“pe SH /bn8 1. Corporate Income Tax (Title Il) ee 1. Introduction — Cy Sea @ 414 Taxpayers (at. Wend 14) — sro o% cere WAR 0 0 Pre Entities subject to corporate profit tax are: Entity Taxed income Companies [Romanian | World-wide income European | World-wide income ‘companies established jn Romania Other |ncome attributable to a permanent establishment in Romania ‘rar Income fromfn connection wih inmovable propery located in Romania or ‘from sale/cession of titles issued by Romanian companies Their part of income from activities: carried out in Romania in an association which is /is not incorporated as a Separate legal entity Individuals | Romanian Their part of the world-wide income from activities in an association which is 10tincorprated as a separate legal entiy with a Romanian legal enti. in this case the related profit tax is ‘computed, withhold and submitted by the legal entity Foreign Ther par of Romanian income from actviies canied out ia an assodlalon which is/is not incorporated as a ‘Separate legal entity 12 Exemptions (At. 15) — S oS However, the following ens ae not subject tots tax (but may be subject oter taxes 1) The state treasury 2) Public institutions 3) Romanian foundations 4) Religious organisations, for incomes obtained from: 5) Economic activites (oroducton, trading, renting, et) under the contin thatthe proceeds obtained will be Used exclusively forthe mantenancelconstucton of churches, for chant or solal outs a 8) Private education institutions accreitediauthorsed by Romanian authorities 7) Owners’ association, for incomes obtained from economic actites that are used or are to be used for the Improvement of fcities and building efficiency, for maintenance and repair of common Property Sor Unless cers specied al reerenes in his course notes material are fom the Fiscal Code as at 30 ‘September 2012, 6‘The guarantee fund for deposits in the banking system, established according tothe relevant law ‘The fund for compensation of investors, established aocording to the relevant law ‘The guarantee fund for private pensions, established according to the relevant law National Bank of Romania Excepted also forthe corporate income tax are the not for profit organisations, trade unions and owners associations forthe folowing income: Membership fees and enrolment fees £4) Contributions in cash or in kind given by members and supporters 15) Registration fees 46) Income obtained from visas, fees and penaties or from participation in competitions and demonstrations “47 Donations, money or goods received through sponsorship “%8) Dividends, interest and incomes realised from the sale of participation ties, obtained from the investment of exemptincome, > yenitun scu tr 19) Incomes subject tothe show tax vinpoat pe spectoo8 20) Public funds or funds from non-reimbursable financing 21) Exceptional incomes resulted from founds raising and other such occasions organised in the declared scope of the not for proft organisation 22) Exceptional income resulting from the transfer ofltangible assets owned by not for profit organisations, other than assets that are or have been used in an economic activity.» oc hve. coparo 23) Other income ~ except from income obtained from economic activites. ‘The not for proft organisations, labour and trade unions are excepted from corporate income tax also for the income from economic activites if those incomes are up to 15,000 Euro per year and did not exceed 10% of their (exempt) total incomes. (Avt.15, paragraph 3) AA special category of incomes excepted from corporate profit tax are the micro-enterprises’ incomes (also called ‘small companies’ incomes) which are taxed using the micro-enterprises scheme. h che Note: Unless otherwise specified, al references in this course notes material are from the Fiscal Code as at 30 September 2012. 