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Lecture 1: Moldovan versus International Tax Payment Optimization

1: General overview of the Moldovan Tax System
2: Specifics in optimizing tax payments in R.M. Problems and Solutions
When looking for a location for business, more and more companies base their decision on
the tax system of the country in question. There are numerous other factors that also have an impact
on a countrys business and investment climate, such as its geographic location, infrastructure,
political and social stability and wage levels.
Moldova has a relatively small, but very open, economy. The Government has always
acknowledged that the tax system should not constitute an obstacle to companies with international
operations. This is reflected in the way in which corporate profits are taxed.
Taxes are levied both at the national and local levels.
The national taxes include: income tax, VAT, excise taxes, private tax, customs duties, and road
taxes.
Local taxes include: immovable property tax, natural resources taxes, territory development
tax; tax for organizing auctions and lotteries in the administrative-territorial unit; tax for advertising
placement; tax for the use of local symbols; tax for trading and/or social services units; market tax;
tax for temporary living; resort tax; tax for rendering of the municipal, urban and rural (communal)
passenger transportation services; car parking tax; dog owners tax; tax for development of localities
situated in the border zone with customs (offices) posts for border crossing.
Corporative Income Tax (CIT)
Taxpayers
The following entities are CIT liable:
Moldovan companies;
Foreign companies doing business in Moldova through a Permanent Establishment.
Permanent Establishment (PE)
PE represents a fixed place of business through which the non-resident carries on, wholly or
partly, entrepreneurial activity on the territory of Moldova either directly, or through a dependent
agent.
If a PE is generated, Moldova has the right to tax the income derived from the activity
performed on the territory of Moldova. The PE needs to be registered with the tax authorities within
three days from the appearance of the tax liability.
When assessing its taxable income, the PE is allowed to deduct the expenses incurred while
generating it, subject to certain limitations and restrictions.
Non-taxable revenues
The most relevant non-taxable revenues are:
Contributions to the capital of a legal entity in exchange for an 80% equity interest in the
capital of the given entity;
Money received from special funds and which are used in accordance with the funds
destination;

Income derived from property or money received free of charge based on a Government
decision;
Interest received on corporative securities in the form of bonds issued for a period exceeding
three years;
Interest received on bank deposits made for a period exceeding three years (until 2010);
Interest received on state securities.

Deductibility of expenses
As a general rule, expenses are deductible only if incurred for the purposes of generating
taxable income and are considered as ordinary and necessary.
Deductible expenses
Among deductible expenses considered to be incurred for the purposes of generating taxable
income are the following:
The ordinary and necessary expenses paid out or incurred by the taxpayer during the tax
year, exclusively for entrepreneurial purposes;
Amortisation of intangible assets;
Research and development expenses incurred during the tax year as current expenses;
Interest payments, provided they represent a usual and necessary expense incurred in
connection with the business activity, except for certain specific cases;
Depreciation of fixed assets calculated depending on the category of property and in
accordance with the category of property and the established rates.
Limited deductibility
The deductibility of certain expenses is limited, including:
Business trip expenses and representation expenses, expenses on insurance of legal entities,
within the limits approved by the Government:
Waste, spoilage and exhalation expenses, within the annual limitation established by
company directors;
Repairs expenses of fixed assets recorded in the balance sheet (up to 15% of tax value);
Repairs expenses of fixed assets (used according to the operational leasing agreement, within
the limit of 15% of the lease payment amount);
Bad debts;
Expenses not justified by supporting documentation 0,1% of the total amount of the
taxable income;
Philanthropic and sponsorship expenses borne for the benefit of specific beneficiaries up to
10% of taxable income;
Interest payable for the benefit of the foreign investor in specific cases.
Fully non-deductible expenses
A number of expenses are specifically non-deductible, including:
Amounts paid to interdependent persons without approval of necessity and which do not
correspond to the market value;
Expenses incurred by activities generating non-taxable income;
CIT, as well as other taxes paid to third parties;
Amount paid for the acquisition of land;

Amount paid for the acquisition of property for which the depreciation is calculated;
Losses resulting from the sale or exchange of property, fulfilment of works and rendering of
services between interdependent parties;
Payments made in favour of patent holders;
Contributions to the reserve fund, done before taxation;
Fines and penalties;
Payments, other than salary (including benefits in kind), made in favour of employees.

