Recently, the Romanian tax authorities have been
scrutinising taxpayers' situations very closely. Also, it is
worth mentioning that currently, the tax authorities are mainly
focused on the large taxpayers, as well as on certain industry
areas (such as oil & gas and financial services).
The tax inspections reveal various issues, findings and
non-compliances identified by the tax authorities. Of course,
there are some general findings too, which are applicable
irrespective of the industry field in which the taxpayers
operate and irrespective of the size of the taxpayer. One of
these is concerning the deductibility of service expenses.
Considering the wide applicability of this issue, in the
following I will focus on it in more detail.
Starting 2016, a new tax code has been enacted in Romania,
bringing certain legislative changes, inter alia a new
deductibility rule applicable for corporate income tax
purposes. Until 2016, expenses qualified as deductible if
incurred with a view to earning taxable revenues, whereas under
the new tax code the deductibility of expenses is allowed if
these are incurred for business purposes.
The Romanian tax legislation in force until December 31 2015
also required specific conditions for claiming tax
deductibility of expenses incurred with management,
consultancy, assistance or other supplies of services for tax
purposes, such as:
- the services to be supplied based on an
agreement (or other contractual form provided by the law)
concluded between the parties;
- the beneficiary to prove that the
respective services have been effectively rendered, through
back-up documentation such as: progress reports, hand-over
reports, timesheets, feasibility studies or any other
- the beneficiary to be able to present
evidence regarding the necessity of such services, given the
nature of its activities.
Although the Romanian tax legislation in force from January
1 2016 does not mention specific deductibility rules for
service expenses anymore, we expect that the tax authorities
will continue to request such documents in order to assess
compliance with the current legislative provisions –
i.e. that services were incurred in relation to the taxpayer's
Therefore, this will continue to be a sensitive aspect in
tax inspections, considering the subjective nature of the
assessment of what constitutes sufficient documentation and the
lack of clear guidance in the tax law.
Based on the past experience, this issue was generating high
amounts of additional tax liabilities imposed by the
authorities as a result of tax inspections. This is why it is
recommended that taxpayers have a clear internal policy as
regards how to document service expenses and in how much
detail. Also, taxpayers should obtain from their suppliers and
have available detailed/adequate justifying documentation which
can be used to attest the effective rendering of services and
their business purpose.
The trend of tax inspections will likely continue during the
upcoming period. It can be expected that in the near future the
tax authorities will maintain a focus on industry specifics
(being oriented on, for example, retail, automotive, oil and
gas and financial services) and will likely continue having an
inflexible and sometimes aggressive approach. In addition to
this, it is expected that the authorities' inspections will
frequently exceed the tax area, reaching the penal side of the
matters (for instance, in the most recent period this happened
in more than 50% of the total number of assessments).
This is why taxes will definitely remain a hot spot for the
Romanian business environment.
Andra Casu (email@example.com)