Answers

Fundamentals Level – Skills Module, Paper F6 (ROM) December 2010 Answers

Taxation (Romania) and Marking Scheme

Marks
1 Circle SA

(a) Quarterly income tax for 2009

Circle SA is a credit institution, thus it will make quarterly prepayments of corporate income tax in 2009
based on the corporate income tax registered in 2008 multiplied with the official inflation rate communicated
by the tax authorities. 1
Each quarterly prepayment of corporate income tax will be: 1,600,000 x (1 + 5·5%) x ¼ = 422,000 lei 1
The deadline for making these payments is the 25th of the month following the quarter for which the amount
is due, i.e. 25 April, 25 July, 25 October, 25 January. 1
–––
3
–––

(b) Final corporate income tax for 2009

Lei
Total revenues (W1) 19,660,000 1
Total expenses (W1) (15,972,400) 2
Non-taxable revenues (660,000)
Revenue from investment (560,000) 1
Revenue from provisions (W2) (100,000) 1
Elements similar to revenues 0
Tax depreciation (W2) (15,000) 2
Non-deductible expenses 1,789,668
No reference to interest expenses – 1
Protocol expenses (W3) 5,268 2
Social expenses (W4) 23,600 2
Subscription to a non-profit organisation (W5) 7,000 1½
No reference to office expenses – ½
Fuel expenses 9,600 1
Service expenses 27,200 1
Depreciation expense 10,000 ½
Corporate income tax expenses 1,707,000 ½
Taxable income 4,802,268
Income tax at 16% 768,363 ½
Tax credit for the permanent establishment (W6) (16,000) 2
Income tax after tax credit 752,363
Minimum tax due for the year (8/12 x 22,000) 14,667 1
Final income tax due
– normal income tax 752,363 ½
–––
21
–––

(c) Settlement of corporate income tax

The corporate income tax due for the year 2009 will be settled in 2010, offset by the quarterly prepayments
made, resulting a difference to be paid to/refunded by the state. The settlement is made through Circle SA’s
annual tax return. ½
The settlement must be made by 15 April 2010, at the latest. ½
Corporate income tax due for 2009 = 752,363 lei
Prepayments of corporate income tax made during the year = 1,688,000 lei
Corporate income tax to be refunded by the state = 1,688,000 – 752,363 = 935,637 lei 1
–––
2
–––

(d) Tax on dividends

Mathematics SA has held 55% of Circle SA’s shares since May 2007.
In April 2008 Circle SA allocated dividends from the profits of the year 2007. Mathematics SA did not cash
in these dividends in 2008 but only in 2009. ½
Thus Circle SA had to pay withholding tax on these dividends at the latest on 31 December 2008.

15
 Marks
On 31 December 2008 Mathematics SA has held a participation in Circle SA for less than two years, thus
Circle SA had to pay withholding tax of 10% on the dividends to the state budget. 1
In June 2009, Mathematics SA cashes in the dividends for which the tax was already paid on 31 December
2008. Therefore, no further tax on the dividends is payable to the state budget in 2009. 1
In June 2009 both the conditions for exempting the dividends from taxation were fulfilled, i.e.
(i) Mathematics SA had held more than 10% of Circle SA’s equity and (ii) for an uninterrupted period of more
than two years. However, as the tax on the dividends had already been paid, Mathematics SA could now
request a refund of the tax withheld. 1½
–––
4
–––
30
–––