Deductibility of interest on borrowings

There are different deductibility rules for the interest related to loans (credits), used for
carrying out operational activities and for the interest related to loans (credits) used for investment
activities performed on an occasional basis.
If the interest paid by the Moldovan Company relates to its operational or day-to-day
activity, the expenses incurred are treated as ordinary and necessary for carrying out entrepreneurial
activity and the interest paid is totally deductible.
The deduction of interest paid or calculated by a legal entity (except for financial
institutions) to individuals or other legal entities is allowed only within the limits of the National
Bank of Moldova prime interest rate (refinancing rate) for November of the year prior to the current
financial year.
The interest on borrowings should be capitalised to related fixed assets until they are put into
operation.
If the interest relates to an investment activity performed by the Moldovan Company, on an
occasional basis or is not substantial, the interest is deductible within the limits of this income.
Deductibility of exchange differences arising from foreign currency borrowings
The exchange differences incurred within the reassessment of the foreign currency borrowings
are treated either as income or expenses for the respective tax period and are taxed /deducted
accordingly (i.e. based on the general rule).
However, under certain special circumstances (e.g. high depreciation of the national currency) and
according to specific tax provisions, foreign exchange differences may not be treated as expenses,
but are capitalised to the balance sheet value of the related assets.
Transfer pricing
The transfer pricing rules are at an initial stage in Moldova. The tax law stipulates that
transactions concluded between joint owners or related persons are taken into consideration, only if
the interdependence of these persons does not influence the outcome of the transaction.
With reference to the transactions carried out by Moldovan companies with related parties, tax law
provides the following:
no deduction is allowed for losses incurred on the sale or exchange of property, performance
of work or supply of services between related parties, carried out either directly or through
intermediate parties;
no deduction is allowed for expenses incurred in relation to related parties, if they do not
correspond to the justified market price and do not represent necessary and ordinary business
expenses.
Under tax law, the sources of information on market prices for specific transactions are the
following:

information from public and statistics authorities and bodies regulating the price formation,
or, should it be unavailable;
information on market prices published or made public through the mass-media, or
official data and/or data made public on quotations (transactions registered) set at the stock
exchange nearest the sellers (purchasers) headquarters. When no transactions have been
registered at this stock exchange or the sales (purchases) took place at a different stock
exchange, the information on quotations set at this stock exchange should be used, as well as
information on quotations set for state securities and state bonds.

In addition, according to the tax law:

taxpayers also have the right to present data on market prices from other sources to the tax
authorities, and
the tax authorities has the right to use such information only if there are reasons to consider it
trustworthy.
Reporting and Payment Requirements
As a general rule, CIT is paid on a yearly basis, by 31 March of the year following the
reporting one.
However, all legal entities, including the PE of non-residents, whose annual CIT liability for the
previous year exceeds MDL 400 (EUR 24), have to perform interim tax payments on a quarterly
basis (up to 31 March, 30 June, 30 September and 31 December). The size of the interim quarterly
tax payment is computed as of the forecasted CIT for the current year or of the CIT due for the
previous year.
Agricultural entities and farms pay interim taxes twice a year (31 March and 31 December).
These interim payments are deductible upon calculation of the companys annual CIT.
An annual CIT return has to be prepared (based on the annual Financial Statement) and
submitted to the tax authorities by 31 March of each year, following the tax year-end of 31
December.
Representative offices must also submit to the tax authorities by 31 March of the year
following the reporting year specific Tax Reporting Statement on the activity conducted during the
year.
Capital gains
As a general rule, real estate assets and shares are treated for tax purposes as capital assets.
The income earned from their sale is therefore deemed a capital gain, equal to 50% of the difference
between the purchase and the sale price. The capital gain is included on the Moldovan Companys
annual income and taxed based on the general rule.
Capital losses can be carried forward to the next year to offset future capital gains. The
capital gain rule applies to Moldovan Companies selling these assets on an occasional basis and
whose ordinary activity does not include transactions with lands, buildings and shares.
Should such assets be sold within the frame of the ordinary business activity (i.e. operational
activity), the capital gains taxation rule does not apply.
Consequently, CIT is calculated according to the general rule by applying the standard tax rate to the
Companys total taxable income.
Dividend tax

