KPMG

Direct Taxation

Issue 187, November 2009
Legislative updates
For more details in Romanian and English please check our KPMG Publications page.
Corporate tax relief on reinvested profit
Law no. 329/2009 (hereinafter “The Law”) regarding the reorganization of some public authorities, the efficiency of public expenses, support for the business environment and compliance with the general agreement with the European Commission and the International Monetary Fund has been published in Official Gazette no. 761 (9 November 2009).
This Law introduces a new Article 192 into the Fiscal Code (Law 571/2003 with subsequent amendments) regarding corporate tax relief on reinvested profit, which can be applied up to 31 December 2010.
Consequently, profit reinvested in the production and/or acquisition of technical equipment (machines, equipment and work installations) is exempt from corporate tax. The type of equipment eligible is defined in subgroup 2.1 of the Categorization list regarding the classification and the normal useful life of fixed assets used for obtaining taxable revenues.
The profit which can be reinvested is defined as the balance of the profit (loss) for the accounting period, or the accumulated accounting profit from the beginning of the year, in the year in which the investment is realized. The tax relief is offered up to the limit of corporate tax due for the period in which these investments are made.
During the period 1 October – 31 December 2009, the tax exemption will be applied for the accounting profit earned starting from 1 October 2009 and reinvested in the produced and/or acquired fixed assets after this date.
Taxpayers which are required to pay quarterly profit tax may deduct any profit reinvested in a previous quarter from the cumulated annual profit tax calculated since the start of the year.
For those taxpayers which have previously paid income tax (i.e. micro-enterprises) and have subsequently become corporate taxpayers, the corporate tax relief is calculated by taking into consideration the accumulated accounting profit invested in the above mentioned fixed assets starting with the quarter in which they became corporate taxpayers.
In this case also, for 2009 the accounting profit taken into account for the application of the tax relief will be the profit earned since 1 October 2009.
Moreover, those taxpayers which benefit from the facilities offered by this Law cannot benefit from the provisions of art. 261 of Law 346/2004 (as subsequently updated) regarding the stimulation of the setting-up and development of Small and Medium Enterprises.
The tax relief will be calculated quarterly or annually on a case by case basis, and the amount of profit which is defined as exempt will be allocated with priority for the setting-up of reserves, up to the level of the accounting profit recorded at the end of the previous financial year.
The corporate tax exemption applies only for new fixed assets, meaning those which have not been used before these provisions entered into force.
Taxpayers which benefit from this tax relief are required to keep the corresponding fixed assets for at least half of their normal useful life established according to the Categorization list regarding the classification and the normal useful life of fixed assets. Failure to comply with this condition will lead to the recalculation of corporate tax for the corresponding amounts as well as the application of late payment penalties.
Fixed assets transferred through reorganization, in which the beneficiary company takes over the reserve corresponding to the reinvested profit, thus taking over the rights and obligations of the transferor company are not covered by these provisions. Fixed assets alienated through liquidation/bankruptcy are also not covered.
If following the application of these provisions, the corporate tax payable falls below the level of the minimum tax, taxpayers are required to pay the minimum tax.
Program to encourage the renewal of the national reserve of tractors and self-propelled agricultural machines
According to the same Law (i.e. Law no. 329/2009) GEO no. 196/2005 regarding the Environment Fund (as subsequently amended),has been modified to include the Program for encouragement of the renewal of the national reserve of tractors and self-propelled agricultural machines. The aim is to reduce pollution by giving incentives for the scrapping of old tractors and self-propelled agricultural machines, which have exceeded their useful lives and also to increase productivity in the agricultural sector.
According to these provisions, the scrapping subsidy is offered by the Environment Fund Administration as a reduction in the acquisition price of a new tractor or self-propelled agricultural machine, when an old tractor or machine is offered for scrap at the same time.
The scrapping subsidy will be a maximum of RON 17.000, subject also to the following limits:
· For an individual- 50% of the acquisition price of the new tractor or self-propelled agricultural machine;
· For a legal entity – 40% of the acquisition price of the new tractor or self-propelled agricultural machine.
Any owner of an old tractor or self-propelled agricultural machine which meets all the conditions provided by the Law may benefit from the scrapping subsidy.
A new template for the Corporate Tax Return (“Form 101”)
The National Agency for Fiscal Administration (ANAF) has issued Order no. 1607/2009, published in Official Gazette no. 757 (5 November 2009), to introduce a new template for the Corporate Tax Return (“Form 101”), as well as instructions on how to to fill in the return.
The new template for Form 101 includes a new section ( “section C”) named “Information regarding the calculation of the annual minimum tax” which allows for the declaration of the minimum tax ,as introduced by GEO no. 34/2009 for certain categories of taxpayers, as follows:
· Subsection I – for banks which are Romanian legal entities, as well as branches in Romania of banks which are foreign legal entities, not for profit organizations and taxpayers which obtain revenues mainly from grain crops and technical plants, as well as fruit growing and viticulture;
· Subsection II – for other taxpayers
The new template for Form 101, as well as the instructions, is applicable starting with the annual tax obligations due for the 2009 fiscal year.
New Accounting Rules, in line with European Directives
The Ministry of Public Finance has issued Order nr. 3055/ 2009 (“the Order”) published in Official Gazette nr. 766 (10 November 2009) for the approval of the Accounting Rules in conformity with European Directives. The provisions of the Order will take effect from 1 January 2010, when Order of the Ministry of Public Finance nr. 1752/2005 will be abrogated.
KPMG Comment
While the Order states that changes are to be made to accounting policy, it also clearly emphasizes that these changes only take effect for future accounting periods, beginning with the one which follows the publication of this Order.
From a fiscal perspective, in principle a potential change of accounting methods could create a need to recognize new items of income and new expenses in the calculation of taxable profit.
Consequently, we recommend that as well as assessing the accounting impact of the implementation of new accounting policies, taxpayers should also make an assessment of the potential tax implications (in principle, such an assessment should be carried out on a case by case basis).
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