7Lecture example 1.4 For the following persons state, with reasons, which is liable for Person ‘The Academy of Economic Studies (accredited Hine 2 te bbe by the Ministry of Education) ae 100,000 Lei 245,000 Lei— taxes 30,000 Let - publications. “Principesa lleana” Foundation 10,000 Lei = funds raised from the Annual Ball 235,00 lei - donations 15,000 Lei ~ dividend income from investment of ast year surplus 722. | Best Professors for Professionals 300,000 Lei — taxes 30,000 Lei - publications organisation) Basket club Slam (registered as not for profit 120,000 Lei ~ membership fees 500,000 Lel - sponsorship 50,000 Lei - income from the sale of equipment 200,000 Lei - net income from the transfer of 2 players RB Ministry of Education) cobeathy ah occrep@y' ‘o| Hot Penguin nursery school (accredited by the 50,000 Lei- taxes 23,000 Lei ~ donations 35,000 Lei - amounts received as redirection of income tax from individuals Note: The exchange rate used in order to determine the equivalent in Lei is last year medium exchange rate as announce by the National Bank of Romania and for further calculation itis 4.5 LeVEuro Solution + Tooke snore Jim tong of Co Byers Se Eske Se FOR vnermes= the.019 4 509.099 +52 220 = 22,059 = C2» ) My CrrS& ones ee Sulep es Sprackp "Note: Unless othenwise specified, all references in this course notes material ae ftom the Fiscal Code 2s2t 30 September 2012, ve of : 10 Ok jor 090 * 52.005 6A.020ees. LECTURE EXAMPLE SOLUTIONS Solution 1.4 Person Type of income Taxable income The Academy of | - 100,000 Lei - admission fees oi Economic Studies (accredited by the Ministry +a 245,000 Lei taxes - of Education) = 30,000 Lei - publications 2 “Principesa lleana’ | - 150,000 Lei - funds raised from the Annual Ball : Foundation = 735,00 Lei - donations : + 15,000 Lei - dividend income from investment of | - last year surplus Best Professors for | - 300,000 Lei-taxes 300,000 Professionals = 30,000 Lei - publications 30,00¢ 330,000 Basket club Slam - 120,000 Lei - membership fees 2 (‘egistered as not for profit organisation) ~ 500,000 Lei- sponsorship : ~ 50,000 Lei — income from the sale of equipment - = 200,000 Lei - income from the transfer of 2 players | 133,000 (w4 133,000 | Penguin nursery school (ecoredited by the Ministry of Education) + 50,000 Lei-taxes = 23,000 Lei - donations = 35,000 amounts received as redirection of income tax from individuals Workings: ‘Working 1: Taxable income from transfer of two players by Basket Club Slam: 41. Total incomes = 120,000+500,000+50,000+200,000 = 870,000 Note: Uniess otherwise speciied, al references inthis course notes material are ftom the Fiscal Code as at 30, September 2012, 38120,000 500,000 sale of equipment 50,000 870,000 incomes from economic activities are: jamount, 15,000 Euro; 10% of non-taxable income: 67.500, 67,000) = 67,000 in(200,000, 16,000°4.5, 10%" 670,000) snon-taxable incomes are: 670,000 + 67,00 = 737,000 incomes= 870,000 ~ 737,000 = 133,000 Lei ‘Note: Unless atherwise specified, al references i September 2012, 39Ve G56 yreroes form ecpome ate tS 20 (Yong arent, Ho» Cera, t Ze wf OSE ~romes) = J a ee ap Tek om bs reals “DOI 7 FO? «2, = aaa e. S10 Wn Ch evmert yperiod (Ar. 16) — 77 Ser G72, 929 - 787,22 -18ton period is: ‘© One calendar year; or + Since incorporation date until the frst December 31% or + Since the latest January 1* unl closing date (date of devegistraton from the Trade Register of Romania) ae sate (Art. 17 and Art. 18) — @r eg ah ~ mp “NI “18% from the tax base except forthe entteé which qualifies as investors on deprived area as long as “Be statute 2s deprived in force For night clubs, night bars, discos, casinos and sport belting entities the tax rate is 16% from the tax ‘base but not less than 5% of the income jexample 1.2 SRL is a Romanian incorporated business that operates a casino. In 2011 its total income was Lei and its taxable profit was 308,000 Lei. In 2012 BetMax realised an annual tumover of 4,534,000 2 taxable profit of 1,834,250 Lei. Note that during 2011 and 2012 BetMax SRL did not realise other than the annual tumover. ate the corporate income tax liability of BetMax SRL in respect of financial years 2011 and in 2012. ‘Solution For Pride eo Lol. Lec 54, DP name GMOS? Ss HeblaS tei, of Gb prt Hor 492¢0 Tox de ome (7, ofivcme, 03 of bole graft) SEQIAS Ar fone ent Daj 5% of nome 4S34.200%I4% 7 th, of Cnse prt ABAD NE, 298942 For ee mon (C4 of nerve, 16 4 fOr tO 8S ae 226700 Note: Uniess otherwise specfeg, al references inthis course notes material are from the Fiscal Code as at 30 September 2012. 