Taxation (Romania) [618556]

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ACCA

Paper F6
Taxation (Romania)

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PRACTICE & REVISION KIT

FOR EXAMS IN DECEMBER 2009

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Contents

CIT Questions……………………………….. …………………………………………… …………………………………………… ………….5
Q1 PUBLISHERS S. R. L……………………….. …………………………………………… ………………………………………..5
Q2 CAT S.A…………………………………. …………………………………………… …………………………………………… ……6
Q3 DYSAN S.R.L……………………………… …………………………………………… …………………………………………… .8
Q4 NABYTEK S.R.L……………………………. …………………………………………… …………………………………………..9
Q5 SAFEGUARD S.R.L………………………….. …………………………………………… ……………………………………..11
PIT Questions……………………………….. …………………………………………… …………………………………………… ………..13
Q1 MR OLTEANU………………………………. …………………………………………… …………………………………………13
Q2 MR POPA…………………………………. …………………………………………… …………………………………………… .14
Q3 MR ROMAN………………………………… …………………………………………… …………………………………………..1 5
Q4 MIHAI…………………………………… …………………………………………… …………………………………………… …..16
Q5 MR. TIMOFTE……………………………… …………………………………………… ………………………………………….17
VAT Questions……………………………….. …………………………………………… …………………………………………… ……….18
Q1 AXIA S.R.L………………………………. …………………………………………… …………………………………………… ..18
Q2 MS STEFANESCU……………………………. …………………………………………… ……………………………………..19
Q3 ELECTRO S.R.L……………………………. …………………………………………… …………………………………………20
Q4 ATOS S.R.L………………………………. …………………………………………… …………………………………………… .21
Q5 RICHARD…………………………………. …………………………………………… …………………………………………… .22
Mixed Questions……………………………… …………………………………………… …………………………………………… ………23
Q1 MR NOVAC………………………………… …………………………………………… …………………………………………..2 3
Q2 SABRA S.R.L……………………………… …………………………………………… …………………………………………..2 4
Q3 MR IOAN…………………………………. …………………………………………… …………………………………………… ..25
Q4 COMMUNICATIONS S.A……………………….. …………………………………………… …………………………………26
Q5 LIBRAR AND CAROLINA………………………. …………………………………………… ………………………………….27
International Tax Questions…………………… …………………………………………… …………………………………………… ….28
Q1 MS MANDRULESCU…………………………… …………………………………………… …………………………………..28
Q2 MR VOICU………………………………… …………………………………………… …………………………………………… .29
Q3 GEMENII S.A……………………………… …………………………………………… …………………………………………… 30
Q4 PHARMA, S.R.L……………………………. …………………………………………… …………………………………………31
Q5 TOTAL S.R.L……………………………… …………………………………………… …………………………………………… 32
TAX Planning Questions……………………….. …………………………………………… …………………………………………… ….33
Q1 UK – NEWSPAPER & RADIO COMPANY…………….. …………………………………………… …………………….33
Q2 PRODUCTION LTD…………………………… …………………………………………… ……………………………………..33

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CIT Questions
Q1 PUBLISHERS S. R. L.

Publishers S. R. L. (Publishers) is a Romanian tax resident. In 2008 Publishers accounted for revenues from
goods and services sold in the amount of RON 2,037, 000 and costs of services received and goods purcha sed
in the amount of RON 412,060. The company’s account ing period is the same as the calendar year.
The following additional information relates to the activities of Publishers for the year 2008:
(1) Publishers has three partners and ten employees, al l of whom work full time for the company. The
administrators are employed by the company and thei r salary is RON 15,000 per month each; other
employees earn RON 3,000 per month each. All of the employees were employed by Publishers and
worked without taking any unpaid leave for the whol e year.
(2) The company paid pension and life insurance premium s for all of its employees in the amount of RON
3,000 per employee per year.
(3) The company paid RON 15,000 in travel allowances to the employees, RON 5,000 of which were above
the statutory limit. These travel allowances were p rovided in accordance with company’s internal
guidelines.
(4) The company agreed with the owner of the building i n which they have been leasing their offices, that they
would refurbish the attic floor of the building to create an additional 50 m2 of office area. The refu rbishment
was completed in November at an overall cost of RON 200,000. According to the written agreement
between Publishers and the owner of the building, t he owner agreed that Publishers depreciate the asse t
(over a remaining 2009 year period). The annual ren t for the original 300 m2 of office space amounted to
RON 108,000 in 2008.
(5) The company sponsors the Children Charity. The agre ement on sponsorship obliged the Charity to show
Publisher’s logo at their annual public presentatio n.
(6) In addition, Publishers printed 500 booklets and 20 0 calendars, all with the logo of the Children Char ity for
the presentation, at their own expense, as a gift i n kind without a claim for any counter service. The costs
amounted to RON 5,000 for the booklets and RON 10,0 00 for the calendars.
(7) Publishers produced and distributed marketing prese nts (pens, pencils, umbrellas and cups) to their
customers, the total cost of which amounted to RON 7,000.
(8) Publishers received a dividend for the equivalent o f RON 18,000 (gross) from their 100% Romanian
subsidiary and a dividend for the equivalent of RON 3,000 (gross) from their Ukrainian 100% subsidiary .
The Ukrainian subsidiary withheld 10% tax at source in accordance with the Romanian/Ukrainian double
tax treaty.
(9) Publishers created a statutory reserve of RON 1,500 and released another reserve in the amount of RON
2,000 created in 2005.
(10) The accounting depreciation charge in respect of as sets other than those referred to in (4) above
amounted to RON 42,000 and their tax depreciation c harge to RON 52,000.
(11) Publishers paid tax advances for corporate income t ax purposes in the amount of RON 8,250 on each of
the dates of 25 April 2008, 25 July 2008, 25 Octobe r 2008, 25 January 2009.
(12) Publishers is represented by a registered tax advis er.

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(13) The exchange rate RON – EUR is considered to be RON 3.5 for one EUR.
Required:
(a) Calculate Publishers s. r. l.’s 2008 corporate inco me tax liability and the tax due, and state the due date of
payment. Use all possible tax deductible items in t he maximum amounts. (24 marks)
(b) State the conditions that have to be fulfilled for the pension and life insurance premiums (note (2)) to be tax
deductible. (3 marks)
(c) State in what circumstances a corporate tax payer c an claim a tax deduction for sponsorship.
(3 marks)
(Total = 30 marks)
Q2 CAT S.A.
(a) CAT S.A. has a registered headquarters at Victoriei 28, Bucharest and is a tax resident of Romania. CA T
was profitable (for both accounting and tax purpose s) until 2007, when it suffered a tax loss of RON 2 ,500.
The following data is available for the tax year 20 08.
RON
(1) Revenues from the sale of goods and services 499,0 00
Included within this figure is the sales revenue f or 100 items of product X,
sold to CAT’s German 70% parent for RON 50 per ite m. Product X is
normally sold to unrelated parties for RON 500 per item.
(2) Costs of received services and purchased goods 340 ,000
(3) Income from the sale of shares in a subsidiary 3,000
The acquisition value of the sold shares was as re gistered
in CAT’s books at RON 2,800.
(4) Salaries and wages 65,000
(5) Social security and health insurance 23,000
(6) Directors’ fees 520
(7) Management fees for intra-group services to a forei gn parent 8,000
(8) CAT purchased a building (50 years depreciation per iod) in 2007 for
RON 2,000,000.
In 2007 RON 200,000 was spent on new windows and R ON 50,000
on repairing the old roof.
The original shapes, structures and materials were all maintained.

