The Tax Increase Ordinance (OG 16/2022) still has some problems with the interpretation of experts, although it may not have been the government’s intention in some cases.

See the letter sent by the Chamber of Fiscal Advisers to Adrian Cachiu regarding the ambiguity in OG16/2022

The Chamber of Fiscal Consultants noted the lack of clarity and predictability due to how the new article 43 par. (5) of the Tax Code is amended with respect to dividends distributed/paid to privately managed pension funds and/or optional pension funds.

Specifically, the ambiguity of the applicable tax regime is determined by the elimination of the provision on the exemption of collective investment entities from taxation of dividends paid by a Romanian legal entity (the provision applicable to dividends distributed after January 1, 2023).

The Chamber of Fiscal Consultants sent a letter to the Minister of Finance, Adrian Cacio, in which he showed him the problem and suggested what changes should be made to make the original intentions of the government logical.

Practically at the moment, according to the Fiscal Code, dividends received from Romanian legal entities by the following beneficiaries are exempt from taxation:

• private pension funds

• voluntary pension funds

• joint investment bodies without the status of a legal entity

Well, according to the Decree on the increase of taxes, the provision regarding the exemption of pension funds and collective investment bodies from taxation was replaced.

The new article provides for the application of provisions on the tax rate, declaration and payment of dividend tax to dividends distributed to private pension funds and optional pension funds (effectively abolishing the non-taxation exemptions for them). Thus, it is not clear which regime applies to the beneficiaries of collective investment bodies.

“In our opinion, the provisions of Article 43 of the Fiscal Code (as specified in clause (1)) apply to dividends paid by a Romanian legal entity to another Romanian legal entity. Therefore, we conclude that Article 43 does not apply to beneficiaries who are not (Romanian) legal entities, such as pension funds, respectively collective investment undertakings, which are entities without the status of a legal entity,” the Chamber of Tax Consultants reports .

In the sense of the CCF, the provisions of par. (5) before the amendment to exempt these categories from taxation, they were introduced into the law under the title of clarification, but the purpose of the law (and without this express exemption) was that dividends distributed to them were exempt from taxation from to taxation due to the fact that they are persons without the status of a legal entity and, therefore, do not belong to the categories of beneficiaries subject to taxation.

“We believe that the recent amendment made by Decree no. 16/2022 reinforces our view that since voluntary and private pension funds become beneficiaries to which the provisions relating to the tax rate, payment and declaration apply, there is a need for this to be clearly stated in the new form of the law (they are not subject to provisions of Article 1)”, experts believe.

The double interpretation was noticed by the Chamber of Fiscal Consultants

Despite the fact that our interpretation is presented earlier, we believe that the way in which clause (5) of Art. 43 of Decree No. 16/2022 can cause confusion in the sense that it can be interpreted in one of two ways, which we reproduce below:

1. As private pension funds and discretionary pension funds are expressly designated as no longer exempt, collective investment entities continue to be exempt because they are unincorporated entities, and it was no longer considered necessary to maintain pre-emption (considering yourself redundant);

2. Although they are not directly mentioned in the new amendment, the fact that the form of the article providing an exception for collective investment bodies has been replaced may lead to the interpretation that the legislator intended to eliminate this exception.

However, we consider this interpretation unlikely, given the fact that collective investment entities are not legal entities and therefore Article 43 does not apply to them (it concerns the taxation of dividends distributed from one Romanian legal entity to another).

However, we feel that we cannot completely rule out such an interpretation in view of the previous provisions which expressly excluded this category and we feel that clarification is necessary in this regard.

The situation will lead to double taxation of income

According to the CCF, in a situation where the intention of the legislator was to tax income from dividends received by collective investment entities from Romanian legal entities, although, as we noted, we consider this unlikely, we would like to point out the fact that this amendment would lead to double taxation these incomes, namely:

• Dividend income will be taxed at the rate of 8% at the time of distribution/payment of dividends from the Romanian entity to the collective investment entity;

• Income from dividends related to shares in a joint investment organization will be taxed at the level of investors, natural persons-beneficiaries with a tax of 8% on the basis of Article 97 para. (7) of the Fiscal Code.

In practice, the introduction of this double taxation will lead to the limitation of investments in collective investment entities in Romania and the migration of investors to jurisdictions with a more favorable fiscal climate.

Two things that the Chamber of Tax Consultants requires

The Chamber of Fiscal Consultants considers the following assistance necessary in the form of Article 43 para. (5):

1. Since we understand that dividends distributed to voluntary and private pension funds are subject to taxation, as an exception to Art. 1, which provides for the application of taxation only to beneficiaries – legal entities, we believe that para. (5) must be set out accordingly.

More precisely, we consider it appropriate to introduce a reference to the fact that the provisions of paragraphs (2) and (3) of the article apply to pension funds, with the exception of clause (1).

This link would also be helpful in understanding the fact that hosting authorities are exempt from liability because they are unincorporated bodies.

2. Introduction of a direct provision similar to what existed before the change introduced by Order no. 16/2022 regarding the fact that the provisions of Article 43 do not apply to collective investment bodies.