9Solution 1.2 Lei For financial year 2011: 5% of income (3,250,500"5%) 162,525 16% of taxable profit (08,000"16%) * 49,280 Tax due (max{5%of income; 16% of taxable profi): 162,525 For financial year 2012: Lei '5% of income (4,534,000"5%) 228,700 16% of taxable profit (1,834,250"16%) 293,480 Tax due (max{5%otincome;16% of profi): 293,480 Note: Unies otherwise specified, al references inthis course notes material ae from the Fiscal Code es at 30 ‘September 2012. 40Lecture example 1.3, Mama mia SRL isa restaurant bu after 22.0 it ransfoms ino might cub. n the frst. ‘quarter of 2012, Mama ‘mia SRL recorded the following incomes and expenses: Incomes from restaurant activities 250,000 Income from night club activities 450,000 Purchases of food, wine and spins for restaurant actvty 100,000 Purchases of drinks for night club activities 209,000 Other deductible expenses for restaurant 12,000 Other deductible expenses for night club 17,000 ‘Admin expenses 70,000 Required: Compute the corporate tx iabiliy of Mama Mia SRL forthe frst quarter of 2012. Solution NGLE COE oct Restourarl suds ee ee ee ce, Ler Bese 7) 91.002 252,029 %o2.000 Ces SoloA ”p Rerebses (230m) (22,039) C$ Bon) Mn Go Paaan 4h 72.209 * ef ee 32 Cr>20) (48 29) (errs) ag (2 (Ro? (eS>20) fret PPS Pr Yio02 2.92093 C7 CoS fo pst ep os 1 FP CF CS fy optteds ae Cem lk 7p 5% Ti) = Bee Note: Unless ofenise Pected, al references in this course notes material are ftom the Fiscal Code as at 30 ‘September 2012 torr £642 ftiv 1013 Night club activity Restaurant activity Total Lei Lel i incomes (TI) 450,000 250,000 700,000 }Geductible expenses: (209,000) (100,000) (309,000) ‘expenses (70,000*45I70; 70,000°25170) (45,000) (25,000) (70,000) (17,000) (12,000) 129,000) pros (TP) 179,000 113,900 292,000 ebility for restaurant (16%*TP) 18,080 ‘ability for night club (max{16% TP;5%"TI} = ‘max{28,640; 22,500}) 28,640 CIT Hiability 46,720 Note: Unless otherwise specified, al references in this course notes material are from the Fiscal Code as at 30 ‘September 2012. 4Cbeatl prepay wmpomol Tax base (Title Il Chapter II) i ation of the profit tax liability will always start by computing the accounting profit, However, the ing profit will Be qute diferent from the company's tax base, ie. tax base + accounting profit general rule says that the tax base means the|difference between all types of incomes from any source and ‘cial expenses incuted in order to generate incomes in Ua Tiscal year less any 25 BUS ‘order to oblain the tax base the accounting profit (or loss) must be adjusted. There are two types of nts: adjustments which will increase the accounting profit and adjustments decreasing the accounting Adjustments made to accounting profit ‘24. Adjustments UPWARDS ‘The accounting profit is increased by making the following adjustments (most common examples): . The largest group of adjustments is represented by expenses which are not deductible for tax purposes, ie. expenses accounted for in the company’s books, but not allowable as deductible for income tax purposes b. The accounting depreciation expense” ‘©. Corrections made in accounting books in the current period which relate to tax deductible expenses related to previous tax periods. These will be deductible in those previous periods based on a rectiving tax return 4. Items assimilated to income per noms , i. €, those amounts which are considered incomes only and only from profit tax computation (these incomes must not be recorded in the accounting incomes) eg: ‘a. Part from revaluation reserve in accordance with art, 22 par. 5 and 5 (detailed later) '. Favourable foreign exchange differences ( from revaluation of receivables and payables) recognised from accounting point of view in reserves Adjustments for transfer pricing (detailed later) 4d. Assimilated incomes from IFRS adjustments on retained earings (detailed later) Note: Unless othenvse specified, alrferences in his course notes material are from the Fiscal Code as at 30 September 2012. 