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Dividends distributed by resident companies are treated as taxable income for all the
categories of beneficiaries.
Resident legal entities include dividends in their gross income and apply the 0% CIT rate.
As regards the dividends paid out to non-residents, as well as to resident individuals, a 15%
domestic WHT rate applies (except for resident individuals under certain specific circumstances). In
case of distribution to individuals, this taxation is a final one.
The preliminary CIT payment is not applicable on interim dividend payouts.
Withholding tax (WHT)
WHT on payments to residents
Each resident entity that makes payments in the form of interest, royalties, service fees or payments
to individuals for lease, rent or usufruct of movable and immovable property, must withhold and pay
to the budget a WHT at the following rates:
10% final withholding of an individuals income derived from lease, rent, usufruct of movable
and immovable property, advertising campaign, gambling;
15% final withholding of an individuals income from monetary and non-monetary payments
performed for the benefit of individuals, which are treated as non-deductible for the paying
company and non-taxable for the recipients thereof;
5% final withholding of the value of the contract for possession and/or use of immovable
property by individuals, who do not perform entrepreneurial activity;
15% of interest paid to individuals (except for individual entrepreneurs and farms) and royalties.
The beneficiary deducts (i.e. recover) the 15% WHT from his due income tax;
5% of payments to individuals (except for individual entrepreneurs and farms). The beneficiary
deducts (i.e. recover) the 5% WHT from his due income tax.
WHT on payments to non-residents
Non-residents are subject to WHT (without deducting the related expenses) as follows:
10% for service fees received by a non-residents for services if they were performed on the
territory of Moldova;
10% of capital gain received from sale of real estate located on the territory of Moldova or from
the sale of the shares, if the shares are sold to a Moldovan resident. The taxable basis is
estimated based on the capital gain rule, namely 50% of the difference between the amount of
the proceeds and the tax book value of the assets;
10% on interests and royalties;
10% on other income;
15% of dividends;
15% of both monetary and non-monetary payments made to non-residents individuals and legal
entities, which are treated as non-deductible for the paying company and non-taxable for the
recipients thereof.
The Double Tax Treaty (DTT) concluded by Moldova with the relevant country may provide for
a more favourable regime than the one provided by the local provisions. For the application of a
DTT, the foreign beneficiary of such incomes provides the Moldovan entity with its tax residency
certificate before the payments are actually made.
Double Tax Treaties (DTT)

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As of 1 January 2013 the Republic of Moldova applies 37 Double Tax Treaties in force with
the following states: the Republic of Albania, the Republic of Armenia, the Republic of Austria, the
Republic of Azerbaijan, the Republic of Belarus, the Kingdom of Belgium, Bosnia and Herzegovina,
the Republic of Bulgaria, Canada, the Peoples Republic of China, the Czech Republic, the Republic
of Croatia, the Republic of Estonia, the Federal Republic of Germany, the Hellenic Republic, the
Republic of Hungary, Japan, the Republic of Kazakhstan, the Republic of Latvia, the Republic of
Lithuania, the Republic of Macedonia, the Republic of Montenegro, the Kingdom of the
Netherlands, the Republic of Poland, Romania, the Russian Federation, the Republic of Serbia, the
Republic of Slovakia, the Swiss Confederation, the Republic of Tajikistan, the Republic of Turkey,
Ukraine and the Republic of Uzbekistan, the Republic of Hungary, the Republic of Slovenia, State
of Israel, and the Sultanate of Oman.
For avoiding double taxation the Republic of Moldova uses the credit method of tax paid
abroad. A tax paid abroad is creditable for the year in which the income is taxable in Moldova.
According to the double taxation treaties concluded by the Republic of Moldova with regard
to taxation of non-residents income are applied the rates foreseen in the tax treaties, which are
lower than the rates provided by the internal tax legislation. If, however, the rate in the treaty is
higher than rate according to legislation, it is applied the rate foreseen by legislation.
Local Taxes
The system of local taxes includes:
territory development tax;
tax for organizing auctions and lotteries in the administrative-territorial unit;
tax for advertising placement;
tax for the use of local symbols;
tax for trading and/or social services units; market tax;
tax for temporary living;
resort tax;
tax for rendering of the municipal, urban and rural (communal) passenger transportation
services; car parking tax;
dog owners tax;
tax for development of localities situated in the border zone with customs (offices) posts for
border crossing.
The maximum tax rate, taxable base, terms of tax payment and submit of tax reporting are
reflected in Appendix III.
The individual entrepreneur, a peasant (farm), in which average number of employees,
during the tax period, not exceeding three units and who are not registered as VAT payer, submits a
single tax report on local taxes before 31 March following the tax year, and pay the taxes at the same
time.
Concrete rates of local taxes are set by local governments, taking into account the
characteristics of objects of taxation.
III.2: Specifics in optimizing tax payments in R.M. Problems and Solutions There are many
ways to minimize tax payments in Republic of Moldova, some can be applied on a general level by
corporate and individual persons regardless of the type of activity they are involved in, and some are
characteristic to specific types of activity such as entertainment business, restaurant business,
import/export business with or without the use of Free Economic Zones, or such plain International
money transfers.

