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1.1. Fiscal system and fiscality-abstract Following the evolution of humanity, a fiscal system has been established in order to satisfy financial and socio-economic necessities; this system has ensured the financing of public economy by fiscal operation, has allowed the public authority to intervene in the national economy and has also determined the correction of unwanted fluctuations in the economic cycles that appear in the exchange economy. A complete definition of fiscal system is given by Carmen Corduneanu who considers that fiscal system comprises an ensemble of concepts, principles, methods, processes, regarding a multitude of elements (taxation material, quotas, fiscal subjects), connected by relations that appear as a result of projection and legalization, establishing and setting taxes that are administered according to fiscal legislation, in order to achieve the objectives of the system. The fiscal system is a product created by the human being, by the history of human civilization in order to respond to financial needs, economic and social needs and lately, unfortunately, by political needs. Financial needs are satisfied by fiscal system through the financing of public economy, economic needs by the permission granted to the public authority to correct unwanted fluctuations of economic cycles that appear in the exchange economy, and social needs by its influence on the system of wellfare distribution. The fiscal system includes as a main structure the tax, as well as other elemets such as fiscal legislation or the entire fiscal apparatus that apply fiscal laws. Financing function of public public expenses in order to contribute with as much money as possible to the buget Redistribution function of incomes, wealth and protection of social disfavoured persons, in order to ensure social equality. Stabilization function of economic activity and correction of disparities in oredr to ensure economic effciency. Main idea:

Main functions of fiscal system

Main idea:

The above mentioned elements have evolved in a connection to the evolution of the role of the state regarding social and economic life. Etimologically, the word derives from the latin term fiscusthat stands for basket. In the Roman Empire, the collection and administration of taxes was the responsibility of an organ called fiscus

Evolution of fiscality notion

In France during XVII th century, the fiscal organ was an institution entitled to collect taxes. Is an institution of the state obliged to establish, to collect as well as to observe the payment of taxes owed to the contributor state. 1

Fiscality represents the legal system of the fiscal organ. At the level of the contributorcitizen, fiscality is perceived as the tendency to enforce the power of the fiscal organ concerning collection and augmentation of taxes. Juridically, fiscality represents an ensemble of all laws regarding taxes. According to certain authors, fiscality is a system of rules and mechanisms that ensures the fundamental role played by taxes in the functioning of a state, as well as, in a larger sense, of social life in its ensemble.

1.2. Tax, the basic structure of fiscal system

Taxes derive from the necessity of modern state, whose activity is more and more complex and extended, to master means of satisfying its needs, that is mistaken for common life of inhabitants. Share quota from each citizen for expenses of public services. (Smith, J. B. Say and Ricardo) Money prelevation from persons with final title and without direct counter-collection, in order to cover public expenses as well as of the economic and social intervention of public powers (Alain Euzeby)
Main idea

Tax definitions

Citizens are obliged to contribute by taxes to public expenses (Constitution of Romania)

According to abovementioned definitions, 3 elements should be taken into consideration.

The force of public power (element of authority) Wealth transfer A large function of it

consideration: Din definiiile date mai sus se Observation: The tax is always perceived as an act of authority, an obligation by force desprind trei elemente that derives from the definitions of most authors. legate de impozite

Authority element

For the contributor-citizen, the tax is mostly perceived as a restriction of his liberty, of his material possibilities due to the intrinsic element of authority.

Wealth transfer Transferul de avuie

Tax is a wealth prelevation that involves the contributor patrimony. Moreover, this prelevation is final, as the tax debt cannot be reimbursed. At the same time, it does not comprise a direct counter service. As a result, tax incomes are depersonalized and are allocated to solve expenses with advantages that do not apply directly to tax payers. Is ensured by the taxation policy of most states that have added redistributive function of the wealth in society to the financial traditional function of tax (of covering collective needs and those specific to the state), as well as the intervention function regarding the allocation of resources in economy in order to stabilize the aggregate request.