1"3.2 Adjustments DOWNWARDS: The accounting profitis decreased by the following adjustments (most common examples): ‘+ Exempt incomes (art 20 and 20'), e.g. ) Dividends from a Romanian legal entity b) Dividends from a company resident in other EU member states i the following conditions are me: 1. The receiver of the dividends is a profit tax payer registered as such in Romania or is a Permanent establishment in Romania of @ EU resident company; 2. The Romanian recipient of the dividends holds at least 10% of the share capital of the Company paying the dividends 3. At the date the dividends are recorded the participation has been held for at least 2 Uninterrupted years ©} Non-tealised income from revaluation of shares due to incorporation of retained eamings/other reserves (these differences will become taxable when the equity interests are disposed of 9) Non-realised income from re-valuation of real estate investments to their fair value in accordance with IFRS. These amounts should be taxed via assimilated incomes ‘¢) Release of provisions for which deductions were not allowed 4) Income related to tax non-deductible expenses 9) Income from deferred tax © Other deductions from taxable profit: * Supplementary deduction for research and development activities equal to 20% of the research and development (R&D) expenses (art 19!) ‘+ The possibilty to use the accelerated depreciation method forthe assets used in the R&D activity Note: Uniess otherwise specified, all references inthis course notes material are from the Fiscal Code as al 30 September 2012, 12jexample 1.4 "Nothing SRL we know that: ‘1 Total income recorded in the company’s books for year ended 31 December 2012 was 853,000 Lei ‘2 Total expenses recorded amounted to 251,500 Lei and includes a correction of 9,000 Lei due to the fact that an invoice of 32,000 Lei dated 24 December 2011 was accounted by mistake at that time for 23,000 Let ‘3. The monthly tax depreciation is 1,500 Lei higher than the accounting monthly depreciation (which 's 10,000 Levmonth) 4.in 2012 All or Nothing SRL received dividends from all its equity interests, which were included in the total income ofthe year, as follows: ‘+ From ASA 1,000 Lei All or Nothing holds 7% of A's share capital from 2011 ‘+ From B GmbH - 15,000 Lei - All or Nothing holds 10% of B's share capital from 2007 ‘+ From C GmbH — 750 Lei - All or Nothing holds 5% of A's share capital from 2007 5. According to its accounting policies, All or Nothing is valuing its equity interests using market value. In 2012 it recorded a gain from shares revaluation of 360 Lei, 6.in the year 2012 the research expenses recorded by All or Nothing were 5,000 Lei. 7. Allor Nothing has supporting documentation for al its accounting records. 2) Compute the taxable income for All or Nothing SRL for the year ended 31 December 2012 5) Compute the total tax abilty fr All or Nothing SRL forthe year ended 31 December 2012. SA, B GmbH and C GmbH are all companies paying corporate income tax, A is a Romanian company ‘2nd B and C are German companies. Solution > Ler Accunteg nome es aoe £ Dh) ce fess cee exp CBi1.F2) a7 delat op xe jess ppt 62/522 Exp 6 prr ess Gr espns SOAS Goo - Tr 6 pre i» bse 222) Acc Mp Von. Les nn Ox Pig es bP re dep Dorel Jom bn obtes (77 ee = Duval fn 3 ong (2), iC RET EP (eat) Plone sit ue Uses cere special reorences in his course nots mali arom the FacalCode as atga|/" 7% = 32> 24 88 bf 0 som bKfs jlom 5 Supp ho fy Rad Dye joa (nx)Solution 1.4 a) ‘Accounting income Less accounting expenses Accounting gross profit Less tax expenses: + Tax depreciation Less non-taxable incomes: + Dividends from Romanian entities + Dividend income from B GmbH = _ Revaluation of shares Total non-taxable incomes Less/add assimilated items = Supplementary deduction for R&D (20%"5,000) ‘Add back non-deductble expenses: = Expenses related to prior period = Accounting depreciation Total non-deductible expenses Total taxable income b) Total taxable income Tax @ 16% Lei 853,000 (251,500) (7,000) (15,000) (350) Lei 601,500 (138,000) (16,350) (1,000) 129,000 525.150 Lei 575,150 22.024 Note: Unless otherwise specified, al references inthis course notes material are from the Fiscal Code as at 30 September 2012 4233 Other adjustments (transfer pricing rues) ‘he price used ina transaction between alates pats should De reconsidered ifs not the price given by the market (art 11, par (2) A person is considered aflted wth another person if the relationship between