WORKINGS
(1) Total revenues and expenses
Total revenue = Total revenue from Romania + Total revenue of the permanent establishment
Total revenue = 18,660,000 + 1,000,000 = 19,660,000
Total expenses = Total expenses from the profit and loss account + Prepayments of corporate income
tax made during the year + Total expenses of the permanent establishment
Expenses before including prepayments of corporate income tax = 13,365,400 lei
Prepayments of corporate income tax (as calculated in (a)) = 422,000 x 4 = 1,688,000 lei
Total expenses of the permanent establishment = 750,000 + 150,000 + 19,000 = 919,000 lei
Total expenses = 13,365,400 + 1,688,000 + 919,000 = 15,972,400 lei
(2) The tax depreciation and revenue from provision
The net tax value of the asset before revaluation = 300,000 lei
The amount of the revaluation = –100,000 lei
As this revaluation will decrease the value of the asset below its cost, the expenses generated by the
revaluation in December 2008 are non-deductible when computing the corporate income tax for 2008.
However, the tax value of the asset will remain at the cost level. As this is the first revaluation ever, the
net tax value of the assets after the revaluation remains unchanged.
The net tax value of the asset after revaluation = 300,000 lei
The remaining depreciation period = 20 years
The tax depreciation in 2009 = 300,000/20 = 15,000 lei
As the impairment expenses were non-deductible in 2008, their reversal through revenue from
provisions in 2009 will be non-taxable revenue.
(3) Protocol expenses
The deductibility of protocol expenses is limited to 2% x (Taxable revenues – Expenses related to taxable
revenues less protocol and corporate income tax expenses)
Lei
Taxable revenues (19,660,000 – 660,000) 19,000,000
Expenses related to taxable revenues (15,972,400)
Protocol expenses 102,000
Corporate income tax expense (1,688,000 + 19,000) 1,707,000
–––––––––––
4,836,600
–––––––––––
Deductibility limit for protocol expenses (2%) 96,732
Deductible protocol expenses 96,732
Non-deductible protocol expenses (102,000 – 96,732) 5,268
(4) Social expenses
Both the nursery school expenses and the gift voucher expenses are social expenses. The deductibility
of social expenses is limited to 2% of salary expenses.
Total social expenses = 36,000 + 2,000 = 38,000 lei
Deductibility limit for social expenses = 2% x 720,000 = 14,400 lei

Deductible social expenses = 14,400 lei

Non-deductible social expenses = 38,000 – 14,400 lei = 23,600 lei

16
 Marks
(5) Subscription to a non-profit organisation
Subscriptions to non-profit organisations such as professional organisations connected to the taxpayers’
activity may be deducted up to 4,000 euro per year.
Deductibility limit for subscription = 4,000 eur x 4·2 lei/eur = 16,800 lei
Deductible subscription = 16,800 lei
Non-deductible subscription = 23,800 – 16,800 = 7,000 lei
(6) Tax credit for the permanent establishment
Circle SA may have a tax credit for the corporate income tax paid by the permanent establishment in
Hungary. This tax credit may not exceed the value of the corporate income tax that would have been
paid by the permanent establishment in Romania if it had been an independent company in Romania.
Corporate income tax paid in Hungary = 19,000 lei
Taxable income of the permanent establishment according to Romanian laws = 1,000,000 – 750,000
– 150,000 = 100,000 lei
Corporate income tax that would have been paid by the permanent establishment in Romania = 16%
x 100,000 lei = 16,000 lei
This is less than the tax actually paid in Hungary, so the tax credit in Romania = 16,000 lei

2 Mrs Rhombus

(a) Income tax due in 2008

The annual income quota established by the tax authorities for Mrs Rhombus in 2008 is 30,000 lei. As
Mrs Rhombus started her activity in July, her income quota will be reduced to reflect the actual period in
which Mrs Rhombus worked. The taxable base shall be computed by dividing the annual income quota by
365 and then multiplying by the number of days of activity.
The taxable base in 2008 = The income quota x 184/365
The taxable base in 2008 = 30,000 x 184/365 = 15,123 lei 1
Total income tax = 16% x 15,123 lei = 2,420 lei ½
This income tax is payable in two equal instalments on 15 September and 15 December 2008. 1
The amount of tax to be paid at each deadline = 2,420/2 = 1,210 lei ½
–––
3
–––

(b) Prepayments of tax for 2009

The prepayments of tax are based on the estimated taxable base, which equals the estimated gross revenue
less the estimated deductible expenses. 1
Estimated taxable base = 120,000 – 110,000 = 10,000 lei
Prepayments of income tax = 10,000 x 16% = 1,600 lei ½
The prepayments will be made in four equal quarterly instalments by the 15th of the final month of each
quarter, i.e. 15 March, 15 June, 15 September and 15 December. 1
Quarterly prepayment = 1,600/4 = 400 lei ½
–––
3
–––