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The logical place to start would be by presenting some applied General Method for
Minimizing tax Payments such as, basic deductions.
If one wants to minimize tax payments, a place to start is to minimize the tax base. This can
be accomplished by maximizing appropriate expenses such as Research and Development,
necessary interest payments and others that fall that can be deducted from the overall income.
Lets take, for example, the firm Lacone S.A. This firm is in the candy manufacturing
business.. The firm needs some additional materials that could improve its activity. The cost of these
materials is 10.000 USD. The company could just purchase them directly, in which case they would
be subject to additional taxes. Lets say its taxable income is 100.000 USD.
Alternatively, they could use those materials in an on-going Research and Development
project, in which case they could deduct the sum of 10.000 USD from the total taxable income, in
this way avoiding paying an additional amount as part of the income tax.
This is better viewed in the table below:
Table: III.2.1
Initial Situation

Regular Purchase of
Equipment

R&D Purchase of
Equipment

Taxable Income

100.000 USD

110.000 USD

90.000 USD

Income Tax Rate

25%

25%

25%

Income Tax Value

25.000 USD

27.500 USD

22500 USD

Tax Savings

-2.500 USD

2.500 + 2500 = 5000

USD

As we can see from the table above, with the use of expense deduction, a saving in the
amount of 5000 USD in income tax has been achieved.
If the original method would have been employed, we would have registered a loss of 2500
USD.
But, apart from the expenses that are fully deductible, there are also expenses that are
partially deductible, such as stated in the following excerpt from the Tax Code of Republic of
Moldova.
The deductibility of certain expenses is limited, including:
Business trip expenses and representation expenses, expenses on insurance of legal entities,
within the limits approved by the Government:
Waste, spoilage and exhalation expenses, within the annual limitation established by
company directors;
Repairs expenses of fixed assets recorded in the balance sheet (up to 15% of tax value);
Repairs expenses of fixed assets (used according to the operational leasing agreement,
within the limit of 15% of the lease payment amount);
Bad debts;
Expenses not justified by supporting documentation 0,1% of the total amount of the
taxable income;
Philanthropic and sponsorship expenses borne for the benefit of specific beneficiaries up
to 10% of taxable income;
Interest payable for the benefit of the foreign investor in specific cases.
(Tax Code of Republic of Moldova art.24)