the two person may be defined atleast by one ofthe following defnitons (ar 7 par 1.21 ): 1 An ndviualisafitated with another individual it those Persons are husband andlor wife or are related up to the 3* degree inclusive 2. An individual is afated witha egal entity if the incivdual owns (irety or indirectly via his eflated Persons) 25% ofthe voting power ofthe legal entity 3. Alegal entity is affiiated with another legal entity fat least: 3. The frst ouns (directly or indirectly via its afited Persons) 25% of the voting power of the ‘second legal entity 5. The second owns (drecty or indirectly va its afftated Persons) 25% of the voting power of the fist legal entity © A thi legal entty owns (directly or indirectly via ts affliated persons) 25% of the voting Power of both legal entities 1. Comparison: the market price is established Using the price paid to other persons who sell similar roducl/services to independent persons 2. Cost-pus: the market price is equal tothe cost of ‘he goodiservce supplied plu the profit margin 3. Re-selling price: the market price equal the ‘e-seling price less any expenses incurred for resale less the profit margin for re-sale 4 Any other method recognised by the Organisation {or Cooperation and Economic Development (the net margin method, the proft share method Sot: Unless aherise specie al rofrences in this course noes material ae from the Fiscal Cod as at 30 September 2012. 14 esexample 1.5 company Tata SA owns 35% of the share capita ofthe company Fiul SA. March 2012, Ful SA acquired 10,000 units of product X from Tata SA for 10 Leunt. financial statements of Fiul SA and Tata SA for the first quarter of 2012 are showing the following (in Lei): FiulSA Tata SA ‘Sales 200,000 300,000 ‘Cost of sales 150,000 270,000 ‘Other deductible expenses 20,000 30,000 1) Compute the tax base of Fiul SA and Tata SA forthe frst quarter of 2012. 2 Considering that you have one ofthe following information: 2) 10,000 units of products X may be acquired from the market for 17 Leifunit 1b) The cost of product X to Tata SA is 9 Leifunit and the normal profit margin of Tata SA for this product is 40%. ©) Fiul SA sold this product with 18 Leilunit after packing each item at a cost of 7 Leifunit. The normal profit margin for Fiul SA for this type of products is 20%. Re-compute the tax base of Fiul SA and of Tata SA for the first quarter of 2012. — eee, eae Qs C Gat fap doje 12.6 Po fon! - O05 Oy ne Af re-n-26e)| 100 -Frotel, guex eee HIG, Li so Arms @ Tax Sue Css ost ofs Coir), cemot fs Tx Sos bon Dem of 5 SG: ea5 ‘of Fiul SA and of Tata SA for the quarter ended 31# March 2012: Fiul SA Tata SA 200,000 300,000 of sales (150,000) (270,000) ceductible expenses (20,000) (30,000) — 30,000 price = 17 Leitunt price adjustment = 17 — 10 = 7 Leilunit 'sales of Tata SA should be increased by 7"10,000 = 70,000 Lei cost of sales of Fiul SA should be increased by 7"10,000 = 70,000 Lei ‘new base of Ful SA and of Tata SA for the quarter ended 31+! March 2012: Fiul SA Tata SA 200,000 300,000 transfer price adjustment - 70,000 cost of sales (180,000) (270,000) transfer prioe adjustment (70,000) - ‘Less other deductible expenses (20,000) {30,000 Tax base 40,000) 0,000 Case B Market price = 9°140% = 12.6 Leilunit ‘Transfer price adjustment = 12.6 - 10 = 2.6 Leifunt ‘The sales of Tata SA should be increased by 2.6"10,000 = 26,000 Lei ‘The cost of sales of Fiul SA should be increased by 2.6°10,000 = 26,000 Lei ‘Tax new base of Fiul SA and of Tata SA for the quarter ended 31% March 2012: Fiul SA Tata SA Sales 200,000 300,000 ‘Add transfer price adjustment - 26,000 Less cost of sales (180,000) (270,000) Note: Unless otherse specified, al references in this course nots material ae fom the Fiscal Code as at 30 ‘September 2012. 