17
 Marks
(c) Final income tax due for 2009
lei
Gross income 144,000
Sale income (100 x 120 x 12) 144,000 1
Deductible expenses (100,518)
Cash register (800) ½
Salary (W1) (6,480) 1
Social contributions for salary (W1) (1,798) 1
Rent (1890 x 12 x 70%) (15,876) 1
Electricity and water (250 x 12 x 70%) (2,100) 1
Materials (6,000 x 12) (72,000) ½
No reference to income tax for 2008 and related penalties – ½
Interest expenses (12,000 x 10% x 2/12) (200) 1
Depreciation expenses (0) 1
Protocol expenses (W2) (369) 1½
Subscription expenses (W3) (895) 1
No reference to social contributions due for herself – ½
–––––––
Tax base 43,482
Final income tax due for 2009 at 16% 6,957 ½
––––––– –––
12
–––

(d) Settlement of final income tax

The final income tax due for 2009 will be settled in 2010 offset by the prepayments of income tax made
during the year. ½
Mrs Rhombus has to submit her income declaration to the tax authorities by 15 May 2010. 1
Based on this declaration the tax authorities will compute the difference of tax to be paid and send
Mrs Rhombus a decision as regards the amount to be paid. ½
Mrs Rhombus must pay this amount to the state budget within 60 days of receiving the decision. 1
–––
3
–––

(e) The possibility of continuing to use the income quota system

The income quota system can only be used by taxpayers who do not employ anyone. 1
As Mrs Rhombus employed one person from 1 March 2009 it would have not been possible for her to
continue to use the income quota system for paying income tax in 2009 and she would have had to switch
to the real system. 1
–––
2
–––

(f) Hired hairdresser’s monthly social security and income tax liabilities for 2009
Employment income of 720 lei/month.
Social contributions:
– social security fund: 720 x 10.5% = 76 lei
– health care fund: 720 x 5.5% = 40 lei
– unemployment fund: 720 x 0.5% = 4 lei
Total = 76 + 40 + 4 = 120 lei 1
Income tax:
16% x (720 – 120) = 96 lei 1
–––
2
–––
25
–––

WORKINGS
(1) Salary and social contribution expenses
From 1 March 2009, Mrs Rhombus has an employee. Thus, in 2009 her employee works for
10 months. The gross salary is 720 lei/month, but it is payable on the 25th of the month following the
one for which it is due. Thus only 9 months will be considered as a salary expense in 2009.
Salary expense = 9 x 720 = 6,480 lei

18
 Marks
Social security contributions paid by Mrs Rhombus for her employee are:
Social security fund = 20.8% x 6,480 = 1,348 lei
Health care insurance fund = 5.2% x 6,480 = 337 lei
Unemployment fund = 0.5% x 6480 = 32 lei
Work accident fund = 0.159% x 6,480 = 10 lei
Health insurance indemnities fund = 0.85% x 6,480 = 55 lei
Fund for guaranteeing salary payments = 0.25% x 6,480 = 16 lei
Total contributions paid = 1,798 lei
(2) Protocol expenses
The deductibility limit for protocol expenses = 2% x (Gross income – deductible expenses, other than
protocol, sponsorship and subscriptions to non-profit organisations)
Deductibility limit for protocol expenses = 2% x (144,000 – (800 + 6,480 + 1,798 + 15,876 +
2,100 + 72,000 + 200)) = 2% x (144,000 – 99,254) = 895 lei
Protocol expenses paid in 2009 = 369 lei
Deductible protocol expenses = 369 lei
(3) Subscription expenses
As these are expenses for subscription to a professional organisation which are not compulsory for
Mrs Rhombus they will only be deductible up to 2% x (gross income – deductible expenses, other than
protocol, sponsorship and subscriptions to non-profit organisations)
Deductibility limit subscription expenses (as in working (2)) = 2% x (144,000 – 99,254) = 895 lei
Subscription expenses paid in 2009 = 1,200 lei
Deductible subscription expenses = 895 lei