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A firm can minimize its taxable income by writing of additional expenses on employ
business trips. Although all of these expenses must be justified by documentation according the
legislation, there is also expenses that cant be precisely calculated, making the free for use. And
there is also the 0,1% income that can be deducted without any documentation justifying the
expenses whatsoever.
Perhaps a more important benefit can be produced from the use of the following expert:
Philanthropic and sponsorship expenses borne for the benefit of specific beneficiaries up
to 10% of taxable income
(Tax Code of Republic of Moldova art.24)
Lets take another example as a demonstration. Lets assume the Restaurant La Roma
organises a festive dinner for a school on some holiday. It brings all the kids in the restaurant
presenting a show, then invites some national singers acting as singers. The expense amounts to
2000 USD. The total taxable income is 50.000 USD.
By organizing this philanthropic dinner, La Roma Club achieved the following: a expense
deduction in the amount of 10% (200 USD) and of course received free publicity of all channels
(such as news).
The Use of Free Enterprise Zones in Republic of Moldova
The free economic zones (free enterprise zones), hereinafter named as free zones are parts of
the customs territory of the Republic of Moldova, separate from the economic point of view, strictly
delimited on their whole perimeter, in which certain types of entrepreneurial activity are permitted,
in a preferential regime, for the domestic and foreign investors. (Par. 1 of article 1 redacted by the
Law No.594-XV from 01.11.2001)
The borders of the free zones are assimilated with the customs borders of the Republic of
Moldova. The territory of the free zones must be isolated from the rest of the country by a secure
enclosure. The guard of the free zones borders shall be ensured by the State safeguard authorities of
the Republic of Moldova, based on the contracts concluded by them with the Administration of the
respective zone.
The system of authorized passing of the free zones borders, of which manner of functioning
is set by a decision of the Government, shall be applied for physical persons and transport means.
(Par. 2 of article 1 redacted by the Law No. 594-XV from 01.11.2001)
The free zones shall be created aiming the acceleration of the social and economic
development of certain territories and of the country as a whole by:
a) attracting domestic and foreign investments;
b) implementing the modern technique and technology;
c) developing the export-oriented production;
d) applying the advanced experience in the field of production and management;
e) creating working places.
Preferential regimes of stimulating the entrepreneurial activity shall be accorded to the free
zones, aiming the realization of assumed objectives. The modifications of the regime and the
implementation manner of the entrepreneurial activity in a free zone shall be possible by introducing
modifications in the present Law only.
The free zone can be comprised from several subzones. The regimes and the manner of
implementation of the entrepreneurial activity and the management are identical in all the subzones.
The enterprises that are legally located in an Free Economic Zone benefit from special
relieved tax regimes, that extends on income tax obtain from certain activites.

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The income tax for residents, obtained from the export of goods (services), originating from
the free zone, outside the customs territory of the Republic of Moldova, shall be collected in size of
50 percent from the quota set in the Republic of Moldova.
The income tax from the residents activity in the free zone, except for the one stipulated in
paragraph (2) from the Tax Code, shall be set in proportion of 75 percent from the quota set in the
Republic of Moldova.
The benefits from this taxation system are obvious, even if a certain firm does not work
exclusively on export.
For example, lets take the furniture factory Symex Ltd.. This firm imports some parts
from Romania, producing high quality furniture that is sold on the Russian market. In the current
format of activity, this firm operates from the Free Economic Zone Ungheni-Bussines. It imports
many of its materials from abroad, while finalizing the sale-ready product in Republic of Moldova
(in the amount of, for example: 100.000 USD), then exporting then on the Russian market, thus
achieving a reduction in the Income Tax by 50 percent.
Table: III.2.2
Nr Production Value Income
Tax Income Tax Value Tax Saving
.
Rate
1
100.000
25% (50%)
125.000
125.000
2
100.000
25% (100%)
250.000
0
If Symex Ltd. would have operated for outside the Free Economic Zone, there would be no
tax saving possible in this area (as shown in the table).
In addition, additional capital invested in such zones only bring further advantages.
The residents who invested into the fixed assets of their enterprises and/or in the
development of the free zones infrastructure a capital equal with at least one million USD shall be
exempted from paying the tax on the income from the export of goods (services), originating from
the free zone, outside the customs territory of the Republic of Moldova for a period of three years.
The residents who invested into the fixed assets of their enterprises and/or in the
development of the free zones infrastructure a capital equal with at least 5 million USD shall be
exempted from paying the tax on the income from the export of goods (services), originating from
the free zone, outside the customs territory of the Republic of Moldova for a period of 5 years.
The special methods include the following methods.
Method relations division, as the replacement method, also based on the principle dispositive
in civil law only in this case is not replacing some economic relations on the other, a division of the
complex relationship of one of a number of simple business transactions, although the first and can
function independently. To present the use of this method is invited to review the scheme "Two sales
- sales of barter instead of one".
The essence of this scheme is that barter contract and the contract I have a lot in common.
Each party to the transaction (and barter, and less) is simultaneously seller and buyer. A distinctive
feature of the same barter and less is the nature of non-payments.
So is that in terms of taxation barter transactions are worse off than others. First, they
applied "market, prices" (both for income tax (Article 21 (1) NK RM) and for VAT (Article 97 (2)
HK RM)), the use of which usually worsens tax liabilities of enterprises. Secondly, in a situation
where one business supplying goods (services) under the barter contract before receives in return for
a second enterprise receipt of goods (service) is prepaid. Thus, the enterprise receiving the product
(service) on barter contract and has not implemented its own supply, there is no VAT tax liability.