4BLess transfer price adjustment (28,000) Less other deductible expenses (20,000) (30,000) Tax base —4.000 26,000 Case c 18 Lei = (Market price +7)"120% Market price = 18/1.2-7 = 8 Leijunit Transfer price adjustment = 8 ~ 10 = (2) Leilunit ‘The sales of Tata SA should be decreased by 2°10,000 = 20,000 Lei ‘The cost of sales of Ful SA should be decreased by 2°10,000 = 20,000 Lei ‘Tax new base of Fiul SA and of Tata SA for the quarter ended 31* March 2012: Fiul SA Tata SA Sales 200,000 300,000 Less transfer price adjustment : (20,000) Less cost of sales (150,000) (270,000) ‘Add transfer price adjustment 20,000 : Less other deductibe expenses (20.000 £30,000) Tax base 50,000 — (20,000) Observation 12 asfer Prices adjustments are done onthe accounting prof, before anyother adjustment to compute taxable profi Note: Unless otherwise specfed, all rferencs in tis course notes material are ftom he Fiscal Code ast 30 ‘September 2012, 44. Expenses (Art. 21) F 44 Goneral TE Treesenea Tul i ht costs expenses) must be ncamed wi He BURISE Gf generating a taxable income. ‘These expenses are then called tax deductible, ae Expenses which donot mee this condition are non-tax deduce and must be add to the accounting prot 4.2 Tax deductible expenses (art 21, par (2)) Some ofthe deductible allowed) expenses are sted below: * advertising expenses if they are based on a writen agreement ‘+ samples given in an advertising campaign ‘* accommodation and transportation expenses incurred on behalf of employees or administrators + training expenses ‘© expenses incurred in order to protect the environment V * fesearch and development expenses which do not meet the conditions to be recognised as intangible assets \/ * expenses with share options plans offered to employees when these are exercised if these are {axed at employees level (hese expenses are non-deductible unl exercised and, when exercised, are deductible via assimilated expenses) ** losses from written-off of bad debts if the following situations: i * the bankruptcy procedure has been finalised through a Court decision * _ the debtor is dead and the receivable cannot be recovered from the successors * the debior is dissolved or liquidated and there are no successors * the debtor incurs major financial dificulies which affect its whole patrimony (usually due to calamities, pandemics, etc.) * other expenses: expenses with VAT pro-rata, insurance payments (only insurance for work ‘ccidents and insurance for business assets), technological losses etc, * _Geprecaton of assets as per the special ules included in article 24 ofthe Fiscal Code (see Chapter 2 for more details) * the expenses incurred by the legal entties in connection with public assets received under Cessionadministration agreements for the registration of such agreements andlor for the (evaluation ofthe assets * taxes are in general non-deductible, except inthe following circumstances: Note: Unies otherwise spectied, al references in this course notes material are trom the Fiscal Code as at 30 September 2012, 164) Real estate tax and real estate transfer tax b) Road Tax - as long as property and vehicles relate to taxable activity ©) recoverable VAT and excise tax (f they relate to tax deductible expenses) 4d) Tax of incorporation / participation in professional bodies if compulsory for the taxpayer's aclvity «) Customs duties paid for the import of goods used in the beneft ofthe business deductible reserves and provisions (wich are detailed later inthis chapter) © Legal reserve (20% of share capital, but not more than 5% of the accounting gross profit) © Provisions for bad debts, under certain conditions labour law rights paid by the company resulting from collective agreement, the employer's internal guidelines, employment or other contract, unless stated otherwise by income tax or special laws. ‘These costs include: 2) Costs of proving proper working and socal condition for workers, 2s stated above b) Temporary accommodation costs, in the form of non-monetary benefit as well as monetary contribution towards the rent, (within the legally provided limits) \// penalties and fines — only i recorded based on a written agreement interest — under certain conditions (for the from loans see Chapter 3). capitalisation rules for tax deductibilty of interest 4.3 Non-deductible expenses (art 21, par (4)) Income tax paid within or outside Romania as well as taxes withholdinot at source for other legal entities or individuals and deferred tax expenses Penatties/Fines/Interest due to authorities. Expenses due to deficts/shortages andlor damages (as well as the related VAT) regarding stocks ‘and corporal assets non-imputable