KPMG: Tax Legislation Is Changing, Financial Planning More Difficult

The existing fiscal administration system and the difficulties caused by frequent changes in the legislation are one of the hidden costs for Romanian tax payers, according to Patrick Leonard, a Partner in the Tax Department of KPMG Romania. "In Romania, many companies have to allocate a lot of time and resources to apply the tax legislation. Such resources are usually taken from commercial / productive activities and so the costs increase. Moreover, the tax legislation is changed frequently and without warning in most cases so financial planning is even more difficult," Leonard added. Generally, Romania has been following the global trend of having lower direct taxes and higher indirect taxes. Nevertheless, some direct taxes are still high, while the administrative burden remains heavy. "The profit tax in Romania is very competitive and many companies have been attracted by the low 16% tax. What the authorities need to do now is build on this achievement and ensure more simple, more stable and more transparent tax legislation. Such measures will encourage investors because they will have a chance to reduce the administrative burden of remaining compliant with the law. Moreover, they will be able to better plan their activities. In turn, the increase in investments as a result of such measures will lead to an increase in revenue for the State," Leonard believes. In turn, Ramona Jurubita, a Senior Manager in the Indirect Tax Department said: "In a world where companies and their profit is increasingly mobile, taxes on consumption are a source of revenue few governments can resist. Such taxes come from the entire economy and not just the corporate profit and therefore constitute a constant source of revenue, which is better than to collect large sums on rare occasions." Distinct focus is placed on the internal trading of multinationals, as more and more countries are introducing rules on the prices that two companies in the same group use for their internal exchanges across borders. The basic idea is to prevent multinationals from moving profit from countries with high taxes to countries with low taxes through internal trading between their subsidiaries. Teodora Alecu, Senior Manager in the Transfer Pricing Department of KPMG explains: "The Romanian authorities will probably be stricter with the rules of transfer pricing. The accession to the EUR and the emphasis that tax authorities across the world are now placing on cross-border transfer of profit has encouraged a much more serious attitude towards this subject. In order to avoid tax adjustment, companies have to make sure that their transfer pricing observes what the OECD called the market price principle and that they have the proper documentation to prove it," she concluded.