This is due to the increasing aggressiveness of the tax authorities auditing the taxpayers, as well as the higher level of awareness manifested by taxpayers on their rights and possibilities to challenge the results of audits.
Since 2013, the Romanian tax authorities have become more and more focused on verifying and challenging the contents of taxpayers' transfer pricing files – an area rarely observed and usually ignored in the performance of tax audits – until now. The results (or consequences, from the taxpayers' perspective) of such changes in the tax authorities' approach has exceeded expectations – hundreds of millions of euros were imposed as additional liabilities, with a significant impact not only on the taxpayers' businesses but also on their business models.
This change has also led to a higher number of court disputes, with TP lawsuits quadrupling in the past two years. As the amounts involved in such disputes are very high, it is likely that many cases will reach the Supreme Court of Justice, with final decisions expected in 2017.
However, under Romanian laws, challenging a tax assessment decision does not suspend its payment. To avoid immediate tax payment while a court case takes place, the taxpayer would have to either obtain a court decision to that effect or provide the tax authorities with a payment guarantee (e.g. a bank letter of guarantee or an insurance policy). Although both options entail significant costs, obtaining a court decision would be a particularly difficult task given the applicable legal requirements (i.e. staying the effects of a writ of execution is granted by the court only in 10% of the cases).
Another area marked by increased aggressiveness is the criminalisation of tax disputes. This involves cases referred to the prosecutor/criminal authorities on suspicion of tax evasion after an audit is completed. The tax decision and the tax audit report are provided to the prosecutor/criminal authorities. This has become a growing trend since amendments in Romanian law required tax authorities to notify the prosecutor/criminal authorities of any potential indication in the audit process that tax fraud has been committed.
In recent years, more than 50% of tax audits resulted in criminal referrals against taxpayers. This comes at a great cost for innocent taxpayers because the current practice and relevant case law provides for the staying of proceedings until the criminal authorities finalise their investigation with a negative conclusion/decision, or there is a judgment on the criminal dispute. During such time, the liabilities under the tax decision remain payable and may be enforced against the taxpayer unless the taxpayer obtains a staying order or suspension from the courts. In addition, for the entire period of the criminal investigations, tax penalties continue to rise, increasing the amount to be paid later by the taxpayer if the case is lost.
From over 10,000 criminal complaints less than 1% led to a taxpayer being prosecuted for tax evasion.
The above-mentioned approach is in itself flawed as the tax disputes should be solved quickly since a final tax decision concluding that no tax is due means that no tax evasion was committed by the taxpayer (i.e. there is prejudice to the state budget). In this regard, the courts of law have already started to show signs of shifting their jurisprudence.
Finally, 2016 saw the entry into force of the Tax Procedure Code and the Tax Code as of January 1 2016. One of the major novelties is the penalty imposed on taxpayers for not declaring the taxable base, which is 29% per annum and is computed until the payment of the assessed liability. In reality, this penalty is a sanction for all additional liabilities assessed through a tax audit because under the Romanian tax system any tax due has to be declared first. Thus, the beginning of a tax audit constitutes a very important deadline for making any final corrections in order to avoid such a penalty. Health checks for every tax period are becoming a real necessity for any taxpayer.
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