Applied Skills

TX – ROM
Taxation
– Romania
(TX – ROM)
Tuesday 4 December 2018

TX ROM ACCA

Time allowed: 3 hours 15 minutes

This question paper is divided into two sections:

Section A – A
 LL 15 questions are compulsory and MUST be attempted

Section B – ALL
 SIX questions are compulsory and MUST be attempted

Tax rates and allowances are on pages 2–5.

Do NOT open this question paper until instructed by the supervisor.

Do NOT record any of your answers on the question paper.

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, unless the law requires otherwise.
3. All workings should be shown in Section B.

TAX RATES AND ALLOWANCES

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

Personal income tax

General tax rate 16%

Income from employment

Benefits
Limit for non-taxable gifts 150 lei/person/occasion
Limit for non-taxable voluntary pension contributions paid by the employer €400/year
Limit for non-taxable voluntary health insurance and medical subscriptions
paid by the employer €400/year
Limit for non-taxable per diem allowance 2·5 x public institutions’ threshold
The per diem allowance accepted for public institutions’ employees for
business trips within Romania 17 lei/day/person
Deductions
Deduction allowed for voluntary pension contributions paid by the employee €400/year
Deduction allowed for voluntary health insurance and medical subscriptions
paid by the employee €400/year

Personal deduction
Number of dependent Monthly gross income (MI) – lei
persons for the taxpayer Below 1,500 Between 1,500 and 3,000 Above 3,000

0 persons 300 300 x (1 – (MI – 1,500)/1,500) 0

1 person 400 400 x (1 – (MI – 1,500)/1,500) 0
2 persons 500 500 x (1 – (MI – 1,500)/1,500) 0
3 persons 600 600 x (1 – (MI – 1,500)/1,500) 0
4 persons and more 800 800 x (1 – (MI – 1,500)/1,500) 0
Note: The value of the personal deduction resulting from the calculation should be rounded up to the nearest 10 (e.g.
both 212 and 217 should be rounded to 220).

Income from the sale of immovable property owned by an individual

Income Tax rate
Up to 450,000 lei 0%
Above 450,000 lei 3% of the amount exceeding 450,000 lei

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 Income from renting
Lump-sum deductible expenses quota 40%

Copyright income
Lump-sum deductible expenses quota 40%

Self-employed income
The limit of deductibility for protocol expenses 2%
The limit of deductibility for compulsory subscription expenses
paid to professional associations 5%
The limit of deductibility for subscription expenses paid to professional
associations other than compulsory ones €4,000/year
The limit of deductibility for social expenses 5%
The limit of deductibility for sponsorship expenses 5%
The limit of deductibility of voluntary pension contributions paid for the
self-employed person €400/year
The limit of deductibility of voluntary health insurance paid for the
self-employed person €400/year
Reference interest rate set by the Romanian National Bank for loans
denominated in lei 1·75% p.a.

Investment income
Tax rate for capital gains from the sale of shares 16%
Tax rate for interest received by individuals 16%
Tax rate for dividends received by individuals   5%

Prize income
Tax rate for prize income 16%
Non-taxable threshold 600 lei/day/prize

Pension income
Non-taxable threshold for pension income 2,000 lei

3 [P.T.O.
 Corporate income tax
General tax rate 16%
Reference interest rate set by the Romanian National Bank
for loans denominated in lei 1·75% p.a.
Maximum accepted interest rate set by the Tax Code for loans
denominated in foreign currency   4% p.a.
Inflation rate for prepayments of corporate income tax 1·4% p.a.
Maximum value of deductible expenses for subscriptions to
non-profit organisations other than those which are compulsory or due
to the chambers of commerce and to employers’ organisations €4,000/year
The limit of deductibility for protocol expenses 2%
The limit of deductibility for social expenses 5%
Maximum value of tax credit for sponsorship expenses 20% of the corporate income tax
but no more than 0·5% of sales
revenue
Additional deduction for research and development (R&D) expenses 50%

Corporate income tax for very small companies

Turnover threshold €500,000
Tax rate
– no employees 3%
– 1 or more employees 1%

Straight-line depreciation periods (for tax and accounting purposes)

Class of asset Period in years
Buildings 50
Machines and equipment 10
Computers  3
Cars*  5
* Limited to a maximum 1,500 lei/month
Note: The straight-line depreciation method for the above periods should be used in all cases, except where a question
specifically indicates another method and/or period is to be used.
The minimum value of an asset for tax depreciation purposes is 2,500 lei.