19
 Marks
3 Oval SRL

(a) Value added tax (VAT) arising from 2009 transactions

No. Type of VAT Amount Explanation
1 Output VAT 250,000 x 19% = 47,500 lei Taxable activity ½
2. Output VAT 0 Exempt without deduction right activity ½
3. Output VAT 0 Exempt without deduction right delivery
because on acquisition the right of
deduction was limited 1
4. Input VAT 113,000 x 19% = 21,470 lei Acquisition used only for taxable activities ½
5. Input VAT 0 Acquisition used only for exempt without
deduction right activities ½
6. Input VAT 80,000 x 19% x 45% = 6,840 lei Acquisition used for mixed activities which
cannot be separated, so pro-rata
mechanism applies 1
7. Input VAT 0 Acquisition used only for exempt without
deduction right activities ½
8. Input VAT 24,000 x 19% x 45% = 2,052 lei Acquisition used for mixed activities,
which cannot be separated, so pro-rata
mechanism applies 1
9. Input VAT 0 This acquisition has a mixed usage, so, in
principle, VAT should be deducted through
the pro-rata mechanism. However, for car
acquisitions there is an express limitation
of the deduction right after 1 May 2009.
So, even if the car has a mixed usage, the
VAT is all non-deductible 1½
10. Input VAT 0 This acquisition has a mixed usage, so, in
principle, VAT should be deducted through
the pro-rata mechanism. However, for fuel
there is an express limitation of the
deduction right after 1 May 2009. So,
even if the fuel was used for a car with
mixed usage, the VAT is all non-deductible 1
11. Input VAT 3,600 x 19% x 45% = 308 lei Acquisition has a mixed usage, so VAT will
be deducted through the pro-rata
mechanism. For leasing there is no explicit
limitation of deduction as there is for
buying cars. 2
12. Input VAT 0 Acquisition has a mixed usage, so, in
principle, VAT should be deducted through
the pro-rata mechanism. However, for fuel
there is an express limitation of the
deduction right after 1 May 2009. So,
even if the fuel was used for a car with
mixed usage, the VAT is all
non-deductible. 1
–––
11
–––

(b) VAT adjustment in December 2009

During 2009, input VAT was deducted based on an estimation of pro-rata. Thus, in December 2009, the
company has to determine the final pro-rata percentage and adjust the deducted VAT in 2009 (positive or
negative adjustment accordingly). 1
Final VAT pro-rata = 250,000/(250,000 + 350,000) = 41·6% ≈ 42% (VAT pro-rata should be rounded
up to the nearest whole percentage). 1
VAT deducted during the year using estimated pro-rata = 107,600 x 19% x 45% = 9,200 lei ½
VAT that should be deducted using final pro-rata = 107,600 x 19% x 42% = 8,586 lei ½
Thus, a negative adjustment of deducted VAT has to be made in December 2009. This means that in
December 2009 614 lei (9,200 – 8,586) should be recorded as non-deductible VAT. 1
–––
4
–––
15
–––

20
 Marks
4 Mrs Triangle

(a) The tax treatment of the gift

For corporate income tax purposes, the gift is considered a social expense. So its deductibility will be limited
to 2% of salary expenses. 1
For personal income tax purposes, the gift is considered a benefit in kind to the extent that it exceeds the
threshold of 150 lei. Thus, 350 lei will be taxable. 1
–––
2
–––

(b) Personal deduction for 2009

Mrs Triangle’s son will be considered as a person under her care no matter how much revenue he receives,
because he is a juvenile. 1
Mrs Triangle’s father will also be considered as a person under her care, as he has no revenue and no
property at all. 1
Therefore, there are two persons under her care, so the personal deduction = 450 x (1 – (2,200 –
1,000)/2,000) = 180 lei 1
–––
3
–––

(c) Prepayments of tax for her income from intellectual property for 2009
Income received from the University of Economics Revue:
– Prepayment of tax = 10% x 2,500 lei = 250 lei ½
– The University of Economics Revue must withhold this amount from the gross income of Mrs Triangle
and pay it to the state budget ½
– The deadline for paying the tax is 25 March 2009 ½
– Mrs Triangle shall cash in: 2,500 – 250 = 2,250 lei ½
Income received every month from the Teachers in Economics Revue:
– Prepayment of tax on a monthly basis = 10% x 700 = 70 lei ½
– Monthly, the Teachers in Economics Revue must withhold this amount from the gross income of
Mrs Triangle and pay it to the state budget ½
– The deadline for paying the tax is the 25th of the month following the month in which the tax is
deducted. ½
– Mrs Triangle shall cash every month 700 – 70 = 630 lei ½
–––
4
–––

