Once Step Forward Two Steps Back

I have written in the past about the stability of the law and the constant changes which can be experienced. One of the areas of taxation where this is sometimes apparent is in the realm of Value Added Tax. Because the law is more governed by the European Union directives and case law there is some stability. This has not prevented the authorities from making changes recently which will have an impact on Romanian companies and in our view some foreign investment. I am writing today about a case in point namely Order 112 which may have a harmful effect which was not intended.

These changes are more particularly set out in the annex to Order 112 of 16th January 2015 of the President of National Authority of Fiscal Administration. The changes will put a greater burden of applicants and payers of VAT as more disclosures are required. The reasons for some of the disclosures are obtuse to say the least. Only if the authorities approve the document will the VAT registration continue.

The requirements are only in respect of companies who wish to be or are already VAT payers. There is now a requirement that the administrators and the shareholders submit a fiscal record. This is not particularly burdensome.  The requirement of a physical inspection of the premises of a prospective VAT payer is now replaced with a requirement that the premises should be appropriate for the business. It is unclear as to how this will be assessed.  This is important where an accommodation address is being used. Finally they will require a statement as to the nature of the proposed business and how that will be implemented.

In addition companies who are VAT payers whenever they move their registered address; change a shareholder or appoints a new administrator now have to file a form 088 with the authorities. This Form 088 asks for and requires additional information.

The following are the major requirements in the Form 088 and clearly now persons who are being appointed administrators or who are becoming shareholders in a company will have to consider the impact of these question.  As I have said in the beginning this may put-off many foreign investors and one does wonder who drafted the form and why. Whilst everyone approves of the drive to eradicate corruption and punish those who are guilty of such offences it is possible that things have now gone too far.

The form requires the company to provide details of any bank accounts held outside of Romania by the company as well as the bank accounts with banks in Romania. If any bank accounts are held as a nominee for a third party there is a requirement to disclose the beneficial owner of the bank account.

The form also requires greater details of non EU administrators especially with regard to registration and visa applications and approvals to stay in Romania.

What shares are owned by the administrator and company in other (Romanian)companies although this is unclear.  Logically it should only be Romanian companies as the information will be used to check if these other companies owe monies to the Romanian state.

As well as asking for full details of the accountant to the company and the head of the finance department of the relevant company the form also asks about the number of labour contracts that the company has.

Perhaps the most important question and that which will put of many foreign investors and administrators is the requirement  that details are required of the world wide income of the associates and administrator for previous 12 months.

The final requirement is a requirement that details are given of the studies and professional qualifications of administrator as well as details of their employment in the previous 12 months.

As the provisions of this Order only come into effect on the 1st February 2015 the effects of the Order have not yet been fully felt. I am sure that there will be a number of applications to the Constitutional Court to rule that the requirements of the order are unconstitutional.  Perhaps the greatest impact will be the comments of the foreign investors and their comments in general. As usual in my view Romania does something good – new President – and then destroys goodwill with badly thought out and implemented legislation and orders.  Even the new draft Fiscal Code suffers from these defects.

:: The Source: Romania Law Blog

Nicholas Hammond
Guest writer. Senior Partner of BWSP Hammond Bogaru & Associate

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