Tax on dividends paid to legal persons

For dividends paid to legal persons resident in Romania, EU or
EFTA countries 5% or 0%
For dividends paid to other non-residents 5%

4
 Social security and other insurance contributions
Employed persons
Employee Employer
Social security fund 10·5% 15·8%
Health care insurance fund 5·5% 5·2%
Unemployment fund 0·5% 0·5%
Work accident fund – 0·15%–0·85%(1)
Health insurance indemnities fund – 0·85%(2)
Fund for guaranteeing salary payments – 0·25%
Self-employed persons
Social security fund 10·5% or 26·3%(3)(4)
Health care insurance fund 5·5%(4)
Unemployment fund 1%
Work accident fund 0·15%–0·85%(1)
Health insurance indemnities fund 0·85%
Persons obtaining rent income
Health care insurance fund 5·5%(4)
Persons obtaining intellectual property revenues
Social security fund 10·5%(4)
Health care insurance fund 5·5%(4)
Average monthly earnings 3,131 lei
Minimum monthly salary 1,450 lei
Notes:
(1) The exact value of the taxable base will be specified in the question, where necessary
(2) Maximum monthly taxable base = 12 x minimum monthly salary x number of employees
(3) Minimum monthly taxable base applying for the social security contribution = 35% x average monthly earnings
(4) Maximum monthly taxable base = 5 x average monthly earnings

Note: These rates should be used in answering the questions, irrespective of the time period the question refers to.

Value added tax (VAT)

Standard rate 19%
Reduced rates 9% and 5%
Annual threshold for VAT registration 220,000 lei
Annual threshold for a monthly tax period €100,000
Annual threshold for applying the cash accounting scheme 2,250,000 lei
Limit of non-taxable protocol gifts in goods 100 lei/gift
Limit of non-taxable goods and services offered as sponsorships 3‰ x turnover/year

Exchange rate
Euro/lei €1 = 4·50 lei
Note: This rate should be used in all cases except where a question specifically indicates another rate is to be used.

Interest and penalties

Interest rate for late tax payments 0·02%/day
Penalty level for late tax payments 0·01%/day
Penalty for not declaring taxes 0·08%/day or 0·02%/day

5 [P.T.O.
Section A – ALL 15 questions are compulsory and MUST be attempted

Please use the grid provided on page two of the Candidate Answer Booklet to record your answers to each multiple choice
question. Do not write out the answers to the MCQs on the lined pages of the answer booklet.
Each question is worth 2 marks.

1 Blue SA is a company applying the cash accounting scheme for value added tax (VAT).
In March 2018, Blue SA:
– imported goods from Turkey at a cost of 20,000 lei, which were cleared for customs purposes on 5 March 2018
and subsequently transported to Blue SA’s depot in Bucharest
– sold these goods in Romania to end consumers for 30,000 lei but only half of the sales were paid for in March
2018. The other half were paid for in April 2018 and Blue SA paid its Turkish supplier for the goods in May 2018
All values are stated exclusive of VAT and the standard VAT rate applies to all transactions.

What is the net amount of VAT to be paid to/reimbursed from the State budget by Blue SA for March 2018,
according to the VAT return?
A 1,900 lei to be paid
B 950 lei to be reimbursed
C 2,850 lei to be paid
D 3,800 lei to be paid

2 Matei has a self-employed activity as a lawyer. He is registered for value added tax (VAT) and has a monthly tax
period. For the month of March 2018, Matei declared and paid VAT of 52,000 lei. However, in June 2018, a tax audit
found that the correct amount of VAT which should have been paid for March 2018 was 128,000 lei. Accordingly,
on 19 June 2018, the tax audit issued a decision for the additional VAT to be paid. Matei did not agree and appealed
against the decision but lost the appeal. Matei paid the required amount on 28 November 2018.

What is the total value of interest and penalties due by Matei?