and nor-insured except in cases where these are a result of a natural disaster \VAT expense related to goods given to employees as benefits in kind if t was not taxed as salary income Expenses incurred on behalf of shareholders (ather than those generated by payments for deliveries (of goods or provision of services performed at market prices) Expenses recorded in the accounting books without having proper justifying documents Expenses based on a justifying document issued by an inactive tax payer (except forthe case when the acquisition incurred in the enforcement procedure) "Note: Unless othenvise specified, all references in this course notes material are from the Fiscal Code as at 30 ‘September 2012 a|. Taxes and memberships fees paid to non-governmental or professional organizations related tot activity of the legal entity which are above 4,000 Euro per year (except those which are mandatory carry on the economic activity which are fuly deductible) |. Expenses from unrealised revaluation ofthe equity interests, j. Expenses with management, consultancy or for other services which are not based on a writen contract or for which the taxpayer cannot justify the business use or for which the actual canying on. cannot be justify (except for occasional services (e.g. postal services, repair services) which are considered deductible expenses) Expenses related to non-taxable income |. Insurance premiums for assets that are not used by the business or that do not belong to the: taxpayer mm. Insurance premiums paid by the employer in the name of the employee and not considered as salary income 1. Bad debts not covered by provision ©. Sponsorship ‘+ The expense may be reduced from the payable tax (ie. tax credit i @)_ Made under legal conditions b) The amount ofthe tax credits the minimum between: ‘© She of tumover © 20% of profttax ‘the sponsorship amount Impairment of fixed assets 44 Limited deductibility expenses a. Protocol expenses ~ up to 2% of computational base (computational base = total taxable incomes less fotal expenses other than expenses related to non-taxable incomes, protocol expenses, deferred profi tax and profit tax expenses) Per diem — up to 2.5 times the limit provided for state institutions’ employees (18 Le/dayiperson) Social expenses - up o 2% of gross salaries ‘+ Examples of social expenses: canteen, kindergarten, amounts given for birth and death events, nursery tickets, diseases and other expenses resulted from the nationallindustry labour contract. 0. Perishables inventory expenses up to the relevant aw limits . Meal tickets — up to one ticket per person and per working day Note: Unies otherwise specified, al references inthis course notes material are from the Fiscal Code as at 30 September 2012. 18Depreciation, interest and provisions as detailed inthe folowing chapters ‘Supplementary pension contributions ~ up to 400 Euro per employee per year ‘Supplementary health fund - up to 250 Euro per employee per year Expenses due to maintenances of job related houses in the limit of surface given by Law 114/1996 indexed with 1.1. 50% of all the expenses (including the related non-deductible VAT) except the tax depreciation (whichis treated ina subsequent chapter) directly related to those mator vehicles which a. Have 1-9 seats Have less than 3,500 kg c. Are not vital and exclusively used for the business (examples of vital small vehicles are: Vehicles used exclusively for emergency interventions, vehicles used by salesmen, used in transport of persons, to be rented or to transport merchandises) ‘The expenses related to vehicles at management disposition (which are already limited to 50%) are deductible up to 1 car per person.. ‘The expenses with stock options plans (when stock options are given there is no deductible expense ‘and when the option is exercised itis considered the “assimilated expense” at the employer side and taxable income included in gross salary at the employee side) ns and Reserves (Art. 22) cation to legal reserve is considered assimilated expense unti the legal reserve reach 20% of the share ‘but the deductible allocation should not exceed 5% of the year gross proft less non-taxable income ( ‘those nontaxable incomes which