More and more Romanian companies expect a sharp increase in fiscal inspections in 2021, according to market research. Recent legislative developments seem to confirm this trend. After tax authorities adopted a lenient approach to fiscal inspections last year, 2021 appears to bring a tougher stance, in Romania and worldwide.
This article identifies high risk cases and steps to be taken in such situations.
Inspections and enforcements receive a “no restrictions” green light
Following restrictions imposed by the state of emergency and of alert, there was a sharp drop in the number of fiscal inspections last year in Romania, well below the usual number. Furthermore, during the peak of the pandemic, the Romanian Government promoted a series of fiscal incentives to aid taxpayers, suspended the prescription terms where the tax authority could have established tax receivables and request enforcement, as well as the period within which the taxpayer could ask for refunds of sums owed and all enforcement procedures were frozen.
The last Ordinance in the long line of legislation passed by the Government to extend fiscal incentives is Government Emergency Ordinance no. 19/2021. This act extends the time limit regarding the manner in which statements of account with a negative VAT value are settled (art. XI of GEO n0. 48/2020) but eliminates suspension measures aiming at cases where tax authorities could have established fiscal receivables and ask for their enforcement.
Therefore, starting with 31 March 2021, tax authorities will fully resume both enforcements and fiscal inspections.
E-commerce
According to ANAF statements, undeclared e-commerce non-tax revenues will be under the spotlight. This is so-called operation „Mercury” of the Antifraud department, against the background of an increase in e-commerce transactions during the pandemic.
Transfer prices
We expect tax authorities to show a similar interest in the transfer pricing area, considering the constraints created by the mechanisms for mandatory reporting, under EU Directive 2018/822 (DAC6). Most likely, the information collected following the reporting process will provide a starting point in establishing the fiscal inspection plan.
Use of tax incentives during the pandemic
The manner in which tax incentives were applied during the state of emergency will also be under the spotlight, as well as the ones that allow for the payment in instalments of the fiscal obligations accrued after the declaration of the state of emergency, or that refer to the exemption of income tax of the major players in HORECA. The theme is highly relevant across the EU, not only in Romania, and since local companies opted for these support schemes on a massive scale, a post implementation fiscal control is only natural.
The reform programme of the Cîțu Government concerning the National Plan for Recovery and Resilience explicitly specifies the adoption of measures aiming to increase the State’s income.
VAT reimbursements with subsequent tax audit
We expect tax authorities to carry out VAT related inspections as well. Romania recorded the highest national missing VAT revenues in the EU, and it’s only natural for ANAF inspectors to set their eyes also on companies which benefited from VAT reimbursements with subsequent controls.
Multiannual losses incurred by subsidiaries in Romania
Also to be expected is the tax authorities’ focus on the local subsidiaries of multinational groups. Not only is this part of the aforementioned trend of increasing fiscal inspections, it is also something inspection bodies regularly focus on. An important signal for tax authorities to step up is the fiscal losses registered by a taxpayer during several consecutive years - such an agent is most likely to be subject to fiscal controls.
Cross-border profit transfer
According to ANAF’s strategy for the next 4 years, the institution will consider simultaneous and collaborative actions taken by the offices for fiscal inspection, fiscal anti-fraud and for personal income tax inspections, aimed at companies involved in fraudulent activities, as well as actions to identify and verify the real beneficial owners of these companies, including the possibility to follow the fraud trail and transfer of profits between countries.
Concentrating on this tax evasion „hot” zone, regarded as a highly extended practice in Romania when compared to EU levels, such a topic being frequently discussed with the forums from Brussels, may give rise to abusive behavior by tax inspectors, leading to taxpayers filing complaints in front of the courts of law.
What’s to be done?
As it stands, 2021 will most probably be marked by numerous fiscal audits. Each and every taxpayer should expect a fiscal control and act accordingly.
Usually, long before receiving the fiscal inspection notice, taxpayers should thoroughly asses their fiscal situation and the measures and situations which could give rise to fiscal controls. After the fiscal inspection notice is received, tax payers should comply with ANAF's measures of file complaints against them, directly or with the help of consultants. Although ideally taxpayers should prepare for an inspection right from the beginning of a transaction (establishing the correct fiscal regime and having supporting documents), most of the times this doesn't happen. This is why a preventive review of the company's fiscal situation is advisable - to identify potential risks and eliminate or correct them.