A 16,492 lei
B 27,776 lei
C 4,947 lei
D 18,141 lei

3 Roxana is resident in Romania and obtains revenues from:

(1) Renting an apartment in Brasov
(2) An employment contract with a Romanian company
(3) A publishing house for writing a children’s book and
(4) Selling shares on the Bucharest stock exchange

Which of Roxana’s revenues are subject to healthcare insurance contributions?

A 1 and 4 only
B 1, 2 and 4
C 1, 2 and 3
D 2 and 3 only

6
4 Bogdan, who has a self-employed activity as a taxi driver, applies the real system for calculating his net income. He
also invests on the stock market. His results for the last two years have been as follows:
2017 2018
Profit/(loss) Profit/(loss)
lei lei
Self-employed activity (12,000 ) 138,000
Stock exchange transactions (3,000 ) (10,000 )

What is the income tax due by Bogdan in respect of his revenues at the end-of-year settlement for 2018?
A 18,080 lei
B 20,160 lei
C 22,080 lei
D 19,680 lei

5 In relation to the rules on the determination of competent authority, which of the following statements is/are TRUE?
(1) The competent authority for the secondary offices of large taxpayers is the tax administration in whose territorial
jurisdiction these secondary offices are located
(2) The competent authority for taxpayers who are neither large nor medium taxpayers is the tax administration in
whose territorial jurisdiction the tax domicile of the taxpayer is located
(3) The competent authority for large taxpayers is the tax administration in the county municipality where the tax
domicile of the taxpayer is located
(4) The competent authority for non-resident taxpayers is the tax authority for the administration of large taxpayers
A 1 and 3
B 3 and 4
C 1, 2 and 4
D 2 only

6 Yellow SA, a company resident in Romania, applies standard corporate income tax.
It receives dividends from shares it has held since 2010. In 2018, Yellow SA registered dividends of:
– 10,000 lei from a Romanian company in which Yellow SA owns 1% of the ordinary share capital
– 15,000 lei from a company resident in Hungary in which Yellow SA owns 15% of the ordinary share capital
In addition, in 2018, Yellow SA recorded revenue from:
– cancelling bad debt impairments of 25,000 lei; only 30% of the bad debt impairment was deductible
– writing off a debt to a supplier of 18,000 lei; the expense invoiced by the supplier was considered deductible by
Yellow SA

What is the amount of Yellow SA’s non-taxable revenues for corporate income tax purposes in 2018?
A 42,500 lei
B 32,500 lei
C 60,500 lei
D 27,500 lei

7 [P.T.O.
7 White SRL, a company resident in Romania, started applying the special scheme of corporate income tax for very small
companies in 2018. White SRL has two full-time employees. In 2018, it recorded sales revenues of 120,000 lei,
revenues from cancelling bad debt impairments of 40,000 lei, subsidy revenues of 95,000 lei and interest revenues of
3,000 lei. Of the bad debt impairments of 40,000 lei, 30,000 lei was created in 2017, when White SRL paid standard
corporate income tax and deducted 30% of the impairment. The remaining 10,000 lei of the bad debt impairments
was created in 2018.

What is the corporate tax due by White SRL for 2018?

A 2,580 lei
B 3,960 lei
C 1,320 lei
D 2,180 lei

8 Ana-Maria earns revenues from renting three apartments. The monthly gross rent for each apartment is 2,000 lei. In
2018, Ana-Maria rented all three apartments throughout the entire year. However, she received the payment of rent for
only two apartments, as the tenant of the third apartment had financial difficulties and could not pay the rent.

What is the prepayment of personal income tax due by Ana-Maria for 2018?
Note: Ignore social contributions.
A 11,520 lei
B 4,608 lei
C 7,680 lei
D 6,912 lei

9 Red SRL, a Romanian advertising company, is registered for value added tax (VAT). It owns two buildings which are
leased to tenants, applying the standard VAT treatment for rental services. In 2018, Red SRL invoiced advertising
services of 280,000 lei and rent services of 450,000 lei. To provide these services, Red SRL bought five laptops from
a VAT registered person. Three of the laptops are used for advertising services and two are used for rent services. All
laptops were recorded on the same invoice and the value of each laptop is 10,000 lei. The standard rate of VAT is
applicable to all transactions subject to VAT and the cash accounting scheme is not applicable.