relate to cancelation of non-deductible expenses) plus expenses to the considered non-taxable income. ecation to legal reserve is deductible only until the legal reserve reaches 20% of the share capital. Ifthe ipeserve is used to cover accounting losses or is distributed in any form, subsequent restoration is no longer provisions are tax deductible: 2 Gusrantees granted to customers in the limit ofthe written commercial agreements 1 Bad debts provision up to 100% from the receivables that cumulatively satisfy the following conditions: 2) Theyare recorded before 1¢ January 2004 or after 1* January 2007 5) They are not guaranteed by anuther person©) They are payable by @ person that isnot an aflated person ofthe taxpayer 9) They were included in the taxable income ofthe taxpayer ©) The bankruptcy procedure was opened and there is @ court decision inthis respect There is no other provision created in the case of receivable recorded before 1 January 2007 & Doubtful debts provision up to 30% from the receivables that cumulatively satisty the following conditions: @) They are recorded after 1* January 2004 ) They are not received fora period of more than 270 days from the due date ©) They are not guaranteed by another person 4) They are payable by 2 person that isnot an affliated person of the taxpayer ©) They were included in the taxable income of the taxpayer &: Stecic provisions for credit inttuions, insurance companies and brokers createdincrease in Aerordance with NBR rules or with IFRS (and, consequent, the diminution of these provision following to IFRS accounting represents assimilated incomes) Provisions for receivables transferred from financial isttuions upto the diference between the value Of receivable and the amount to be paid for tif i, Are transferred and recorded after 1 ‘July 2012 iAre transferred from a non-eated party and are due rom a non-related party ii, The diference between the receivable value and the amount to be pad fori as included in taxable incomes at registration {Provisions fr losing waste and sewage facilities 9. Provisions made by airlines companies for maintenance 4. Taxpayers having actts in the field of exploitation of natural resourees must record and deduct Brovisions for the restoration of damaged lands of 1% of the diffrence between incomes and expenses from exploitation; ‘Taxpayers having petroleum operations in maritime areas that include waters deeper than 100 meters IVA ecard and deduct provisions. estabished forthe dismanting of wels,instlatons and annexes, 38 wel 8 for environment rehabilitation, of 10% of the difference between recorded incomes and expenses Zhe decrease or cancelation of such a provision or resere which was previously considered a dedvetbe expense wil be considered a taxable income no matter the reason of decrease or cancellation. The only Trewplon fo this ues the decease of egal reserve to cover accounting losses orto be ditbute, Inte case {he decrease of legal reserve is not considered assimilated income but the re-creation of legal reserve is not allowed for deduction. {te Unless ctherwse specie, a references in his course nots material are tom the Fiscal Code as a 0 September 2012, 20reserve: ‘1 May 2009 the revaluation reserve had the following fiscal treatment, ‘essel has been revaluated and the increase in value accounted for as revaluation reserve an ‘come should be considered equal to the fiscal depreciation of the revaluated amount of the reserve created before 1 May 2008, the reserve is to be taxed via assimilated income when 's changing its destination (by distribution to the shareholders, liquidation, and/or cover of accounting ofthe revaluation amount which was not taxed via the above treatment, onoe the reserve is used or is purpose it becomes taxable via assimilated income. ‘accounted for following fiscal releases (e.g. supplementary deduction for reinvested profit) may not to increase share capital or to cover losses. Otherwise, corporate tax should be computed for these together wit interest and penalties for late payment as ofthe date ofthe fiscal release, Note: Unless athenvise specified, alreferenes inthis course notes material are fromthe Fiscal Code as at 30 September 2012 a