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2008 accounting depreciation charge for the buildi ng 3,333
The company’s board of directors also decided to c reate a reserve to repair
the building, every year from 2008 1,000
(9) 2008 accounting depreciation charge for the remaini ng fixed assets 650
The 2008 tax depreciation charge on the remaining assets is the same as
the accounting charge.
(10) In September 2008 one of the company’s cars was sto len.
The police issued a certificate stating that the t hief was unknown.
The car was acquired in January 2007 for RON 25,00 0.
For tax purposes the car was depreciated on the st raight line basis (3 years).
The 2008 accounting residual value of the car was RON 9,722.
The market value of the car was RON 10,000. The in surance company
reimbursed 50% of the market price.
(11) CAT is an adoptive parent of a hippopotamus an d makes a donation to 200
Prague Zoo every year in February, on this account under a sponsorship
contract.
Required:
(i) Calculate CAT S.A.’s 2008 corporate income tax base , after using all available deductible items to the
maximum amount. Your answer should include explanat ions of your treatment of the items referred to in (1)
and (8) above.
(19 marks)
(ii) CAT S.A. plans to increase the level of its transactions with CAT GmbH (CAT’s German parent co mpany) in
future. Identify the transactions that took place i n 2008, that may cause transfer pricing problems an d advise
how potential transfer pricing problems could be mi nimised.
(3 marks)
(b) On 15 February 2009 the board of directors decided that CAT S.A. would retain 25% of its 2008 accounti ng
profit and distribute the remainder to its sharehol ders, as follows:
70% shareholder CAT GmbH – a German tax resident
15% shareholder CAT International A.G. – a Swiss ta x resident
15% Mr Friedrich Henzler – a German tax resident
Please consider that as of 1 January 2009, withhold ing tax rate is 10% for both Germany and Switzerlan d.
You should assume that the shareholders’ right to r eceive the dividend is established on the date of t he general
assembly meeting.

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Required:
Prepare a schedule of the dividends to be paid by C AT S.A, indicating the amounts to be sent to each o f the
three shareholders and the obligations to be fulfil led in respect of the Romanian tax authorities (amo unts,
deadlines and competent authority).
(8 marks)

(Total = 30 marks)
Q3 DYSAN S.R.L.
The company DYSAN S.R.L. started its business in 20 02. The fiscal year of DYSAN is equal to the calend ar
year.
DYSAN had tax losses of RON 1,200,000 in 2003 and o f RON 1,343,000 in 2005 from which the amount of RO N
1,000,000 had been used in the 2006 and 2007 tax re turns. The company intends to use the maximum amoun t
of loss in 2008. The income tax return is prepared by a tax advisor.
The following information is applicable:
(1) In October 2008 DYSAN received a share of profit fr om its subsidiary located in Russia in the gross am ount
of RON 8,500,000. Tax withheld in Russia in accorda nce with local laws and concluded Romanian/Russian
Double Tax Treaty amounted to the equivalent of RON 850,000 (withholding tax rate is of 5%). Further
DYSAN received a share of profit from a Romanian su bsidiary of RON 2,300,000. In both cases DYSAN is
a 100% shareholder.
(2) Revenues of DYSAN accounted for in 2008 were:
• Proceeds from the sale of goods of RON 2,590,000
• Proceeds from the provision of services of RON 390, 000
• Interest from the current bank account of RON 2,570
• Interest on deposit with a fixed term payable RON 3 ,200
• Contractual penalties of RON 23,800, out of which R ON 10,000 was actually received in their bank
account.
(3) Expenses of DYSAN accounted for in 2008 were:
• Goods and services purchased of RON 650,000
• Promotional and entertainment expenses of RON 59,20 0 including 750 bottles of cognac with the
company’s name and logo, at RON 490 each. The remai ning amount was spent on the entertainment of
clients.
• Salaries and wages of RON 370,000;
• Social and health insurance contributions of RON 12 9,500;
• Life insurance of RON 8,000 paid annually for eight employees;
• Road tax of RON 3,000
• Penalty for air pollution of RON 14,000
• Total accounting depreciation charge for 2008 of RO N 767,000

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• Contractual penalties of RON 12,000
• Interest paid to a bank of RON 27,500
(4) DYSAN has a permanent establishment located in Slov akia. The 2008 income and expenses attributable to
this permanent establishment were RON 2,300,000 and RON 2,000,000 respectively (income and expenses
already included in points above). The tax paid in Slovakia amounted to the equivalent of RON 57,000. The
credit method for elimination of double taxation is applied in the Romanian/Slovak double tax treaty.
(5) DYSAN gave the amount of RON 12,000 to a local scho ol and RON 80,000 to a Romanian political party.
(6) DYSAN created reserves and provisions within the st atutory limit of RON 57,400. Other reserves and
provisions were created in the amount of RON 45,300 .
(7) The total 2008 tax depreciation charge was RON 547, 600.
(8) DYSAN received RON 45,000 (VAT excluded) as compens ation for a stolen machine. The residual value of
the machine in the accounting books was RON 58,000 (the tax residual value was equal to the accounting
residual value).
(9) DYSAN paid RON 35,200 of its 2007 social security c ontributions on 30 March 2008. This amount was not
provided for in DYSAN 2007 financial statements.
(10) DYSAN accounted for RON 110,000 as accrued financia l lease payments to a foreign leasing company.
(11) No profit tax prepayments were made by DYSAN in 200 8.
Required:
Prepare DYSAN’s computation of corporate income tax for 2008, clearly identifying the balance of tax
due/refundable.
(Total = 30 marks)
Q4 NABYTEK S.R.L.
The company Nabytek S.R.L. started its business in 2006. Nabytek had a tax loss of RON 580,600 in 2006 and
of RON 780,300 in 2007. The company intends to use the maximum amount of loss in the 2008 tax return.
The following information is applicable:
(1) The company was established by three shareholders, two Romanian resident individuals Mr Pascu (25%),
Mr Costea (25%) and the company VERBA S.A. (50%), a lso a Romanian tax resident.
(2) Revenues of Nabytek accounted in 2008:
• Proceeds from the sale of goods and services of RON 8,340,000
• Proceeds from the sale of land of RON 1,500,000
• Contractual penalties of RON 23,000, out of which R ON 13,000 were actually received in their bank
account
• Interest from the current bank account of RON 5,800 .
(3) Expenses of Nabytek accounted in 2008:
• Goods and services purchased of RON 2,520,000

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• Material used of RON 568,000
• Repair expenses of RON 67,000
• Entertainment expenses of RON 34,000
• Salaries and wages of RON 1,700,000
• Mandatory social and health insurance contributions of RON 595,000
• Travelling expenses of RON 63,400
• Road tax of RON 23,000
• Accounting depreciation charge for 2008 totalling R ON 1,560,000
• Interest of RON 28,000
• 2008 local tax on real estate of RON 24,000
• 2006 local tax on real estate in 2008 based on an a dditional tax return of RON 25,200
• Penalty assessed for 2006 local tax on real estate of RON 1,200
(4) Nabytek gave the amount of RON 25,000 to Mr Novac, a Romanian tax resident, who is a motorcycle racer,
and RON 65,000 to Ms Proca, a Romanian tax resident who carries on an animal shelter (contractual
requirements were fulfilled).
(5) Mr Pascu had an accident with his company car in Ma rch 2008. As a result, the car which had an
accounting residual value of RON 50,000, had to be written out of the balance sheet. The insurance
company paid compensation to Nabytek in the amount of RON 75,000 (VAT excluded). Nabytek created an
accounting reserve on repair of the car in the amou nt of RON 21,000 in 2007.
(6) Profit tax prepayments made by Nabytek were of RON 55,000.
Required:
(a) Prepare the computation for corporate income t ax payable by Nabytek for 2008.
(28 marks)

(b) Explain how the share of profits paid to Nabyt ek’s. owners will be taxed and when any tax payable will be
due.
(2 marks)

(Total = 30 marks)