What is the net amount of VAT to be paid to the State budget for 2018?
A 129,200 lei
B 57,000 lei
C 43,700 lei
D 53,200 lei

10 Which of the following items received by an employee from their employer are included in the taxable base for
social security contributions?
(1) A daily hot meal of 30 lei given under the terms of the collective labour contract
(2) Meal vouchers (rom: tichete de masa) of 10 lei/voucher given within the limits set by the law
(3) A voluntary health insurance policy of 300 euro/year
(4) A life insurance policy of 100 euro/year
A 1 and 2
B 2 and 3
C 1 and 4
D 3 and 4

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11 Green SRL pays standard corporate income tax. In 2017 and 2018 it recorded the following:
2017 2018
lei lei
Sales revenues 2,000,000 3,000,000
Sponsorship expense 22,000 9,000
Corporate income tax before sponsorship tax credit 130,000 65,000

What is the total amount of cumulated tax credit available to Green SRL in respect of sponsorship expenses in
2017 and 2018?
A 23,000 lei
B 19,000 lei
C 31,000 lei
D 39,000 lei

12 The economic purpose of taxation is the use of tax policy to obtain economic leverage. It includes the granting of tax
incentives in order to develop certain sectors of the economy and encourage certain types of behaviour by taxpayers.
Taxation might also have a social purpose, which includes reducing the tax burden for certain categories of taxpayers
considered socially vulnerable or for large categories of taxpayers.

Which of the following measures are used to meet the economic purpose of taxation?
(1) Personal income tax exemption for employees in the IT sector
(2) Value added tax (VAT) exemption for health care services
(3) Reinvested profit exemption for corporate income tax
(4) Reduced VAT rate for selling buildings as part of the social policy of the government
A 1 and 2
B 1 and 3
C 2 and 4
D 3 and 4

13 Cosmin is employed by a furniture manufacturing company which is not registered for value added tax (VAT) and
applies standard corporate income tax. In 2018, he made use of a company car and according to the log book, he
used the car 70% for business journeys, 10% for travelling from his home to his office and back and 20% for personal
journeys.
Cosmin’s employer bought the car on 20 December 2017 for 60,000 lei and Cosmin immediately started using it. The
tax and accounting depreciation period for the car is five years. The total fuel and repair expenses incurred by Cosmin’s
employer with respect to the car in 2018 totalled 18,000 lei. Cosmin’s employer deducted 100% of these expenses.

What is Cosmin’s taxable benefit in kind in connection with the company car usage in 2018?
A 3,600 lei
B 9,072 lei
C 2,448 lei
D 6,048 lei

9 [P.T.O.
14 Which of the following statements is/are true in relation to the tax return filing procedures for companies?
(1) The amount of corporate income tax due is established by the decision issued by the tax administration, after the
company files its tax return
(2) The amount of corporate income tax due is established by the tax return filed by the company
(3) The company may rectify the corporate income tax return if mistakes are found
(4) The corporate income tax return must be certified by an authorised tax adviser in order to be filed with the tax
authorities
A 1, 3 and 4
B 2 only
C 1 and 4 only
D 2 and 3

15 Pink SRL is a company in the field of aerospace research. It is currently working on a research project to build a new
spaceship for exploring outer space. Pink SRL also provides training and consultancy services to individuals and
companies interested in space science. Pink SRL applies standard corporate income tax and in 2018 recorded the
following expenses:
– salaries of research team: 1,200,000 lei
– depreciation of equipment used for research purposes: 280,000 lei
– services performed by Black SRL, a company to which Pink SRL subcontracted a part of the research activities:
850,000 lei. Black SRL applied the additional deduction for research and development expenses for corporate
income tax.

What is the value of the additional deduction available to Pink SRL for research and development expenses for
corporate income tax?
A 740,000 lei
B 1,165,000 lei
C 140,000 lei
D 1,025,000 lei

(30 marks)

10
Section B – ALL SIX questions are compulsory and MUST be attempted

Please write your answers to all parts of these questions on the lined pages within the Candidate Answer Booklet.