(d) The final tax liability for her income from intellectual property
The annual gross income = 2,500 + 700 x 12 = 10,900 lei
The lump-sum expenses = 10,900 x 40% = 4,360 lei ½
The taxable base = 10,900 – 4,360 = 6,540 lei 1
The final income tax = 6,540 x 16% = 1,046 lei
Pre-payments of tax withheld = 250 + 70 x 12 = 1,090 lei ½
So, Mrs Triangle will be able to recover the difference of 1,090 – 1,046 = 44 lei from the state budget. 1
–––
3
–––

(e) VAT Registration

For both of the activities undertaken as an employee, Mrs Triangle is not a taxable person according to the
VAT legislation, as the activities are not independent ones, but dependent ones. Thus, she will have no
obligation to register for VAT purposes. 1
The transfer of intellectual property rights is a taxable activity according to the VAT legislation. Thus,
Mrs Triangle should register for VAT purposes for this activity. 1
However, this obligation can be avoided where the special scheme for small enterprises is applied.
Mrs Triangle may opt to apply this scheme as her income from intellectual property is below 35,000 euro
and if she does so she will not have an obligation to register for VAT. 1
–––
3
–––
15
–––

21
 Marks
5 Rectangle SRL

(a) Corporate income tax for 2008

For the trade activity:
Taxable income = 120,000 – 75,000 = 45,000 lei ½
Corporate income tax = 16% x 45,000 lei = 7,200 lei ½
For the discotheque activity:
Taxable income = 260,000 – 215,000 = 45,000 lei ½
Corporate income tax = 16% x 45,000 lei = 7,200 lei ½
However, for this activity, the corporate income tax may not be below 5% of revenue
5% x Revenues = 5% x 260,000 = 13,000 lei 1
Thus, for the discotheque activity, Rectangle SRL’s corporate income tax liability is 13,000 lei ½
Total corporate income tax = 7,200 + 13,000 = 20,200 lei ½
–––
4
–––

(b) The minimum tax applicable for 2009

Minimum tax is not applicable to the discotheque activity. 1
Thus, in establishing the minimum tax for 2009, only the revenues from the trade activity should be considered.
Revenues from trade activity in 2008 = 120,000 lei
Minimum tax on revenues of 120,000 lei = 4,300 lei/year. 1
–––
2
–––

(c) Registration of the discotheque

The discotheque is a secondary establishment. 1
Thus, Rectangle SRL will have to complete the following registration procedures:
– file a declaration regarding the secondary establishments of the company; 1
– within 30 days of the secondary establishment (discotheque) being created, i.e. no later than
11 December 2008; 1
– with the tax authorities where the discotheque was established, i.e. in Ploiesti. 1
–––
4
–––

(d) Penalties paid and due on 1 March 2009

lei
VAT due for December 2008 12,000 ½
VAT due for January 2009 10,000 ½
Penalties for non-payment, established by tax authorities’ decision (W1) 416 3
–––––––
Total amount actually paid on 1 March 2009 22,416
–––––––
The tax due = 22,000 lei
Number of days for which penalties are still due = 2 days (28 February to 1 March 2009 inclusive)
Outstanding penalties due = 22,000 x 2 x 0·1% = 44 lei. 1
–––
5
–––
15
–––

WORKINGS
(1) Penalties due for non-payment established by the tax authorities’ decision
For the VAT registered in December 2008
The amount of VAT due for December 2008 = 12,000 lei
Deadline for paying VAT registered in December 2008: 25 January 2009
Date until when penalties were computed: 27 February 2009
Number of days of delay (26 January to 27 February 2009): 33 days
Late penalties = 12,000 x 33 x 0·1% = 396 lei.

22
 Marks
For the VAT registered in January 2009
The amount of VAT due for January 2009 = 10,000 lei
Deadline for paying VAT registered in January 2009: 25 February 2009
Date until when penalties were computed: 27 February 2009
Number of days of delay (26 February to 27 February 2009): 2 days
Late penalties = 10,000 x 2 x 0·1% = 20 lei.
Total penalties due until 27 February 2009 inclusive = 396 + 20 = 416 lei

23