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Ambiguities of the Fiscal Code

Ambiguities of the Fiscal Code
04.07.2010, 22:25 7

Modifications from one day to the next of the Fiscal Code havegenerated confusion in the business sector, leaving local companiesand foreign investors unsure as to how to adjust to the new rules.Many provisions are ambiguous and difficult to decipher even by taxexperts, making it necessary to urgently adopt enforcementguidelines that would shed light on the unclarities. The latestmodifications extend the scope of application of the 16% flat tax,raise the VAT to 24%, with new taxes and contributions levied onsole traders' revenues and on royalties. Instead of simplifyingthings, the modifications of the Fiscal Code bring about additionaladministrative obligations. In addition, the 2011 tax system isshrouded in doubt.

The modifications brought to the Fiscal Code are ambiguous bothbecause they use terms not defined in the Fiscal Code or in anyother law for that matter, as well as because of a lack ofcorrelation with a series of other special regulations on socialcontributions, which makes them difficult to apply, say fiscalconsultants.

An example to this effect is the use of the concept of "incomesof a professional nature", for which no definition is provided.This can potentially result in a wider scope of application for thevarious social contributions, in dissonance with primarylegislation which regulates those respective social securitysystems and at odds with special laws instituting other systems ofcontributions for certain professional categories, explainedAlexandru Reff, coordinating partner of Tax& LegalDeloitte.

"Some of those targeted by the law would as a result be bound tocontribute more than once, sometimes without benefiting from anysocial service that goes with that contribution. Such is the caseof lawyers, for instance, who already contribute to a system oftheir own, and of independent professionals in general, who areasked to insure against unemployment when the lack of a job is thevery definition of an independent professional."

As far as taxation of individuals is concerned, although thegovernment's intention to limit the use of sole trading and ofroyalties is very transparent, there are problems of a practicalnature.

When it comes to recategorising incomes resulting fromindependent activities - such as royalties derived from copyrightassignment - as salary incomes, it is not clearly stated who willpay the social contributions corresponding to those incomes and towhat extent.

Moreover, the ordinance refers to a phrase that does not existin the Fiscal Code "incomes of a professional nature, other thansalary ones", which provides for the income payer's obligation toretain and calculate the income tax and social contributions (CAS -social security contributions), CASS (social health insurancecontributions), and unemployment benefits.

As for the VAT increase to 24%, the first effect is the increaseof prices to end consumers.

Daniel Anghel, PwC's indirect tax partner, anticipates bankinginstitutions will stand to suffer a great deal, as will publicinstitutions that are not entitled to VAT deduction foracquisitions (hospitals, educational institutions and nursinghomes), so they will have to bear a higher VAT cost.

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