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Q5 SAFEGUARD S.R.L.
Company SAFEGUARD started its business in 2005. SAF EGUARD had tax losses of RON 10,000,000 in 2005
and of RON 5,400,000 in 2006. No amount of these lo sses had been used in the company’s 2007 tax return s.
The company intends to use the maximum amount of th e available losses in 2008.
The following information is applicable to the year 2008:
(1) The parent company of SAFEGUARD is a Dutch resident company CompDutch, BV. CompDutch, BV has
held 75% of the shares of SAFEGUARD since the estab lishment of the company. The remaining 25% of the
shares of SAFEGUARD are held by Mr Harer, also a Du tch tax resident. SAFEGUARD has an 80%
subsidiary Programmer S.R.L., which is also a Roman ian tax resident.
(2) CompDutch, BV provided SAFEGUARD with a loan of RON 21,000,000 in 2005 at an annual interest rate of
6%. AmericanComp, Inc., a sister company of SAFEGUA RD provided SAFEGUARD. with a loan of RON
15,000,000 in 2006 at an annual interest rate of 6% . Another sister company DeutschComp, GmbH
provided SAFEGUARD with a loan of RON 10,000,000 in 2007, this loan is interest-free. The equity of
SAFEGUARD as at January 1, 2008 was of RON 6,000,00 0 and at year end of RON 4,000,000.
(3) In May 2008 SAFEGUARD received a share of profit fr om Programmer S.R.L. in the amount of RON
500,000.
(4) SAFEGUARD accounted for the following revenues in 2 008:
• Proceeds from the sale of goods (computers and acce ssories) of RON 35,300,000
• Proceeds from the sale of services of RON 133,500,0 00
• Proceeds from licences provided to Romanian firms o f RON 58,000,000.
• Proceeds from licences provided to German firms of RON 64,000,000 (tax withheld in Germany in
accordance with the tax treaty was the equivalent o f RON 3,200,000); connected expenses according to
Romanian accounting rules (which are already includ ed in the expenses stated below in point 5)
amounted to RON 24,000,000
• Interest on the current bank account of RON 32,800
• Interest on a deposit with fixed term payable of RO N 15,000
• Contractual penalties of RON 143,000
• Compensation from the company’s tax advisor for the assessed penalty of RON 5,490
(5) SAFEGUARD accounted for the following expenses in 2 008:
• Goods and services purchased of RON 73,500,000
• Promotional expenses of RON 892,000 including 2,000 pencils with the company’s name and logo, for
RON 49 each and 1,000 CDs with games and music also marked with SAFEGUARD logo, for RON 490
each, as per contractual provisions. The remaining amount was spent on the entertainment of clients.
• Salaries and wages of RON 83,700,000
• Mandatory social and health insurance contributions of RON 29,295,000
• Travelling expenses within the statutory limit of R ON 980,600 and travelling expenses over this limit of
RON 180,200, all provided in accordance with compan y’s internal guidelines.
• Road tax of RON 23,000

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• Additionally assessed road tax for 2006 of RON 15,0 00 together with an assessed penalty of RON
5,490. The tax adviser reimbursed SAFEGUARD for thi s penalty.
• A total accounting depreciation charge for 2008 of RON 27,350,200 equal to the tax depreciation
• Expenses for studies at private university for comp any’s chief accountant of RON 76,000 (fee for 2
semesters).
• Licence fee to CompDutch, BV of RON 2,600,000
• Interest on loan to CompDutch, BV of RON 1,260,000
• Interest on loan to AmericanComp, Inc. of RON 900,0 00
(6) SAFEGUARD gave an amount of RON 1,045,000 to the Ro manian Philharmonic Orchestra for the purpose
of organising a music festival. SAFEGUARD further g ave old computers to a school, the tax residual val ue
of which was RON 52,000 (accounting residual value is in the same amount).
(7) SAFEGUARD created reserves and provisions within th e statutory limit of RON 870,400. Other reserves
and provisions were created in the amount of RON 55 0,200.
(8) Tax prepayments made by SAFEGUARD for 2008 amounted to RON 5,500,000.
Required:
(a) Prepare SAFEGUARD’s computation of corporate income tax payable for 2008.
(25 marks)
(b) Explain how the share of profits paid by SAFEGUARD to its owners CompDutch BV and Mr Harer will be
taxed in Romania.
(5 marks)

(Total = 30 marks)

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PIT Questions
Q1 MR OLTEANU
The following information is applicable to Mr and M rs Olteanu for the year 2008:
(1) Mr Olteanu is a sole entrepreneur. He has been oper ating his business since 1999 as an “Authorised
physical person” (“Persoana fizica autorizata).
(2) Mr Olteanu’s taxable income from business activity was RON 900,000 and related allowed expenses of
RON 450,000. Social security contributions payments were RON 40,000. Tax prepayments in 2008 were
RON 34,000.
(3) Interest on Mr Olteanu’s current business bank acco unt was RON 10,000.
(4) In December 2008 Mr Olteanu sold a cottage which he bought in September 2004 from his uncle. The
selling price was RON 600,000.
(5) During 2008 Mr Olteanu sold the following shares. H e was a minority owner with less than 5% ownership.
In January 2008 he sold for RON 50,000 shares in co mpany Atom S.A., which he had bought in March
2007 for RON 30,000.
In February 2008 he sold for RON 220,000 shares in company Beta S.A., which he had bought in a coupon
privatisation for RON 1,000 in 1993.
In March 2008 he sold for RON 60,000 shares in Cest a S.A., which he had bought in December 2007 for
RON 30,000.
In April 2008 he sold for RON 40,000 shares in Delt a S.A., which he had bought in January 2008 for RON
50,000.
None of the above shares are included in Mr Olteanu ’s business assets.
(6) Mr Olteanu had received dividends from Cesta S.A. o f RON 5,000 prior to their sale.
(7) Mr Olteanu made a gift of RON 12,000 to a school in Tecuci and a gift of RON 20,000 to his aunt, for
rehabilitation instruments which are not subsidised from the state budget. His aunt is handicapped and
needs special treatment.
Required:
(a) Calculate the 2008 Romanian personal income tax liability of Mr Olteanu.

(21 marks)
(b) Explain the deductibility of the gifts that Mr Olteanu gave to different persons / institutions.
(2 marks)
(c) State Mr Olteanu’s obligations towards the comp etent health care insurance authorities in respect of the
2008 tax year including relevant deadlines.
(2 marks)

(Total = 25 marks)

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Q2 MR POPA
Mr Romanian is a sole entrepreneur. He has been ope rating his business since 2000. He does not keep do uble-
entry accountancy records, but does keep simple-ent ry records for tax purposes. He is not a VAT payer. The
business is his main activity for social security p urposes and he pays the health insurance.
The following information is applicable to Mr Popa for the year 2008:
(1) Mr Popa’s taxable income from business activit y was RON 868,000 and the related tax in respect of this
activity deductible expenses were RON 481,000. Soci al security and health insurance prepayments made
by Mr Popa were RON 36,500.
(2) In addition to the income from his business un der (1) Mr Popa received dividends and the proceeds from
the sale of shares in Maxima S.A. which are include d in his business assets. He received RON 15,000 of
dividends in October. In December he sold 20 shares for RON 32,000. At the beginning of the year he ha d
60 shares that were included in his business assets . He had acquired the shares as follows: 20 shares for
RON 1,300 each acquired in January 2003, 25 shares for RON 1,000 each acquired in June 2007 and 15
shares for RON 1,200 each acquired in July 2008.
(3) Interest revenue on his business current bank account was RON 4,786.
(4) He gave several lectures and seminars on ‘Busi ness management for an education agency. He receive d
remuneration as follows: RON 3,500 in May, RON 10,6 00 in September and RON 5,500 in November.
(5) Mr Popa sold a share in Irma S.R.L. for RON 67 0,000 in March 2008. He had acquired the share for RON
340,000 in January 2003. The share was not part of his business assets.
(7) Mr Popa owns a flat which is not included in M r Popa’s business. He rented the flat for the whole year. The
annual rent was RON 340,000, and the related expens es were RON 60,000.
(8) Mr Popa gave RON 55,000 to a local animal shel ter.
(9) Mr Popa paid RON 12,000 into an annual private pension plan with the state subsidy (the exchange rate as
of year end was of 3.6 RON for 1 EUR).
Required:
(a) Prepare Mr Popa’s 2008 personal income returns .
(22 marks)
(b) Calculate Mr Popa’s 2008 social security and h ealth care contributions relating to his business a ctivity.

