is paid a monthly gross income of 700 lei, as income from intellectual property.
Mrs Triangle’s son is ten years old and because he studies intensively, he receives a monthly scholarship of 650 lei.
Mrs Triangle also supports her father, who is 70 years old and has no income and no property whatsoever.

Required:
(a) State the tax treatment of 1 June gift of 500 lei received by Mrs Triangle for both corporate income tax and
for personal income tax purposes. (2 marks)

(b) State, giving reasons, whether Mrs Triangle’s son and father will be considered persons under her care for
the purpose of the personal deduction and compute the personal deduction available for 2009. (3 marks)

(c) (i) Determine the prepayments of tax due for the income from intellectual property received by Mrs Triangle
in 2009 and state how and when these amounts will be paid to the state budget.
(ii) Determine the amounts actually received by Mrs Triangle in each case. (4 marks)

(d) Determine the final tax liability of Mrs Triangle for 2009 for her income from intellectual property, together
with the difference to be paid to/received from the state budget. (3 marks)

(e) State, giving reasons, whether Mrs Triangle should register for value added tax (VAT) purposes for each of
the activities she performs. (3 marks)

(15 marks)

11 [P.T.O.
5 Rectangle SRL is a company incorporated on 1 October 2008 as a soft-drinks trader. Its registered office and place
of activity are in Bucharest, where seven employees work. The following month, Rectangle SRL decided to expand its
activity and on 12 November 2008 it opened a discotheque in Ploiesti, employing a further six employees. Each of
Rectangle SRL’s employees receives a gross monthly salary of 1,000 lei. The taxable revenues and deductible
expenses for each of the two types of activity in 2008 were:
– Trade activity: Taxable revenues of 120,000 lei
Deductible expenses of 75,000 lei
– Discotheque activity: Taxable revenues of 260,000 lei
Deductible expenses of 215,000 lei
These are the only revenues and expenses registered by Rectangle SRL. In each case taxable revenue consists entirely
of sales revenue.
Rectangle SRL is also registered for value added tax (VAT) purposes and pays VAT to the state budget on a monthly
basis. For December 2008, it registered an amount of VAT due to the state budget of 12,000 lei. But Rectangle SRL
did not pay this amount, as it estimated that for January 2009 it would have more input VAT than output VAT, so
expected the amount due for December to be compensated with the one to be recovered for January 2009.
Unfortunately this estimate was incorrect and for January 2009, Rectangle SRL registered an amount of VAT due for
the state budget of 10,000 lei. On 27 February 2009, the tax authorities issued a decision communicating to
Rectangle SRL the late payment penalties due until 27 February 2009 inclusive. As a result Rectangle SRL decided
to pay all the VAT due and the late payment penalties as established by the decision, on 1 March 2009.

Required:
(a) Determine the corporate income tax due by Rectangle SRL for 2008. (4 marks)

(b) State, giving reasons, the minimum tax applicable to Rectangle SRL in 2009. (2 marks)

(c) Explain the additional tax registration procedures required of Rectangle SRL when it opened the discotheque.
(4 marks)

(d) Determine the amount actually paid to the state budget by Rectangle SRL on 1 March 2009 and the amount
of any further penalties still outstanding on that date. (5 marks)

(15 marks)

End of Question Paper

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