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Avoid such, the deteriorating situation, factors can be, if instead of a barter agreement to
conclude two agreements of sale. After the mutual supply of goods (services), the parties signed the
act of checking accounts, which stipulates reciprocal credit requirements.
The method of replacing relations based on the right of each business entity independently,
without restrictions to choose their counterparties, the form and terms of the transaction with them.
The essence of the method is that the enterprise in the legal registration of business relations with
their counterparts chooses civil rule, not only on the basis of the principles of design civil and legal
technology, but also because of the tax effects of these civil law. In other words, there is some
substitution of domestic legal, taxation result in higher rates on to other close, homogeneous
relationship with preferential tax treatment, with the economic essence of business operations
remains unchanged. It should be noted that it should be replaced relationship (the entire range of
rights and duties), and not only formal party to the transaction, that is replacement of signs should
not contain false, fictitious, otherwise the transaction may be declared invalid. Examples of legal
replacement method used at the moment, serve as replacement Mediation contract (commission
orders, etc.), because Profit from the activities of middlemen is taxed at higher rate to the contract
award (a reimbursable service delivery), subject to the usual manner; replacement contract mere
camaraderie on the treaty equity participation in the construction, since the investment on the basis
of this treaty, are exempt from paying income tax .
Thus, the method of replacing relations based on Multi solutions to economic problems
within the framework of existing legislation. The entrepreneur has the right to prefer any of the
allowable options both in terms of economic efficiency of operations, both in terms of optimizing
taxation.
Tax relief provided by leasing operations, allow very effective method of replacing relations
(Law "On making amendments and additions to some legislative acts" from April 28, 2005). C M
provided benefits is as follows:
1. Lifted 5% deduction at source from payment of leasing services
2. Interest on leases exempt from VAT
3. The date of delivery of Leasing now be the date of lease payments.
4. Ability to obtain reimbursement of VAT in excess "input" on VAT "output" VAT for
enterprises engaged in leasing activity.
For example, a transfer of ownership of a certain thing, subject to payment in installments,
can be achieved using as a contract of sale in installments, and using financial leasing contract. The
economic effect is identical, but the tax costs - different.
For example: The seller acquired the equipment for 960 000 (including VAT-160 000 lei).
There is a buyer who is willing to purchase equipment for the 1200 000 (including VAT-200 000 lei),
but with a condition of delayed payment. Supply - in July 2008. Payments are distributed as follows:
July 2006 -- 480 000, November 2006 -- 480 000, September 2007 .- 240 000. For ease of
calculation will consider that the seller other transactions, other expenses and no income.
Option 1. Sale in installments.
The seller acquired the equipment for 960 000 lei (including VAT - 160 000 lei). In July
2005. the seller delivers the equipment at a price of 1 200 000 lei (including VAT - 200 000 lei)
under a contract of sale in installments. In August, 2007 the seller pays the VAT to the budget - 40
000 lei. In March 2007 the seller pays income tax for 2006 (excluding pre-tax) - 36 000 lei. Further
payments (November 2006, September 2007) are not in any way affect the tax payments. As a
result, the VAT paid to the budget of $ 40 000 lei in August 2006 Income tax is 36 000 lei (taxable
income x 200 000. 18% (tax rate)), on the basis of 2006 Total tax liabilities comprise 76 000 lei.
Option 2. Financial leasing