(3 marks)

(Total = 25 marks)

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Q3 MR ROMAN
Mr Roman is a sole entrepreneur. He has been operat ing a printing plant since 2001. He does not keep d ouble-
entry accountancy records, but does keep simple-ent ry statutory records for tax purposes. He is not a VAT
payer. The business is his main activity for social security purposes and he pays the health fund cont ribution and
the unemployment contribution.
The following information is applicable to Mr Roman for the year 2008:
(1) His taxable income from business activity was RON 425,000 and connected tax deductible expenses w ere
RON 220,000.
(2) Interest on his current bank account was RON 5 ,896.
(3) He is also a managing director of Documentary S.R.L. His annual remuneration for this work was RO N
55,000 from which RON 6,875 was withheld as social security contributions. The tax advances withheld
from this remuneration were RON 7,350. He also rece ived travel allowances of RON 15,300, all within th e
statutory limits.
(4) In May he received remuneration of RON 520,000 from the copyright of a book about the history of printing
plants in Romania. He did not have any connected ex penses.
(5) In May he received RON 10,500 for a lecture on ‘Business management” concluded with a local cultu ral
club.
(6) He owns a summer house in Slovakia. He rents i t for the whole year and the annual rent was the eq uivalent
of RON 220,000, connected expenses were RON 30,000. The tax paid in Slovakia was the equivalent of
RON 30,400. The Romanian/Slovak double tax treaty a pplies the ordinary tax credit method for the
elimination of double taxation.
(7) In September 2008 he received income from the sale of 50 shares in company XY that were not in hi s
business assets in the amount of RON 182,000. He ha d acquired the shares as follows: 10 shares in
January 2003 for RON 300 each, 30 shares in May 200 5 for RON 1,500 each and 10 shares in May 2008
for RON 1,000 each.
(8) In October he won RON 1,500,000 in a lottery o rganised by a company with a licence from the Roman ian
government.
(9) He gave RON 45,000 to a sports club.
Required:
(a) Prepare Mr Roman’s 2008 return of income and c alculate his final tax and tax payable. Note that M r Roman
wishes to use actual expenses deduction at his busi ness.
(21 marks)
(b) Calculate Mr Roman’s 2008 social security and health care contributions from his business activit y.

(4 marks)

(Total = 25 marks)

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Q4 MIHAI
(1) Mihai is employed by Info-tour S.R.L. His month ly salary in 2008 was RON 25,000 from which he paid social
security, unemployment and health insurance contrib utions. In addition to his salary, Mihai was provid ed
with a company car for business and private use fro m 1 March 2008. The expenses related to this car ar e of
RON 500 per month and Mihai uses it 60% for busines s purposes and 40% for personal purposes.
(2) Mihai also has his own business as an individua l entrepreneur. He is not a VAT payer and he uses s imple-
entry tax records for documenting his income and ex penses. He started his business in 2001. In 2008 he ,
as an individual entrepreneur, had the following in come and expenses:
Income:
• sales of services RON 380,000
• sales of goods RON 550,000
• interest on the business current bank account RON 4 ,200
• interest on a deposit with fixed term payable RON 3 ,000
• royalties from a patent licensed to Romanian compan ies RON 150,000
• royalties from a patent licensed to a German compan y RON 200,000 (gross amount from which 5% tax
had been withheld in Germany)
Expenses:
• purchase of goods and services RON 462,000
• social security and health insurance payments RON 1 8,300
• income tax prepayments RON 20,000
• operational expenses connected with a patent licenc e provided to the German company RON 30,000
(3) Mihai has the following business assets, he was the first owner unless stated otherwise:
Year of acquisition or
input into the business Asset Input price in RON Depreciation useful life
2002 workshop 5,800,000 10 years
2001 machinery 967,200 10 years
Jan, 2005 electronic device 50,000 5 years
2007 second hand machine 300,000 3 years
The following information is applicable:
• Technical improvements were made to the workshop in 2007 of RON 900,000.
• In 2004 Mihai interrupted depreciation for the mach inery acquired in 2001.
• Mihai had bought the car in 2003 for RON 700,000 as a private person; expert valuation at the time it
was input into the business was RON 650,000.
• Mihai sold the electronic device for RON 30,000 in December 2008.
• All of the assets are depreciated by using the stra ight-line method.

17
(4) In December 2008 Mihai gave a donation to a cha rity with a seat in Romania of RON 10,000. He had a lso
given a donation to a charity with a seat in Slovak ia of RON 8,000 in November 2008.
(5) In November 2008 Mihai received dividends from Romanian companies of RON 18,000 gross and dividend s
from a German company in the equivalent of RON 15,0 00 gross. The German company had deducted 15%
withholding tax in accordance with the double tax t reaty.
Required:
Prepare Mihai’s income tax return for 2008.
(25 marks)
Q5 MR. TIMOFTE
Mr. Timofte is a self-employed cleaner. He keeps ta x evidence. The following information is available for 2008:
(1) Mr. Timofte’s 2008 business income comprised:
• Sale of services of RON 2,000,000
• Interest income from a current bank account of RON 6,000 gross
(2) Mr. Timofte's 2008 business expenses comprised:
• Goods and services purchased of RON 700,000
• Entertainment of customers of RON 15,000
• Penalty for late payment of his tax liability of RO N 3,000
• Personal income tax liability for 2007 of RON 84,00 0 assessed by tax authorities
• Road tax of RON 4,000
(3) Mr. Timofte has the following business assets:
• Personal car bought for RON 540,000 (depreciable in 3 years) in June 2006.
• New computer bought for RON 58,000 (depreciable in 3 years) in June 2008.
• Second hand special machinery bought for RON 42,000 (useful life left of 2 years) in November 2008.
Mr. Timofte uses the straight-line depreciation met hod for all his assets. He claims the maximum tax
depreciation charges. He will also claim the maximu m possible income tax deductions. The accounting
depreciation charge is the same as the tax deprecia tion charge.
(4) Mr. Timofte received RON 75,000 from the copyright of a book, which had taken him six years to write. He
did not keep any records regarding the actual expen ses relating to this income.
(5) A Romanian magazine published an article written by him in March and Mr. Timofte received author's
income of RON 1,500 for this.
(6) In September 2008 Mr. Timofte received gross divide nds of RON 50,000 from a US tax resident company.
No US tax was withheld from this income. The Romani an/US Double Taxation Treaty allows tax of a
maximum rate of 15% to be withheld in the state of source.
(7) In December 2008 Mr. Timofte received dividends in the net amount of RON 17,000 from a Slovak
company. There was 15% tax on the dividend income w ithheld in the Slovak Republic. The

18
Romanian/Slovak Double Taxation Treaty allows tax o f a maximum rate of 15% to be withheld in the state
of source.
(8) In December 2008 Mr. Timofte sold an antique vase h e had inherited from his mother in June 2008 for RO N
35,000.
(9) Mr. Timofte has been renting out his cottage, which he bought in 1984. His rental income for 2008 was RON
60,000. The actual expenses were RON 10,000. He wis hes to use lump sum expenses in the form of a
percentage of this income.
(10) In December 2008 Mr. Timofte made a gift of RON 6,0 00 to his favourite sports club.
(11) Mr. Timofte made tax prepayments in March 2008, Jun e 2008 and September 2008, each in the amount of
RON 21,000.
(12) Mr. Timofte incurred a tax loss of RON 60,000 in 20 06 and he did not use any part of this loss in his 2007
tax return. He wishes to utilise the maximum possib le loss deduction in his 2008 tax return.
Required:
Calculate Mr. Timofte's 2008 personal income tax pa yable.
(25 marks)
VAT Questions
Q1 AXIA S.R.L.
(a) (i) State when a company becomes a value added tax (VAT) payer and when a company liable to VAT is
exempt from its application. Give an example of whe n a company is not liable to VAT.
(3 marks)
(ii) State when a company is obliged to register a s a VAT payer and indicate the statutory time limit .
(2 marks)
(b) AXIA S.R.L. (AXIA) is a monthly value added tax (VAT) payer, which keeps double-entry bookkeeping. The
following information relates to the company’s tran sactions for the month of April 2008.
(1) Purchased inventories for RON 250,000 on 10 Apr il.
(2) Purchased a new printing machine. The price of the machine was RON 750,000; AXIA paid 20%
of this price on 25 March and the remaining part on 15 April, when the machine was delivered and
installed in their premises. They used the machine for the first time on 5 May.
(3) Received RON 500,000 for supplies they delivere d to Romanian customers in April.
(4) Received advanced payments of RON 260,000 on 26 April and RON 140,000 on 30 May for
leaflets ordered by a customer in March, to be prin ted and delivered by the end of May. The total
price indicated in the contract amounts to RON 450, 000 and the remaining amount will be due on
delivery.
(5) Received a complaint from a customer for which AXIA had printed leaflets with an error. AXIA
agreed with the customer to refund 100% of the pric e and issue a credit note amounting to RON
25,000. The customer had paid this amount at the ti me of delivery on 15 March and AXIA
returned this amount to them on 25 April.

