27 banks - no profit, no taxes paid

Twenty seven banks haven't paid any profit tax in the last 6 years, which has shaken Minister of Public Finances Ionuţ Mişa, as well as some MPs, bankers and even the Governor of the National Bank of Romania (NBR) Mugur Isărescu.

The head of the Central Bank recently told the management of the Ministry of Public Finances that what the Tax Administration should investigate is why banks haven't made any profit for years on end. More than that, Mugur Isărescu stressed that the authorities of the state will have all the support of the NBR in that action.

The statements of the head of the NBR come as a response to the statements made by the Finance minister about one week ago, in which he said that 70% of the banks operating in Romania haven't paid any profit taxes in the last five years.

The annual balance sheets of banks are public and known, and the finding that in the last few years, banks haven't made a profit is correct, Mugur Isărescu said. "I think that the minister conveyed a correct message, meaning that he made a statement, but there is no need to look further, we don't need lists (ed. note: liberal Daniel Cătălin Zamfir, the president of the Economic Commission of the Senate, asked the minister the list of banks that haven't paid any taxes in the last five years). The annual balance sheets of banks are public, so there is no need for someone to draw up lists or to ask for lists, they are very well known. The finding that in the last few years, many banks haven't made a profit is a correct one. That is a finding of our own and we have repeatedly stated it. The fact that they haven't paid taxes is a turn of phrase that should be used carefully, because the overall public would understand something else, namely that banks refused to pay those taxes. They paid no taxes because they made no profit. Banks pay significant taxes on wages, on social security contributions etc.

Now, why they actually didn't make a profit is a different question. This is what should be investigated, and the National Bank supports, through the methods it has available, the efforts to ensure that the taxation bases recorded by banks in their accounting systems are correct. As I have repeatedly said, it is our legal obligation that, during our oversight, when we find that something is wrong, to report it to the competent entities, not just to the Ministry of Finance, and that is what we do every time. The National Bank of Romania doesn't have any kind of mandate, or roles, to actually perform tax audits of taxpayers.

It is one thing to find that a company doesn't make a profit, and consequently doesn't pay profit tax, and another to look at their accounting and to find that they didn't make a profit because some of its operations were barely legal or actually illegal.

To the extent where such findings are made and proven, the Finance Ministry needs to act appropriately and we will grant it all the necessary support".

Mugur Isărescu also said that the Tax Administration should also investigate the sale of non-performing loans, "sometimes at prices that raise questions".

Romanian banks only pay taxes if they want, as they have a very complicated profit reporting system, as shown on March 7th, 2017, in the article "Romanian banks - a vehicle for multinationals to take money out of the country", which quotes official, reliable sources. Banks use the special legislative provisions and those dedicated to the banking sector to avoid paying profit tax, the quoted sources say, who explain that this is due to the unlimited deductibility of expenses with the sale of non-performing loans (NPL). Our sources gave us an example: "Let's say that a bank has made a profit of 100 million Euros and has sold a package of 200 million Euros worth of NPLs. In general, a bank will sell the non-performing loan portfolios at 5-7% of their face value, but according to a study, the median in the system is 11%. Thus, on 200 million Euros worth of NPLs, the bank makes 22 million, posting a loss of 178 million Euros. That loss is fully deductible, according to the legislation in effect. Thus, the institution in question ends the financial year with a loss of 78 million Euros, after the expense with the sale of the NPL portfolio is subtracted from the profit. The problem is that losses are carried over into the next fiscal years, from one year to the next, until the bank breaks even, which is a cyclical phenomenon.

Thus, a bank that posts a profit in a year, in reality doesn't pay any taxes at all, because the posted profit is offset by the losses from the previous years. This is a trick used by banks to avoid paying taxes to the state".

The Finance Minister said, a few days ago that out of 46 banks (which were taken into account over the last five years), 31 were seeing losses. That loss amounted to 9.8 billion lei, he said. "There are 15 banks that have paid a profit tax in the last five years, which also includes those that only paid taxes in one year. The total taxes paid by these banks in those five years amount to 1.7 billion lei. The imbalance is already obvious. We are dealing with all kinds so-called «fiscal optimization» operations. We have initiated new audits at banks and we will expand those audits, because there is a lot of money to be brought in to the state budget. We have completed the audits at two banks, of which one is a major, major player in the system".

Ionuţ Mişa did not disclose the names of the banks audited by the ANAF, nor those of the financial institutions that did not pay taxes over the last few years.

BURSA came in possession of a document that illustrates the fiscal status of 46 banks, between 2011-2016.

Because the chart, (which is almost five page long, of which three are already with the number zero in the column which reflects the annual profit tax), contains a series of confusing data, showing that certain banks posted fiscal losses in the years where they actually announced a profit, we have tried to compare that information to the one available on the website of the Ministry of Public Finances.

The numbers are different!

We have asked for experts in the field for help, who have explained to us that what the banks, the NBR and the Ministry of Public Finances report are the accounting results, and what appears in the document that we have, which we are publishing "as-is", represent the fiscal results, obtained after the carry-over and deduction of the losses from the previous years.

• While some banks boast of an accounting profit, they post fiscal losses

The chart shows the discrepancy, which is sometimes amazing, between the accounting profit reported by banks and the fiscal result of the financial year.

For instance, the Romanian Commercial Bank (BCR) - which, is besides, one of the two financial institutions that minister Mişa is referring to when he says that the ANAF has completed the audits in two banks, according to the recent statements by Andreas Treichl, the CEO of Erste Bank, which is a majority shareholder of BCR - has reported, according to the press releases posted on its own website, a net profit in three of the six years (in 2011 - 70.9 million lei, in 2013 - 591.2 million lei, in 2015 - 918.9 million lei and in 2016 - 1,045 billion lei), but the fiscal situation suggests significant losses (that go as high as 3 billion lei in 2014) in all the six years that we are referring to.

The representatives of Erste Bank sent us, on Monday a statement that "in the ten years since the privatization, BCR has posted a combined profit of 3.9 billion lei and has paid 4 billion lei to the Romanian state in taxes".

When answering a question asked during a teleconference with journalists, Erste CEO Andreas Treichl said that he couldn't speak about the taxation of Romania without getting angry, which seems paradoxical.

Another bank which appears in our chart with zero taxes paid between 2011-2016 is Bancpost, even though it had an accounting profit in the last two years (26 million lei in 2016 and 35.24 million lei in 2015), according to data from the Ministry of Public Finance.

Banca Transilvania, a company listed on the Bucharest Stock Exchange, boasted a profit of 1.22 billion lei last year, and 2.41 billion lei respectively in 2015, but posted fiscal losses of -2.3 billion lei in 2016 and -3 billion lei in the previous year.

The banks that have paid profit tax in all of those six years that we studied, include Raiffeisen Bank, ING Bank and BCR Banca pentru Locuinţe.

Under these circumstances, as the Finance minister says, 31 banks did not pay profit tax in 2011-2016, even though apparently they didn't engage in tax evasion.