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The lessor has acquired equipment for 960 000 (including VAT-160 000 lei). In July happens
equipment lessee (issued inventory of the consignment note to the entire cost of equipment
transferred to lease).
In July occurs first lease payment amounting to 480 000 lei (VAT-96 000 lei). Interest on
leases exempt from VAT. At the end of July a situation where the lessor is entitled to reimbursement
of VAT. At the same time limit exists within the standard rate multiplied by the value of leasing. This
amount is equal to 64000 lei. Thus, the lessor can claim reimbursement only that amount (320 000 x.
20%). Given that in November will be the regular lease payment, it is necessary to assess
realistically assess the cost reimbursement. So far, for example, no instructions, which recalls Art.
101 (6) NK. In our example, to simplify, we will consider that the lessor has not exercised the right
to reimbursement of VAT. In November happens second lease payment in the amount of 480 000 lei.
In September 2006 occurs third lease payment amounting to 240 000 lei.
As a result, the VAT paid to the budget, zero, moreover, it is possible to increase working
capital through the use of the right to recover VAT lessor.
Income tax will turn out the same as in option sale. Another matter that in leasing operations
revenue is considered from the date of the lease payment. Accordingly, if we take into account given
the current value (that is, given time and the average bank per cent), the gains, in terms of working
capital, and is produced here.
Tax arbitration is one of the specific methods of tax planning. The existence of a modern tax
system in various incentives, different tax regimes, the use of certain features in the calculation of
the tax base created fertile ground for the implementation of tax arbitrage transactions that provide a
risky tax savings without significant cost.
Everyone is familiar with the situation - a contract to purchase goods in one place at low cost
and simultaneously a contract for the sale of that product in another place at a high price, that is used
differences in prices in different markets. This is the most simple form of arbitrage operations.
Arbitration - operation, namely the simultaneous purchase and sale of assets to provide
income with minimum risk costs.
There are spatial and temporal arbitration.
Spatial arbitration involves the sale of the asset market, where the asset on the roads and the
simultaneous purchase of the asset market, where it is relatively cheap. Interim arbitration is to
purchase (sale) asset now and the simultaneous conclusion of a contract for the sale (purchase) an
asset in the future time. Tax arbitration involves the acquisition of one asset ( "long" position) and
the simultaneous sale of another asset ( "short" position) for income-risky without significant cost.
Taxation of income varies depending on the type of activity, location, organizational and
legal form of entrepreneurship, capital structure (the share of its own and borrowed capital), the
organization's history (or lack of availability of tax losses from previous periods) and other factors.
Tax differences create the conditions for tax arbitrage.
For example: IP "Alpha" receives taxable income for the year of $ 50 thousand lei. To
simplify the calculation will only use one tax rate-20% (ie rates 7% and 10% are not used). If you do
not use the arbitration strategy, with 50 thousand Lei taxable income tax of 10 thousand Lei, income
after tax - 40 thousand lei.
Now suppose that IP "Alpha" has an opportunity to take credit at the bank of $ 200 thousand
Lei under 25% per annum. Meanwhile, business in the same bank puts on deposit 200 thousand Lei
under 24% per annum.
It would seem that what is the point? FE "Alpha" took the money by 25% and invest them
under 24%. But if we take into account the particularities of tax legislation, the transaction
immediately becomes meaningless. Due to the fact that the cost of interest payments go to the
deductions, taxable income is reduced by 50 thousand lei (payment of interest on the loan) and,