19
(6) Sent printed posters to a US customer in New Yo rk, for which the customer paid the equivalent of
RON 60,000 on 28 April.
(7) Sent printed posters to a French customer in Pa ris, for which the customer paid the equivalent of
RON 80,000 on 30 April. This customer is registered for VAT with the French authorities.
Neither the US nor the French customer has a perman ent establishment in Romania.
All the above mentioned amounts are stated exclusiv e of VAT.
Required:
(i) Prepare AXIA’s April 2008 value added tax (VAT) return and state by when it must be submitted.
(8 marks)
(ii) State what AXIA is obliged to do in relation t o the supply made to their French customer, includi ng the
statutory time limit.
(2 marks)

(Total = 15 marks)

Q2 MS STEFANESCU
Ms Stefanescu is a quarterly VAT payer. For the tax able period October to December 2008 she has provid ed
you with the following information.
(1) Invoices issued by Ms Stefanescu in October, No vember and December:
• No. 15 for services provided to a Romanian company in October 2008 for RON 60,000
• No. 16 for consulting services provided to a US com pany, which has no branch in Romania, in October
2008 for RON 150,000
• No. 17 for services provided to a Romanian permanen t establishment of a UK company, in November
2008 for RON 30,000
(2) Invoices and receipts received in October, Nove mber and December:
• Invoice for a course on recent developments in comm ercial law, which she attended in November 2008,
for RON 20,000
• Receipt for stationery used solely and exclusively for her business for RON 5,000
• Receipt for wine, which Ms Stefanescu claims she us ed for a party organised for her clients, for RON
30,000
• Invoice for software issued by a UK VAT payer, stat ing that the item is subject to a reverse charge. T he
relevant equivalent price of the software is RON 40 ,000
All services and products were received and invoice s issued by suppliers in October 2008 if not stated otherwise.
All the above figures are stated exclusive of value added tax (VAT).
Required:
(a) Calculate Ms Stefanescu’s VAT liability for the quarter October to December 2008.

20
(6 marks)
(b) List the items of information Ms Stefanescu mu st include on her invoices to comply with the relev ant law.

(5 marks)
(c) List any FOUR services which are subject to a reverse charge to VAT in Romania.
(4 marks)
(Total = 15 marks)
Q3 ELECTRO S.R.L.
Electro S.R.L. became a VAT payer with a quarterly tax period on 1 January 2008.
The output supplies of Electro in the first quarter of 2008 were:
(1) Services rendered to Romanian customers of RON 1,345,000.
(2) Consulting services rendered to customers in EU countries who are VAT payers registered in their
particular countries of RON 760,000.
(3) Goods sold to Romanian customers of RON 600,000 .
(4) Goods sold to EU customers of RON 890,000.
(5) Export of goods to Russia of RON 1,890,000.
(6) Electro received advanced payments from Pasat S .R.L. of RON 240,000 on 15 January 2008 and RON
140,000 on 30 March 2008 for work to be done in May 2008. According to the contract between Electro
and Pasat, the total price of the work was set at R ON 530,000.
(7) In March 2008 Electro issued a credit note in r espect of returned defective stock which had been s old in
January 2008. The price reduction is RON 40,000 and the corresponding VAT is RON 6,388.
(8) Payment received from Mr Burda for the rent of premises of RON 145,000. Mr Burda is not a VAT paye r
and the rent is VAT exempt.
The input supplies of Electro in the first quarter of 2008 were:
(1) Goods purchased from Romanian firms of RON 410 ,000.
(2) Goods purchased from EU suppliers of RON 280,0 00.
(3) Services rendered by Romanian firms of RON 650 ,000 used exclusively for taxable supplies.
(4) Consulting services rendered by EU firms of RO N 350,000 used exclusively for taxable supplies.
(5) In March 2008 Electro purchased a new computer for RON 55,000.
(6) In January 2008 Electro paid an advance paymen t of RON 4,000 for a printer. They will pay the
outstanding amount of RON 12,000 in April 2008.
(7) Electro received a credit note from one of its suppliers of RON 150,000 and the corresponding VAT is RON
23,955.

21
(8) Invoice of electric energy for premises used e xclusively for making taxable supplies of RON 9,000 .
(9) Invoice of electric energy for the premises le ased to Mr Burda of RON 15,000.
Additional information:
(1) Unless stated otherwise all amounts are exclus ive of VAT at the standard rate.
(2) In all cases Electro has the necessary tax doc uments.
(4) Computer and printer purchased in March and Jan uary are used for business purposes. Other inputs a re
used for taxable supplies unless specified.
Required:
Prepare Electro S.R.L.’s VAT return for the first q uarter of 2008.

(15 marks)
Q4 ATOS S.R.L.
Atos S.R.L. is a trader in heating systems. It is a monthly VAT payer. In September 2008, Atos had the following
inputs and outputs for the purposes of VAT:
Unless stated otherwise all amounts are shown exclu sive of VAT at the standard rate.
(1) Inputs:
(i) Goods purchased from Romanian firms of RON 1,311,22 1, out of which tax is of RON 249,132.
(ii) Goods purchased from German supplier of RON 2,800,0 00.
(iii) Management and accountancy services rendered by Ato s’s Canadian parent company of RON
1,500,000.
(iv) Services rendered by Romanian firms of RON 748,068, out of which tax is of RON 142,133.
(v) Advertising services rendered by an Austrian compan y of RON 150,000 used exclusively for taxable
purposes.
(vi) Payment of the financial lease instalment for a car according to the payment calendar of RON
18,000. The financial lease contract was concluded in February 2007 and the asset was delivered to
Atos on 15 February 2007.
(vii) Payment of electric energy for the premises leased to Polo and Mr Pavel according to the payment
calendar in the total amount of RON 20,000, inclusi ve of VAT.
(viii) Payment for repair of premises leased to Mr Pavel o f RON 58,837, (exclusive of VAT RON 11,179).
(2) Outputs:
(i) Goods sold in Romania of RON 3,614,263, out of whic h tax is of tax RON 686,710.
(ii) Export of goods to Switzerland of RON 1,890,000.

22
(iii) Delivery of goods to Austria and Germany of RON 2,8 00,000.
(iv) Rental income from Mr Pavel, who is not a VAT payer of RON 50,000. The rent was exempt from
VAT.
(v) Rental income from Polo, a VAT payer, of RON 180,00 0 inclusive VAT
(vi) Consulting services rendered to a Polish company, w ho is a VAT payer registered in Poland of
RON 490,000.
(vii) Atos received an advanced payment for goods of RON 80,000 (inclusive VAT) on 15 September.
(viii) Atos provided a decrease in price to their Romanian customers of RON 352,000 and corresponding
VAT of RON 66,880.
In all cases Atos has the necessary tax documents.
Required:
(a) Prepare Atos’s VAT return for September 2008.
(11 marks)
(b) Explain what an advance payment according to th e VAT law is. State the rule for determination of t he date
of taxable event.
(4 marks)

(Total = 15 marks)
Q5 RICHARD
(a) Richard is a quarterly VAT payer. In the second qua rter of 2008, Richard had the following inputs and
outputs for the purpose of VAT. All of his output s upplies are chargeable at the basic rate and unless stated
otherwise, the amounts given are inclusive of VAT:
• He received advanced payments of RON 60,000 on 15 A pril and of RON 40,000 on 30 May for work to
be done in October 2008 according to a contract wit h Mr Olteanu the total price of which is RON
130,000.
• In April he purchased stock for RON 50,000 exclusiv e of VAT.
• In June he finished work for Ms Popescu the total p rice for this work was RON 150,000. He had
received an advanced payment of RON 90,000 on 5 Apr il.
• In May he purchased stock and spare parts for RON 8 0,000 exclusive of VAT.
• In June he purchased a new machine (a fixed asset) for RON 25,000 exclusive VAT.
• In June he paid an advance payment of RON 4,000 for a printer (a fixed asset). He will pay the
outstanding amount of RON 10,000 in July.
• In May he received a credit note for the defective stock he had purchased in January 2007. The price
reduction is RON 3,000 exclusive of VAT.
In all cases Richard has the necessary tax document s.