1 Purple SRL, a company which specialises in IT equipment and services, is established and registered for value added
tax (VAT) in Romania. During the third quarter of 2018, the following transactions were recorded:
(i) Purple SRL bought laptops and cables from Alfa SRL, a company established and registered for VAT in Romania.
The laptops were bought for 78,000 lei and the cables for 17,000 lei. Both the laptops and the cables were made
available to Purple SRL at Alfa SRL’s premises in Brasov and transported by Purple SRL to its depot in Bucharest.
Alfa SRL issued one invoice for all goods sold to Purple SRL.
(ii) Beta Co, a company established in the United States of America, bought laptops for 18,000 lei from Purple SRL.
These laptops were sent by Purple SRL to BetaRO SRL’s premises in Bucharest, where they shall be used by
BetaRO SRL for its business activity. BetaRO SRL is a company 100% owned by Beta Co.
(iii) Gama GmbH, a company established in Germany, bought laptops for 20,000 lei from Purple SRL. These laptops
were sent by Purple SRL from Romania to Hungary, as requested by Gama GmbH. Transport documents are
available. Gama GmbH is registered for VAT in Germany and is not registered for VAT in Hungary. Both Germany
and Hungary are EU member states.
(iv) Due to a mishandling of laptops during transportation, both Beta Co and Gama GmbH experienced some
malfunctioning of the laptops they purchased from Purple SRL. Thus, both companies decided to return some
laptops to Purple SRL for repair. Purple SRL repaired all of the returned laptops, sent Beta Co’s laptops back to
BetaRO SRL’s premises in Bucharest and as instructed by Gama GmbH sent its laptops to a depot in Oradea. For
repair services, Purple SRL issued an invoice of 5,000 lei to Beta Co and an invoice of 7,000 lei to Gama GmbH.
(v) Delta SARL, a company established and registered for VAT in France (an EU member state) asked Purple SRL to
develop a study on the electrical and IT infrastructure of a building located in Bucharest and subsequently to draft
a report on the capability of this building to be transformed into a data centre. Purple SRL prepared the report and
invoiced 30,000 lei to Delta SARL.
All values are stated exclusive of VAT, where applicable. For all transactions where VAT applies, the standard VAT rate
is applicable.
The cash accounting scheme for VAT is not applicable.

Required:
(a) Calculate the output value added tax (VAT), input VAT and VAT due to/recoverable from the State budget for
the third quarter of 2018.
Note: List all of the items referred to in the question, indicating by the use of zero (0) any item which has no
impact on the VAT computation. (7 marks)

(b) For each of the transactions with Beta Co, Gama GmbH and Delta SARL, state whether or not the transaction
must be declared in the EU VAT information exchange system (VIES) recapitulative statement (form #390),
clearly stating the type of transaction to be declared. (3 marks)

(10 marks)

11 [P.T.O.
2 Liliana is the chief financial officer (CFO) of Rio SRL, a company in the retail sector, where she is employed full time
at a gross salary of 4,800 lei/month. Liliana has three children: Eva, aged 20, Maria, aged 15 and Tudor, aged nine.
All three children are studying full time and they all receive scholarships. Eva receives 800 lei/month, Maria receives
500 lei/month and Tudor receives 200 lei/month. Liliana’s husband, George, is also employed by Rio SRL, as a
part‑time employee in the administrative department. His gross monthly salary is 1,800 lei for two hours per day.
George has no other employment contract. Both Liliana and George are members of the union organised by Rio SRL
and each pays a monthly contribution of 400 lei to the union.
In July 2018, Rio SRL gave the following benefits to Liliana and George, in addition to their basic salary:
Liliana George
Benefit Amount Benefit Amount
in lei in lei
Participation in a stock-option plan 2,000 Birthday present 500
Per diem allowance for a six-day business Per diem allowance for a three-day business
trip in Romania 1,200 trip in Austria (note 1) 1,000
Life insurance premium (note 2) 500 Voluntary health insurance premium (note 2) 2,000
Notes:
1. The per diem allowance accepted for employees of public institutions for business trips to Austria is 35 euro/day.
2. No other payment of insurance premiums shall be made in 2018.
The value of social contributions due by Liliana and George (and withheld from their salary by Rio SRL) in July 2018
is 800 lei and 300 lei respectively.
All benefits are presented at gross value.

Required:
Calculate the employment income tax payable by Liliana and George for July 2018.
Note: List all of the items referred to in the question, indicating by the use of zero (0) any item which has no impact
on the tax computation.