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consequently, income tax savings of $ 10 thousand lei. In this way, the real cost of borrowing, taking
into account the tax is not 25% and 18%. Revenues derived from interest on deposits in banks are
not subject to taxation (st.24 (8) Act on the administration of income tax and the enactment of
sections I and II sections NC).
As a result of arbitration income tax strategy after taxation IP "Alpha" has increased by 12
thousand lei. The bank also earned on this transaction.
This example illustrates the tax arbitration, which includes a long position on favourable tax
from the perspective of asset (charging interest on bank deposits) and short position on the adverse
tax from the perspective of asset (interest on bank loan - to a creditor are income to the borrower minus) . As a result of the arbitration strategy income becomes taxable income, tax exemption.
In conducting the tax arbitration is necessary to draw attention to several points. Typically, in
practice, can not completely exclude the risk. For example, tax laws may change or a party may not
meet its obligations. Also, arbitration can often require some, albeit temporary investments.
However, despite these moments, tax arbitration is one of the most effective methods of tax
planning.
Any taxpayer in carrying out business activities must take into account the tax risks. Tax risk
- this is the possibility of losses associated with the process of calculating and paying taxes.
Tax risks are as objective - the risks, not dependent on a specific taxpayer's action (increase
in tax rates, broadening the tax base, the abolition of tax benefits) and the subjective - risks that
depend on a specific taxpayer's action. Tax legislation is in itself a risk factor for the tax. His object,
the complexity and contradictions is a major source of errors in calculating taxes.
In practice there are a lot of examples where strong companies with multimillion assets on
the balance sheet, lose them, go under, for various reasons: a non-credit, violation of laws, jumps
and other exchange rate.
To prevent such problems need to "dump eggs in different baskets". Diversification of the tax
system means the risks of various tax incentives, different tax regimes, the use of certain features in
the calculation of the tax base among different types of taxpayers.
One method is to diversify the tax risks "organizational design". The essence of this method
is to separate assets from the debts of risk transactions, from the "dark past". In other words,
businesses where the assets are concentrated, are perfect records, they do not keep active. Other
enterprises are the primary active, rental property, if necessary, necessary at first. Other companies
are taking a very risky from the point of view of transaction tax. This structure will allow business to
minimize losses and preserve assets, even if the worst scenario from happening. The loss of any link
does not lead to curtailment or halt all activities.
For example: Plant secondary winemaking AO "Luchezarny" owns a controlling stake
primary wine-making plant AO "Sunny". AO "Luchezarny" acquires wine (naturally, with excisable)
at AO "Sunny". Suppliers of components from AO "Luchezarny" - foreign and local companies,
buyers - mostly foreign, that is all export-import operations AO "Luchezarny". It turns out all tax
risks are concentrated at AO "Luchezarny". Any mistake - customs problems, delays repatriation, tax
errors, the seizure of account and so on - could complicate the existence of the entire business.
Maybe think about change is applicable tax schemes, "scattered baskets" tax risks. So you
can create a number of new businesses (which may office is the same location as where and was). It
follows the structure of business:
The supplier.
The objective of the enterprise - the purchase of components abroad, customs clearance, the
implementation of the AO "Luchezarny". All risks associated with the repatriation, customs
clearance, in the conduct of the supplier.

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AO "Luchezarny" leases (rent financed) production capacities from AO "Sunny". Manpower
AO "Sunny" is used AO "Luchezarny" on the basis of the contract award. Production facilities AO
"Sunny" included in the excise premises AO "Luchezarny". Thus, the savings on Excise has already
been received (wine when moving within one excise premises are not excisable).
Dealer.
Based on the contracts committee and / or assignments with AO "Luchezarny" enterprisedealer takes the issues related to foreign trade activities. Tax risks associated with the repatriation,
customs clearance, carried forward from the owner of all assets and trademarks (AO "Luchezarny")
to the dealer.
Foreign dealer.
A company in the country, which was finished products. He deals with the import, customs
clearance, wholesale implementation.
Maintaining accounting businesses throughout the supply chain, tracking commodity and
cash flows, financial planning should be carried out from a single point. The accounts of enterprises
- are participants in the scheme in one bank. As a result of major risk factors moved to the enterprise
(supplier, dealer) who have no assets. All questionable transactions also must be carried out through
subsidiary companies.
AO "Luchezarny" (owner of the assets and trademarks) focuses only on production of
finished products. Its accounting is transparent, the grounds for claims by the auditors minimized.
Pricing can concentrate on the profitable enterprise, where there are tax benefits and more
opportunities for tax write-offs (including reimbursement of VAT and excise). If you experience
problems from the supplier or dealer AO "Luchezarny" can always move to direct contact with
foreign suppliers and buyers.