23
Required:
Complete Richard’s VAT return for the second quarte r of 2008. (10 marks)
Required:
List FIVE types of supplies that are tax exempt wit hout a claim for input VAT; and FIVE types of suppl ies that are
tax exempt with a claim for input VAT.
(5 marks)

(Total = 15 marks)

Mixed Questions
Q1 MR NOVAC
The following information relates to Mr Novac, a Ro manian tax resident.
(1) He started a business on 1 February 2008. He re ceived his trade certificate on 15 January 2008.
(2) He started building a house in 2004 and the hou se was finished in September 2008. Mr Novac has bee n
living in the house since then and has registered t he address of this house as his place of business w ith
the competent trade authority.
(3) The total area of the house is 300 m 2, 100 m 2 of which Mr Novac has been using as offices. The c ost of the
construction of the house as agreed with the genera l supplier amounted to RON 4,000,000. In addition M r
Novac is able to produce invoices and receipts for some additional interior works, such as the supply of the
kitchen, floors and tiles for RON 800,000. When the construction was completed Mr Novac had an expert
valuation dated 1 October 2008 which stated the mar ket value of the house at RON 6,000,000. The house
may be depreciated in 50 years.
(4) In November 2008 Mr Novac bought the following movable assets and included them in his business
assets:
(a) three paintings of contemporary art for RON 50, 000 each;
(b) one sofa for RON 100,000;
(c) six desks for RON 6,000 (RON 1,000 each);
(d) three tables for RON 7,500 (RON 2,500 each); an d
(e) 21 chairs for RON 10,500 (RON 500 each).
All the depreciable assets listed above have a usef ul life of 10 years.
(5) In November 2008 Mr Novac purchased a software package for RON 180,000, which will be used solely for
business purposes (3-year useful life).
(6) Mr Novac has a car (3-year useful life ) which he has been using for both business and private pur poses
(50% for business and 50% for private purposes). He included the car in his business assets when he
started his business. He bought the car in 2003 for RON 800,000. The market value of the car according to
an expert valuation was RON 400,000 in February 200 8.

24
(7) In May 2007 Mr Novac bought a new Nikon profess ional digital SLR camera (depreciable in 5 years) f or
RON 120,000. He will now be using the camera solely for business purposes. He included it in his
business assets when he started his business.
(8) Mr Novac will apply the accelerated method of d epreciation to all assets except the immovable prop erty
and the camera, which will be depreciated using the straight line method.
(9) Mr Novac has kept statutory bookkeeping and eac h of the above mentioned assets is valued and
registered separately.
Required:
(a) Calculate the maximum allowable deduction avail able to Mr Novac in 2008 for the costs of his busin ess
assets.
(13 marks)
(b) State the due dates by which Mr Novac must file his income statement declaration with the competen t
authorities.
(2 marks)

(Total = 15 marks)

Q2 SABRA S.R.L.
Sabra S.R.L. started its business on 1 January 2007 . In 2008 Sabra owned the following assets:
(1) A building, which is used for administrative an d production purposes:
Title of acquisition: purchase
Date of acquisition: 3 May 2007
Value: purchase price of RON 12 million; expert va luation of RON 10 million
Useful life: 50 years
Depreciation method: straight line
Technical improvement: made in 2008 to the value o f RON 1,800,000
(2) Software:
Title of acquisition: licence agreement for 3 year s
Date of acquisition: 2 February 2007
Value: total licence fee of RON 250,000
Depreciation method: straight line
Technical improvement: finalised 30 November 2008 to the value of RON 150,000
(3) Car:
Date of acquisition: 10 August 2007
Title of acquisition: purchase
Value: purchase price of RON 165,000

25
Depreciation method: straight line
Useful life: 3 years
(4) Printing machine:
Title of acquisition: contribution by a partner
Date of acquisition by the
partner into his business assets: 25 July 2005
Date of contribution: 1 February 2007
Value: expert valuation at the date of contributio n of RON
340,000; purchase price of the partner in 2005, of RON 580,000 (printing
machine was not purchased as new by the partner)
Depreciation method: accelerated
Useful life: 5 years
Sabra made repairs to the machine in 2008, at a cos t of RON 50,000
Required:
(a) Calculate the depreciation allowance of Sabra for the 2008 tax year. (13 marks)

(b) Briefly explain the rules for the depreciation / amortisation allowance in case of increase and de crease in
value of the assets. (2 marks)

(Total = 15 marks)
Q3 MR IOAN
(a) Mr Ioan’s 2007 personal income tax return was due o n 31 May 2008. Mr Ioan filed the tax return late on 20
August 2008 and paid his total 2007 tax liability o f RON 79,600 on the same day.
The Financial Office conducted a tax audit of Mr Io an’s 2004 tax year and issued a supplementary tax
assessment in 2008. Mr Ioan’s 2004 self assessed ta x liability of RON 54,200 had been paid on 31 March
2005. The Financial Office assessed his 2004 tax li ability as RON 65,000. Mr Ioan paid the outstanding
amount on 15 July 2008.
Required:
(i) State the sanction that may be imposed by the t ax authority for the late filing of the 2007 tax re turn.

(1 mark)
(ii) Calculate the late payment penalty for the tax liability that will apply to Mr Ioan in each case.
(4 marks)
(b) Sport-ware S.R.L. started its business in 1996. In 2008 Sport S.R.L. had the following assets:
(1) A car (useful life of 3 years) acquired in Jun e 2008 for RON 167,000.

26
(2) A building contributed to the equity of the com pany by one of the partners, Mr Sturza, a Romanian tax
resident, in 2004. The market value of the building for the purpose of the equity contribution was RON
5,200,000. Mr Sturza had the building in his busine ss assets from 2002 and depreciated it using the
straight line method over a 50 year period. The bui lding is used mainly for manufacturing purposes.
(3) A production machine (depreciation period of 5 years) acquired as new in January 2008 for RON
2,340,000. A technical improvement worth RON 520,00 0 was made on the machine in April 2008.
(4) A software program acquired in March 2008 for R ON 950,000 (useful life of 3 years).
Except for the building which was depreciated using the straight-line method, the above assets were al l
depreciated using the accelerated method.
Required:
Calculate the tax depreciation charge of Sport-ware S.R.L. for the 2008 tax year.
(10 marks)

(Total = 15 marks)
Q4 COMMUNICATIONS S.A.
(a) Company Communications S.A. acquired 100% shares in Linky S.A. in May 2008. Both companies are
Romanian tax payers. Communications S.A. obtained a loan of RON 2,500,000 from a bank in January
2008. Interest paid in 2008 on this loan amounted t o RON 250,000. In September 2008 Communications
received dividends from Linky in the amount of RON 1,500,000. In 2009 Communications intends to sell t he
shares of Linky.
Required:
State how the above will affect Communications tax base in the years 2008 and 2009 respectively.
(4 marks)
(b) Company Communications incurred tax losses in t he year 2003, 2004 and 2005. In its 2007 tax return it
deducted all of the 2003 tax loss and part of the 2 004 tax loss. In its 2008 tax return it used the re st of the
2004 tax loss and all of the 2005 tax loss.
Required:
Explain the time limit(s) allowed for the tax asses sment of the year’s 2003, 2004 and 2005 to expire.
(3 marks)
(c) Mr Proca is an entrepreneur. He keeps statutory rec ords for income tax purposes. He decided to termina te
his business activity on 1 May 2008. At the time of termination of his business activity he had the fo llowing
assets:
(1) Receivables:
• RON 850,000 credit from bank
• RON 45,000 invoice for goods sold to Mr Stefan. Mr Stefan died in January 2008 and he has no
children.