Extended function

Taxes foreseen by Romanian Taxation Code is based on the following principles: neutrality of taxation measures as compared to the different categories of investors and capitals, as a form of property, ensuring equal conditions to investors, as well as to romanian and foreign capital; the certainty of imposition, by elaborating clear juridical norms, that must not lead to arbitrary interpretations, the terms, the modality and the payments must be established for every contributor, so that these payers be able to understand their role in taxation, as well as to be able to determine the influence of their financial management decisions over their role in taxation; taxation equality at the level of physical persons, by imposition incomes according to their size; the efficiency of imposition, by ensuring long-term stability of provisions foreseen by the Fiscal Code, so that these provisions do not determine retroactive effects that will affect in a negative manner physical and juridical persons, according to the taxation at the date of adopting major investitional decisions.

1.3. Methods and techniques of imposition

The imposition: Represents a very important link of fiscal system that comprises a multitude of methods and operations that will result in establishing the role of each pysical or juridical person in the fiscal process. Technically, it foresees a difficult activity in order to perform an inventory of taxable subjects as well as of their personal situation, of identifying and evaluating the taxable material as well as establishing the quantum of the tax. Main idea: In order to follow these successive stages, it is necessary to use procedures, methods, and specific instruments.

According to the manner of sharing the responsibilities between tax administration and contributors, the following stages are foreseen: self-imposition and administrative imposition. Appears in the case of economic agents who will selfevaluate the basis of calculation, will determine the quantum and will deliver imposits and taxes on time, and will determine the contributions they owe to public authorities (profit income, tax on added value, of excisses owed for goods that have been produced in the country). Fiscal organs are entitled to verify the correct determination of sums owed as well as of respecting payment conditions. Appears in the case of taxes owed by physical persons and comprises other responsibilities for fiscal organs that must notice income sources and contributors-payers to determine the quantum of sums owed that they will include in taxation evidences and that they will transmitte to contributors by payment notice; they will also guide people in order for taxation obligations to be met.


Administrative imposition

According to annual results, the imposition is: Provisory, performed throughout the year and, Final, performed at the end of the year, following the acknowledgement of final results. Example: In the case of profit tax, this is calculated every month, cumulated from the beginning of the year in a provisory manner, in order to establish it by recalculation and regularization with the state budget on the basis of annual accounting balance. According to the persons who establish the income and their organization manner, the imposition can be: Individual, when refering to physical persons with individual incomes (employees, freelancers etc.) Collective, appears in the case of family associations, individual households were the entire profit is imposed on the entire personnel of the association or on all members of the familiy. According to the elements included in the calculation base, the imposition can be: Partial, refers to separate taxation or incomes belonging to a single person through more income payers and more sources. Example: The fiscal system applied in our country for incomes belonging to physical persons by January the 1st 2000 and after January the 1st 2005. Global, refers to the collection of incomes from different sources or from more unities and the application of imposition quotas to this basis of cumulative taxation. Example: This imposition system has been introduced in our country between 2000 2004; the globalization process includes the incomes from salaries, independent activities 4

and those resulted from the cession of the usage of goods, except dividends, interests, from transactions with value titles and from gambling. According to the manner in which the evaluation of the chargeable object, the imposition can be: Direct, performed by obtaining informations necessary to direct imposition by fiscal organs, that are informed with a view to the nature, and the the size of tax object by declaration of imposition elaborated and submitted by contributors ( the case of the income on buildings and fields, of the tax on means of transport). The accuracy of dates included in the declarations of imposition is further verified by fiscal organs; Indirect, based on information obtained indirectly from third parties regarding the development of income producing activities or by accomplishing incomes that fall under the incidence of imposition (the case of tax income from salaries, from rents, etc.); Forfeiting, refers to the substitution of exact determination of chargeable material with an attributed value (forfeit) that will establish owed income. It is the case of norms or income standards used for taxation of cab drivers, of costermongers, of flower traders, etc.


2.1. Competence of fiscal organ and documents emitted by fiscal organs.

General competency:

Fiscal organs have a general competency regarding the administration of tax claims, control exerting as well as issuing of norms regarding the application of legal provisions regarding taxation. However, in the case tax income, according to a Government decision, another administration competence can be established. At the same time, fees, taxes, and other owed sums, according to the law, are administrated by customs organs.