(10 marks)

12
3 Luca is a certified auditor and in 2016 he started his own self-employed business as a certified free-lancer. For 2017,
he estimated that his prepayments of income tax would be 2,000 lei per quarter. Due to lack of funds, Luca made only
two prepayments of income tax, one of 3,000 lei on 10 August 2017 and one of 1,800 lei on 28 September 2017.
According to the actual values recorded by Luca, in 2017 he recorded a loss.
Luca filed his income tax return on 16 March 2018 and received the decision for the settlement of the final tax against
prepayments for 2017 on 5 June 2018.

Required:
(a) Briefly explain the tax registration procedure in respect of Luca’s new business, clearly stating where Luca is
required to register, the registration deadline and TWO items which must be included in his tax registration
declaration. (2 marks)

(b) Compute the late payment interest and penalties payable by Luca for the prepayments of tax not paid on time,
clearly stating the due dates for each tax prepayment. (8 marks)

(10 marks)

13 [P.T.O.
4 Gray SRL was established in 2013 and applies the system of prepayments for corporate income tax.
In June 2015, the company bought a building for 336,000 lei and brought it immediately into use, depreciating it
over a 40-year useful life for both accounting and tax purposes. In December 2016, Gray SRL revalued the building at
its market value and booked into accounting records a revaluation reserve of 92,400 lei. The tax value of the building
for corporate income tax purposes was increased accordingly. On 31 May 2018, the company sold the building for
200,000 lei and deducted the remaining non-depreciated tax value.
In December 2017, Gray SRL bought two pieces of equipment for 80,000 lei each, and it applied the tax exemption
on reinvested profit which was available. In 2017, the accounting profit of Gray SRL was 200,000 lei and the taxable
profit was 320,000 lei. In June 2018, Gray SRL sold one of the two pieces of equipment for 40,000 lei. After the sale,
in September 2018, Gray SRL decided to convert the entire value of its reserves created by applying the reinvested
profit exemption in 2017 into share capital.

Required:
(a) Explain, with supporting calculations, the corporate income tax implications of the sale of the piece of
equipment in June 2018. (3 marks)

(b) Calculate the value of reserves which are subject to corporate income tax in 2018.
Note: You should ignore any VAT or legal reserve implications, and any late payment interest and penalties
implications. (7 marks)

(10 marks)

14
5 Ioana, a Romanian resident, started a self-employed activity as a show organiser in 2018. She applies income quotas
for determining her net income from her business activity and her income quota for 2018 is 90,000 lei. In 2018, Ioana
issued invoices/fiscal receipts for her activity with a total value of 210,000 lei. Of those invoices, 170,000 lei were paid
in 2018 and the remaining invoices will be paid in 2019.
In 2018, Ioana obtained the following additional revenues:
– Revenues from intellectual property of 40,000 lei. Ioana opted to apply the final income tax mechanism for this
revenue;
– Revenues from selling shares on the Bucharest stock exchange. Ioana bought 1,000 shares in ABC SA in June
2017 for 7 lei/share. She sold 400 of these shares in December 2017 for 4 lei/share and a further 500 shares in
April 2018 for 11 lei/share. Ioana plans not to invest on the stock exchange anymore, as she finds it too risky;
– Revenues of 17,000 lei from a service contract with a store for which Ioana prepared a business plan. In preparing
the business plan, Ioana used her own computer and worked from her home. This was the first and only time
Ioana has ever performed work of this nature and she does not plan to do it again.
Ioana’s boyfriend, Stefan, is an IT programmer and works for a large IT company which develops and sells software
programs. The company was established in January 2018 and Stefan was hired in August 2018, based on his relevant
college degree. His gross monthly salary is 15,000 lei, and in October 2018 Stefan received a present of 2,000 lei for
his birthday from his employer.
Ioana’s best friend, Judith, is resident in Austria. Judith is a financial consultant and works for an Austrian company.
Judith visits Ioana in Bucharest regularly and so decided to start a self-employed activity in Romania. From 1 March
2018, Judith rented an office in Bucharest for which she paid rent of 3,000 lei/month. She provided advice for her first
client in April 2018, for which the client paid 20,000 lei. From June 2018 onwards, Judith had monthly revenues of
15,000 lei from other clients. All issued invoices are paid in the same month the invoice was issued. Judith also has
some deposits at a bank in Austria, concluded in 2015, for which she receives interest of 5,000 euro per year.