27
• RON 55,000 invoice for goods sold to Trade S.R.L.
(2) Liabilities:
• RON 25,000 advance invoice for purchased material; the advance has been paid in March 2008
• RON 50,000 annual rental for business premises
(3) Value of unused stock of RON 38,200. Mr Proca w ill sell the stock on 5 December 2009 for RON
40,000.
Required:
State how the above facts will affect Mr Proca’s ta x base in the years 2008 and 2009, respectively.
(3 marks)

(d) Company Nautilus S.R.L. sold goods to Mercury S.R.L . The invoice for RON 650,000 was payable on 5
April 2008. As of 31 December 2008 Nautilus filed a petition to the court and created a 20% provision for
this receivable. On 2 May 2009 it sold this receiva ble to Globus S.R.L. for RON 450,000.
Required:
State, in the case of each receivable, the amount o f taxable income and tax deductible expenses applic able.
(5 marks)
(Total = 15 marks)
Q5 LIBRAR AND CAROLINA
(a) LIBRAR S.R.L. started business in 2001. In 2008 LIB RAR had the following assets:
• A car (useful life of 3 years) contributed to the e quity of the company by one of the partners in June
2007. The market value of the car for the purpose o f the equity contribution was RON 200,000.
• Software acquired in January 2007 for RON 78,000 an d licensed for 48 months.
• Land and a building (useful life of 50 years) acqui red in 2003 for RON 3,000,000. The expert valuation
for purposes of immovable transfer tax at that time was RON 600,000 for the land and RON 2,400,000
for the building.
• A bus (useful life of 3 years) purchased in August 2006 for RON 120,000.
• Computer (useful life of 3 years) purchased in Janu ary 2006 for RON 67,000 and sold in December
2008 for RON 10,000.
LIBRAR uses the accelerated method of tax depreciat ion except for the building and software for which it uses
the straight line method.
Required:
Prepare a computation of LIBRAR tax depreciation ch arges for 2008. (8 marks)
(b) Carolina’s income from her employer PODIK S.A. in M ay 2008 was as follows:
• Salary of RON 12,560

28
• Payment based on percentage of sales realised of RO N 3,600
• Compensation payment during a period of sickness of RON 2,000
• Travel allowance within the statutory limit stipula ted of RON 2,500.
Carolina used a company car for business and privat e purposes in the month of May 2008. The input pric e of the
car to her employer was RON 300,000. She also recei ved a voucher to buy goods in her employer’s shoppi ng
centre to the value of RON 2,000 as a present to ma rk her fortieth birthday.
Required:
(i) Compute the social contributions withheld from Caro lina’s May income;
(2 marks)
(ii) Compute the tax that should be withheld by POD IK from Carolina’s May income.
(5 marks)
(Total = 15 marks)
International Tax Questions
Q1 MS MANDRULESCU
Ms Mandrulescu is a freelance interpreter. She is a Romanian national, but no longer has a permanent h ome in
Romania as she has been living in Germany since 196 9. In 2008 Ms Mandrulescu spent a total of 220 days in
Romania. In 2008 Ms Mandrulescu has had the followi ng jobs:
(1) Interpreting at a congress in Prague for five days in February, organised by a Romanian tax resident
company, for which she received RON 100,000.
(2) Interpreting at a congress in London for three days in May, organised by a UK tax resident, for which
she received the equivalent of RON 150,000.
(3) Linguistic correction of a book, performed in Roman ia on the basis of a labour contract, concluded wit h
the publisher ABC S.R.L. (a Romanian tax resident) in January 2008, for which she received RON
35,000.
(4) Writing of an article for Bucharest Business Week i n July for which she received RON 2,500. Ms
Mandrulescu wrote this article when she was in Germ any.
(5) In September Ms Mandrulescu concluded a contract wi th Printers S.R.L. (Printers), whose registered
seat is Bucharest according to which she will perfo rm linguistic checks for them on a regular basis. T he
contract concluded is for two years starting on 1 O ctober 2008. According to the contract, Ms
Mandrulescu is obliged to be present at Printers’ p remises for five working days each month. Printers
will provide Ms Mandrulescu with an office and all necessary equipment at their branch in Bucharest.
She is to receive a lump sum payment of RON 20,000 a month under this contract. The contract is not
an employment contract; Ms Mandrulescu will perform the service as a freelance interpreter. Printers
will charge Ms Mandrulescu RON 5,000 per month for the use of their premises and equipment.
The following additional information is applicable to Ms Mandrulescu for 2008:
(1) She received a dividend from a French tax resident company equivalent to RON 50,000 gross. Tax was
withheld at the rate of 10% in France in accordance with the Romanian/French double tax treaty.

29
(2) She has no bookkeeping obligation and she will appl y deductible lump sum expenses at statutory rates
(40%).
(3) Romania has concluded a double tax treaty with Germ any which allows the exemption by credit method
for the elimination of double taxation.
Required:
(a) Calculate Ms Mandrulescu’s 2008 income tax base in Romania if:
(i) she is a Romanian tax resident; and (11 marks)
(ii) she is a German tax resident. (4 marks)
In each case give reasons for the exclusion of any item of income from the tax base. You are NOT requi red to
calculate the tax payable.
(b) Assuming that Ms Mandrulescu is a German tax reside nt:
– state the obligations she has towards the Romania n tax authorities during 2008, including relevant
dates and the competent authority; and
– the sanctions that might be applied to Ms Mandrul escu if she did not fulfil these obligations.
(5 marks)
(c) Based solely on the information provided, state and give reasons concerning whether Ms Mandrulescu
will be a tax resident in Romania in 2008.
(3 marks)
(d) Calculate the interest that would be charged by the financial authorities if Ms Mandrulescu were to pa y
RON 10,000 of her tax liability 60 days late.
(2 marks)
(Total = 25 marks)
Q2 MR VOICU
Mr Voicu is a Romanian tax resident.
The following additional information is relevant to Mr Voicu for 2008:
(1) Mr Voicu was working in the UK from January to June 2008. His gross UK income was GBP 12,000 and
his UK employer paid GBP 1,200 as employer’s mandat ory social security insurance contributions for
2008 to UK social security institutions. There is n o treaty concluded between UK and Romania for socia l
securities.
(2) Mr Voicu paid UK tax on his UK employment incom e. The amount of UK tax paid on his 2008
UK income was GBP 3,000. The Romanian/UK double tax treaty stipulates exemption for the
elimination of double taxation on employment income.
(3) Mr Voicu has been working in Romania since July 2008 for the company Credit S.R.L. His
gross Romanian income was RON 260,000 and his emplo yer deducted RON 32,500 as social
contributions for 2008. Credit S.R.L. withheld RON 65,000 from Mr Voicu’s salary as a salary
tax for 2008.
(4) Credit S.R.L. provided Mr Voicu with a personal company car for both business (50%) and

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private (50%) purposes from July to December. The a cquisition price of the car was RON
1,200. The car was two and a half years old on 1 Ju ly 2008 and its accounting book value on
this date was RON 400 (useful life of 3 years).
(5) Mr Voicu has a bank account in the UK. Interest on this UK account for 2008 amounted to
GBP 500. Mr Voicu did not pay any UK tax on this in terest.
(6) Mr Voicu received net income of SKK 50,625 as a uthor’s income for articles issued in
Slovakia in December 2008. The Slovak tax withheld amounted to SKK 11,875. The
Romanian/Slovak double tax treaty stipulates the cr edit method for the elimination of double
taxation.
Note: you should use the following annual exchange rates in answering this question:
GBP 1 = RON 4.9
SKK 1 = RON 1·80
Required:
Calculate the Romanian income tax payable or overpa id by Mr Voicu for 2008.

(15 marks)
Q3 GEMENII S.A.
Gemenii S.A. is a Romanian resident company, which is 100% owned by a German resident company
Produktion, GmbH. Gemenii S.A. has two subsidiaries (both 100% share) Ro-Gemenii S.R.L. a Romanian tax
resident and Rus-Gemenii, which is a limited liabil ity company resident in Russia. Gemenii S.A. also h as a
further three branches – in Austria, Poland and Bel gium. The following information is applicable to Ge menii S.A.
in 2008:
(1) Gemenii S.A. had taxable income of RON 230,000, 000 and connected tax deductible expenses of RON
180,000,000. These figures do not include income an d expenses generated by the three foreign branches.
(2) The Austrian branch of Gemenii S.A. had taxable income of RON 80,000,000 and connected expenses of
RON 45,000,000 determined in accordance with Romani an legislation. The tax base according to Austrian
law was EURO 1,000,500. The Austrian branch paid EU RO 250,125 of corporate income tax in Austria. The
exchange rate used in accountancy was EURO 3.6. The ordinary credit method is used according to the
double tax treaty between Romania and Austria.
(3) The Polish branch of Gemenii S.A. had taxable i ncome of RON 120,000,000 and connected expenses of
RON 90,000,000 determined in accordance with Romani an legislation. The tax base according to Polish la w
was PLN 4,500,000. The Polish branch paid corporate income tax of PLN 770,270 in Poland. The exchange
rate used in accountancy was PLN 1·4. The ordinary credit method is used according to the
Romanian/Polish double tax treaty.
(4) The Belgian branch of tax exemption had taxable income of RON 20,000,000 and connected expenses of
RON 12,000,000 in accordance with Romanian legislat ion. The tax base according to Belgian law was
EURO 200,000. The Belgian branch paid corporate inc ome tax of EURO 88,000 in Belgium. The exchange
rate used in accountancy was EURO 3.6. The ordinary credit method is used according to the
Romanian/Belgium double tax treaty.

