GOVERNMENT SOURCES: ANAF has found irregularities in one bank's non-performing loan portfolio

Most likely this week, the government is set to approve the draft law which, according to the European directive in the sector, provides the exchange of fiscal information between countries, in order to allow a thorough control of revenues and profits recorded by multinationals, in order to be taxed in the country where they have been made, according to representatives of the Ministry of Public Finances (MFP).

The draft law was posted last week on the website of the ministry and discussed on Friday in the Social Dialogue Commission of the Ministry of Public Finances.

The quoted sources said, that by amending the Fiscal Procedure Code, a better control of the profits and revenues of multinationals is sought, the exchange of information that targets multinationals starting from the erosion of the tax base. Thus, revenues, profits, transfers between companies between the group will be analyzed, for a better identification of the amounts that need to be taxed, the representatives of the Ministry of Public Finances said.

The representatives of the business sector present in the meeting of the social dialogue commission have agreed to that proposal, emphasizing that there are many international companies that expatriate their profit to avoid paying taxes in Romania.

Government sources claim that following audits in the banking sector, the National Tax Administration Agency (ANAF) has uncovered irregularities in the non-performing loan portfolios of one bank.

Last year, BURSA announced that the ANAD has initiated audits among banks, and identified irregularities with grave consequences.

Ionuţ Mişa, who at the time held the position of director of the General Department for the Management of Major Taxpayers of the ANAF, told us that one such example would be the sale of loan bundles by banks. In October 2016, he explained: "Banks set up loan portfolios, in which they include performing and non-performing alike, which they sell at far lower prices to companies that would handle the collection of the unpaid portions of those loans in the years following their sale. There are cases where performing loans have also been sold, and those assets were bundled with the non-performing ones. It is undisputable that banks have an interest in selling loans that are not overdue. It is possible that banks will move their profits to another taxation area. Those profits made on the performing loans must be recorded as profits in Romania, but since they are integrated in those bundles of non-performing loans, the profits are recorded elsewhere, so that banks reduce their profits and avoid the related taxes. There are situations where banks are majority shareholders in the affiliated companies that they are selling those loans to. But there are also cases where those companies aren't affiliated with those banks, but that doesn't mean that they don't have any connection with the banks. Because there are situations where the companies in question can be identified as being shareholders in other companies, which would in turn have banks as their majority shareholders. We know that such practices exist, but we do not have access to such information and it is very hard to get to it. We are hoping that now, with the agreements on access to financial information, we will be able to prove these practices, because they do exist, even if they are found three or four links down the chain. We have indications that such practices exist in banks too, from various sources, even the media. Bundles of loans of 100 million Euros have been sold for 5-7 million Euros. The difference of 95-93 million Euros would represent a deductible expense. They have been booked as losses, which would mean that banks have reduced their profit".

Following the specialized inspections in the banking system, the ANAF found that one of the banks acting on the Romanian market owes about 9 million Euros in taxes, the officials of the tax administration recently told us.

• The Ministry of Public Finances: the minimal platform set in the draft law - very high for Romania

The legislative draft imposes a minimum cap of the turnover made by a group, which amounts to 750 million Euros. That cap is very high for Romania, finance specialists feel, who say that only seven companies and two banks in Romania have turnovers that exceed 750 million Euros.

According to our sources, the two banks are BCR and Banca Transilvania.

The anti-BEPS actions (erosion of the taxation base and the transfer of profits), conducted on a European level, are necessary to change internal taxation - and implicitly foreign trade - to lead to "a fairer and more equitable allocation of tax burden", even though they lead to an increase of compliance costs, tax experts say.

The anti-BEPS plan includes recommendations for legislative changes both on a national and international level, in order to offset situations that occur as a result of the use of legislative discrepancies in the national fiscal systems of the states where they expand their activities.

One of the components of these actions is the intensification of the exchange of information, by increasing transparency and the reporting of information by taxpayers to the fiscal authorities, as well as between the fiscal authorities of the various states.

The draft law posted on the website of the Ministry of Public Finances shows that the amendment of the Fiscal Procedure Code is necessary "taking into account the fact that Romania has the obligation to transpose the Directive 2016/881EU of the Council to modify the Directive 2011/16/UE concerning the automatic mandatory exchange of information in the fiscal sector by June 4, 2017, while also having the obligation to notify to the Commission the text of those measures, taking into account the fact that member states are going to apply the measures in question by June 5th, 2017".

The document stipulates: "Any final parent company of a group of multinational companies that have their tax residence in Romania or any other taxpaying entity (...) have the obligation to file a statement for every separate country, for each fiscal year, within 12 months from the last day of the fiscal reporting year of the group of multinational companies (...).

The competent authority in Romania tht receives the report for each individual country (...) sends, through the automated information exchange and within the established delays (...) the report for each individual country where one or more constitutive entities from the group of multinational companies of the reporting entity are headquartered or are subject to taxation for the economic activity conducted through a permanent headquarters to any other member state.

The report for each individual country must contain the following information concerning the group of multinational companies:

a) aggregated information concerning the amount of revenues, pre-tax profit/loss, income tax paid, accumulated income tax, reported capital, undistributed profit, the number of employees and tangible non-current assets, others than cash or cash equivalents for each jurisdiction where the group of multinational enterprises operates;

b) the identification of each constitutive entity of the group of multinational enterprises, by mentioning the jurisdiction in which the constitutive entity in question has its tax residence, if it is different from the fiscal residence jurisdiction in question, the jurisdiction according to the legislation based on which is organized the constitutive entity in question and the nature of the main economic activities of the constitutive entity in question".

The competent authority in Romania can use the information received from the other competent authorities in the member states, as a base for the making of additional research of the advance price agreements of the group of multinational companies or of other aspects of a fiscal nature during a fiscal audit and adequate adjustments can be made to the taxable income of the company, the legislative draft further states.

Romania has joined the states and jurisdictions that militate against the transfer of profits, as this year the Executive approved Romania's adhesion to the Forum for the implementation of the BEPS Project.

This will allow Romania's participation to the realization of the measures concerning the erosion of the tax base and profit transfer, as well as their implementation on the national territory.

Last year, a group of liberal parliamentarians submitted in the parliament a draft law that wants to ensure that multinationals that make a profit in Romania pay their taxes here.

That draft law is intended to prevent multinationals operating in the EU member states from avoiding paying taxes on their profits in the countries where they operate.

Ionuţ Mişa, director of the General Department for the Management of Major Taxpayers of the ANAF and current state secretary in the Ministry of Public Finances (MFP), told us, last year: "Just like America protects itself and its investments, Europe must create a protection system - just like Romania -, and companies will have to pay taxes where they make a profit. An imbalance has been created that is being discussed in Europe and which we need to talk about in Romania as well. Nobody says that multinationals should pay more, but they need to pay to the state where they make their revenues the same tax rate as every other company".

Specialists from the Ministry of Finance explained that apparently, Romanian companies would also have to submit such a thorough report with the tax administration, but if they belong to parent companies, then our companies will only notify the fact that the report will be submitted by the parent company, and then it will be sent by that country's tax administration to the ANAF.