Required:
(a) Calculate the total value of supplies made by Ioana for the purposes of determining whether she must register
for value added tax (VAT).
Note: List all of Ioana’s revenue items referred to in the question, indicating by the use of zero (0) any items
which should not be taken into account. (2 marks)

(b) Briefly explain whether or not Ioana should have registered for VAT in 2018. (1 mark)

(c) Calculate the income tax liability in respect of each category of income earned by Ioana in 2018. (6 marks)

(d) Calculate Stefan’s income tax liability for October 2018. (1 mark)

(e) Explain, giving reasons, whether or not Judith has to tax any income in Romania and, if so, calculate the
income tax payable. (5 marks)
Note: You should ignore any social contribution implications and any double taxation treaty which might apply.

(15 marks)

15 [P.T.O.
6 Orange SA, a company established in 2015 with a share capital of 10,000,000 lei, is a producer of automotive spare
parts based in Timisoara. In 2015 and 2016, Orange SA applied standard corporate income tax, but in 2017 it applied
the special scheme of corporate income tax for very small companies. In 2018, it started to apply standard corporate
income tax again.
In 2018 Orange SA recorded an accounting profit for the first time. From 2015 to 2017, it recorded annual accounting
losses of 100,000 lei each year. The tax loss was equal to the accounting loss for each of these years.
For 2018, Orange SA recorded the following revenues and expenses:
Note lei
Revenues 7,629,000
Sales revenue 6,230,000
Sale of shares (1) 389,000
Revenues from cancelling bad debt impairments (2) 230,000
Revenues from permanent establishment in the Republic of Moldova (3) 780,000
Expenses 7,126,680
Raw materials 2,345,000
Technological losses (4) 328,000
Gross salaries 2,244,000
Social security contributions 493,680
Christmas presents for employees and clients (5) 26,000
Kindergarten fees for employees’ children (6) 105,000
Own shares bought for employee share option plan (7) 40,000
Bad debt impairments (2) 120,000
Expenses of permanent establishment in the Republic of Moldova (3) 845,000
Expenses in connection with sale of shares (1) 580,000
Notes:
(1) In February 2016, Orange SA bought a 20% participation in Water Co, a company resident in Ireland, for
480,000 lei. In January 2018, it bought a 5% participation in Seed SRL, a Romanian resident company, for
100,000 lei. In November 2018, Orange SA sold its participation in Water Co for 249,000 lei and the participation
in Seed SRL for 140,000 lei.
(2) Orange SA recorded bad debt impairments of 110,000 lei and 120,000 lei in 2017 and 2018 respectively.
Orange SA considers all bad debt impairments to be 100% deductible for corporate income tax. In December
2018, Orange SA cancelled all impairments made in 2017 and 2018.
(3) According to the double tax treaty between Romania and the Republic of Moldova, the method for mitigating
double taxation is the exemption method.
(4) Orange SA’s normal technological losses are approved at 5% of raw material costs.
(5) For Christmas, Orange SA gave a present of 500 lei to each of its 22 employees and each of its 30 major clients.
(6) According to the terms of the collective employment contract, Orange SA pays kindergarten expenses for the
children of all employees.
(7) Orange SA has a stock option plan in place for its employees. Managers who subscribe to the plan are granted the
right to receive a number of ordinary shares of Juice SA, a company which holds a 10% shareholding in Orange
SA, free of charge two years after the date of subscription, subject to the employee’s continued employment with
Orange SA. In 2018, Orange SA recorded expenses of 40,000 lei representing the value of Juice SA’s shares
which will be given free of charge to Orange SA’s employees in two years’ time. Also in 2018, Juice SA shares
which were recorded as expenses by Orange SA in 2016 for 50,000 lei were given to employees who subscribed
for them in 2016. Orange SA charged employment tax and social contributions on the benefit of 50,000 lei in
2018.

Required:
Calculate the corporate income tax liability of Orange SA for 2018.

(15 marks)

End of Question Paper

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