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(5) Gemenii S.A. received dividends from Ro- Gemeni i S.R.L of RON 500,000 gross, and dividends from Ru s-
Gemenii equivalent to RON 1,200,000 gross, from wh ich 10% Russian tax was withheld in accordance with
the relevant tax treaty.
(6) Gemenii S.A. paid dividends to Produktion, GmbH of RON 1,200,000 on 5 May 2008. The general meetin g
which decided on this distribution was held on 3 Ma rch 2008.
(7) Gemenii S.A. has a tax loss available for carry forward of RON 10,000,000, which it wishes to use to the
maximum possible amount in 2008.
Required:
(a) Calculate the 2008 corporate income tax liabili ty of Gemenii S.A.
(14 marks)
(b) State, giving reasons, how the dividends paid t o Produktion, GmbH will be taxed in Romania.
(1 mark)
(15 marks)
Q4 PHARMA, S.R.L.
(a) PHARMA, S.R.L. recorded the following transacti ons which had a cross-border character in 2008:
(1) PHARMA, S.R.L. paid RON 150,000 to a permanent establishment of UK Company Ltd, a UK tax
resident, situated in Romania on 30 May 2008 in con sideration for a service provided.
(2) PHARMA, S.R.L. paid a royalty fee for the formu la of a drug of RON 1,500,000 to a US based
company on 25 June 2008. Royalties may be taxed at maximum rate of 10% in the source country
according to the US/Romanian double tax treaty.
(3) PHARMA paid directors’ fees of RON 550,000 to a member of its board of directors who is tax reside nt
in Germany and reimbursed him travel expenses of RO N 100,000 out of which 20% was over the
Romanian statutory limit stipulated on 21 November 2008.
(4) PHARMA bought a building in Bucharest from a br anch of an Israeli company for RON 85,000,000.
The acquisition price in the Israeli company’s book s was RON 60,000,000. The payment was
accounted for in PHARMA’s books on 8 November 2008, the transfer according to the Cadastrial
books occurred on 1 December 2008 and PHARMA paid t he amount on 2 January 2009.
Required:
In the case of each of the above payments, briefly explain how tax will be collected in Romania and st ate the
relevant time limits.
(6 marks)
(b) PHARMA‘s 2008 income and expenses were as follows:
(1) Domestic activities:
• income from the sale of drugs of RON 80,000,000
• expenses connected with the sale of RON 53,000,000

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(2) PHARMA’s branch (permanent establishment accord ing to the double tax treaty) situated in Germany:
• income from the sale of drugs of RON 56,000,000
• expenses connected with the sale of RON 72,000,000
The branch did not pay any tax in Germany. The cred it method is used for elimination of double
taxation in the Romanian Republic.
(3) PHARMA’s branch (permanent establishment accord ing to the double tax treaty) situated in Slovakia:
• income from the sale of drugs of RON 46,000,000
• expenses connected with the sale of RON 20,000,000
The branch paid the equivalent of RON 4,949,000 in tax in Slovakia. The credit method is used for
elimination of double taxation in the Romanian Repu blic.
(4) PHARMA received dividends from its 75% subsidia ry in Russia of RON 1,000,000 gross. Tax at the
rate of 5% had been withheld in Russia according to the Romanian Republic/Russia double tax treaty.
(5) PHARMA S.R.L. received dividends from a Polish company in which it holds an 8% share in the
amount of RON 1,500,000 gross from which tax at 5% had also been withheld.
(6) PHARMA S.R.L. received dividends from a 100% do mestic subsidiary of RON 2,000,000.
Required:
Calculate PHARMA, S.R.L.’s 2008 income tax liabilit y. (9 marks)
(Total = 15 marks)
Q5 TOTAL S.R.L.
(1) TOTAL S.R.L., a Romanian tax resident company, received a profit distribution of RON 100,000 gross in
June 2008 from its 100% Romanian tax resident subsi diary. The general meeting of TOTAL S.R.L held on
15 April 2008 decided to distribute a 2007 profit o f RON 120,000 to its partners. The partners are: Mr
Nicolae (Romanian tax resident 25% share), Mr Morar u (Romanian tax resident 40% share) and the
company Pascu S.R.L. (Romanian tax resident 35% sha re).
(2) TOTAL S.R.L., a Romanian tax resident company, received a profit distribution of RON 100,000 gross in
June 2008 from a German tax resident company in whi ch it holds a 7% share acquired in 2002. The genera l
meeting of TOTAL S.R.L held on 1 September 2008 dec ided to distribute a 2007 profit of RON 120,000 to
its partners. The partners are: Mr Nicolae (Romania n tax resident 25% share), the company Pascu S.R.L.
(Romanian tax resident 5% share) and the company Pa dox, GmbH (German tax resident 70% share). The
maximum applicable rate of withholding tax accordin g to the Romanian-German tax treaty is 5%.
(3) TOTAL S.R.L., a Romanian tax resident company, received a profit distribution of RON 100,000 gross in
June 2008 from its 100% Ukrainian tax resident subs idiary. 5% tax was withheld by the subsidiary in
accordance with local legislation and the Romanian- Ukrainian tax treaty. The general meeting of TOTAL
S.R.L held on 25 August 2008 decided to distribute a profit of RON 120,000 to its partners. The partne rs
are: Mr Nicolae (Romanian tax resident 50% share), the company KAP, Inc (USA tax resident 40% share)
and the company Padox, GmbH (German tax resident 10 % share). The maximum applicable rate of the
withholding tax according to both the Romanian-Germ an and the Romanian-USA tax treaties is 5%.

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Required:
In each of the alternative scenarios given above:
1. Calculate the Romanian tax on the received and paid out dividends
2. Calculate the net dividend received by each of the partners
3. Ctate the dates by which the tax from the dividends had to be paid to the financial authority.

(15 marks)
TAX Planning Questions
Q1 UK – NEWSPAPER & RADIO COMPANY
Your client, a UK newspaper and radio company, inte nds to expand into the Romanian market. The company
does not intend to establish any legal presence in Romania, i.e. it will not establish a subsidiary or a branch in
Romania. The company will only engage independent R omanian journalists, who will contribute their arti cles,
stories and reports to the UK newspaper and to UK r adio broadcasts.
Required:
Write a letter to the company’s UK manager, advisin g on the income tax, social security, health care i nsurance
and value added tax (VAT) position of the independe nt Romanian journalists who will be engaged. The
Romanian/UK double tax treaty uses the credit metho d for the elimination of double taxation for this k ind of
income.
(15 marks)
Q2 PRODUCTION LTD.
Your client, Production Ltd, a UK company, intends to establish a subsidiary in Romania. Production Lt d is going
to transfer part of its tangible assets to the subs idiary, in order for the production of goods to sta rt in Romania.
The UK manager has asked you to explain the tax con sequences of a sale of assets and of a financial le ase of
the assets for both the UK company and the Romanian subsidiary. The UK company will also grant the rig ht to
use a patent to the Romanian subsidiary.
Required:
Write a letter to the manager explaining:
(1) The tax consequences of the sale of assets by t he UK company to the Romanian subsidiary
(2) The tax consequences of a financial lease contr act for the UK company and the Romanian subsidiary
(3) The income tax consequences of providing the ri ght to use a patent for the UK company and the Roma nian
subsidiary
(4) The value added tax (VAT) consequences of the p roposed transactions and
(5) Any other tax matter that the manager should be aware of regarding the proposed transfer of assets .
(15 marks)

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