On 20 July 2015 the Romanian Parliament approved & published a law that cancels certain tax & related social security liabilities related to fiscal periods up to 1 July 2015
The intent of this measure is to remove inequities arising from the practical application of the Fiscal Code and secondary legislation. The law provided for an unclear definition of dependent vs. independent activities undertaken by individuals since 2010 to date and the recent law has eliminated the risk of costly litigation for both taxpayers and tax authorities. Furthermore, the unclear old definition was eliminated and a new set of criteria for an activity to qualify as independent has been introduced in the Fiscal Code as of 10 July 2015.
The so-called “amnesty” concerns mainly self-employed individuals for whom the fiscal authorities have reclassified their activities as if they were under an employment relationship with the company paying their remuneration.
The law cancels the main tax liabilities arising as a result of the reclassification/reassessment of an activity as a dependent one, and validates that no other similar reclassifications are to be made for activities undertaken in periods prior to 1 July 2015.
Inter-alia, the law envisages freelancers (the so-called “PFA”) and liberal professions (the so-called “PFI”, such as pharmacists, doctors, tax consultants, architects, auditors, lawyers, notaries and other liberal professionals), as well as the activity of individuals engaged in intellectual property activities. The recent large-scale fiscal audits that led to these liabilities have investigated whether the individuals carried out an in substance independent activities or whether they were acting rather in a dependent manner, being engaged in a de facto employment relationship. As a result, revenues obtained by the above mentioned individuals had been reclassified as salary income and the paying companies had been urged, retroactively, to pay the difference in social security contributions, as well as related late payment interest and penalties, triggering material amounts and affecting several industries.
The four cumulative criteria for defining a dependent activity, in force until 10 July 2015, have been eliminated and new rules are implemented instead, defining independent activities based on a set of four out of seven such criteria. The practical assessment of the new set of criteria shall be further regulated by means of a Special Order to be issued by the tax authorities, as to determine the method of computation of taxes and social securities in case of future reclassification of such activities.
According to the legislator, the proposed measures are likely to correct some inequities of the past and remove future interpretation. However, the practical implementation and future practicalities of tax assessments on this matter remain uncertain.
Amendment to the Fiscal Procedure Code
With respect to the Fiscal Procedure Code in force at the moment, the main amendments refer to:
Commencing from 23 July 2015, the requirement of using stamps has been eliminated for documents filed by individuals, private law legal entities and entities without legal personality with public institutions or authorities or other written records issued between the above mentioned persons. However, public law legal entities still have the obligation to stamp the documents they issue.
The changes to legislation discussed in this article will affect corporations by requiring them to consider their current employment and collaboration with self-employed individuals; by easing the administration of taxpayers undergoing insolvency and by lessening the bureaucracy associated with filed legal documents.