For the administration of fees, taxes, contributions and other sums owed to the established general budget, the competency will belong Territorial competency: to that fiscal organ in the county, local, or belonging to the municipality of Bucharest, where the fiscal residence of the contributor has been established, in the case of fees and contributions resulted from source cease.

Observation: In the case of non-resident contributors who activate on the territory of Romania by one or more permanent offices, the competency belongs to the fiscal organ on the territory of which there has been established a permanent office and if the activity of such an office unfolds on the territory of more fiscal organs, the competency will belong to that organ on the territory of which the activity of that permanent office has begun. If the contributor has payment obligations at secondary offices, the territorial competency for their administration belongs to the fiscal organ on the territory of which they are situated. Specific compartments of authorities belonging to authorities of local public administration are competent for tax administration as well as for other sums owed to local budgets of territorial-administrative units. The conflict of interests The public employee within the fiscal organ involved into a procedure of administration faces a conflict of interests if: within that procedure he is a contributor, he is a spouse of the contributor, he is a relative by fourth grade inclusively of the contributor, he represents or he is delegated by the contributor; within that procedure, he can obtain an advantage or he is directly affected in a negative manner;

there is a conflict between him, his spouse, his relatives by third grade inclusively and one of the parties, the husband or wife, the relatives by third grade inclusively. Observation: The public employee who is aware of the fact that he finds himself in one of the above-mentioned situations is obliged to contact the leader of the fiscal organ and to abstain from fulfilling the procedure. Moreover, the contributor involved in the procedure that unfolds may request the challenge of the public employee involved in a conflict of interests. Documents emitted by fiscal organs The fiscal administrative act is the act emitted by the fiscal organ entitled to apply the legislation regarding the establishment, the modification or the abbolishment of fiscal rights and obligations.


The Fiscal Administrative Act is emitted only in a written form and comprises the following elements: The name of issuing fiscal organ; 6

The date of issuing and the starting date of producing its effects; Identification dates of the contributor or of the person man delegated by contributor; The object of fiscal administrative act; Factual reasons; Legal reason; ; Name and signature of delegated persons of the fiscal organ, according to the law; Stamp of issuing fiscal organ; The possibility to be disagreed with, the deadline of submitting the appeal and the fiscal organ where the appeal has been made; Observations regarding auditing of the contributor;

Observation: The fiscal act emitted by informatic means is available even if it does not bear the signature of delegated persons by the fiscal organ, according to the law, if it fulfills certain legal requests applicable in that field. The Fiscal Administrative Act must be transmitted to the contributor to whom it has been assigned, in this way: by the presence of the contributor to the office of issuing fiscal organ and by him receiving the administrative fiscal act under signature, the date of communication being the date when the document has been received and signed for; by remission, under signature, of the Fiscal Administrative Act by delegated persons of the Fiscal Organ, according to the law, the date of communication being the date when the document has been re-emited and signed for; by mail, at the fiscal residence of contributor, with reccomandation letter and receiving confirmation, as well as other means, such as fax, e-mail, if the the transmittance of the text presented by the Fiscal Administrative Act and the confirmation reception are guaranteed; by publicity.

Observation: The lack of one of the elements presented by the Fiscal Administrative Act, regarding the name, surname and quality of the person delegated by the fiscal organ, name and surname or nomination of the contributor, of the object belonging to the administrative act or of the signature belonging to the mandated person of the fiscal organ, with above-mentioned exception, draws its nullity, that can be noticed by request or ex-office.

2.2.Fiscal registration, accounting and fiscal book-keeping and fiscal declaration. Any person or entity who is the object of a fiscal juridical report is registered by receiving a fiscal identification code. Fiscal Identification Code is: For juridical persons, except traders, as well as except associations and other entities without juridical personality, the Fiscal Registration Code attributed by the responsible fiscal organ that is subordinated to the National Agency for Fiscal Administration; For physical persons, the personal numeric code attributed acoording to the special law; For physical persons who do not detain a personal numeric code, the name of fiscal identification attributed by the competent fiscal organ subordinated to the National Agency for Fiscal Administration; For traders, and for the representation offices of traders that belong to a headquarter abroad, the unique registration code attributed according to the special law; Exerts free professions, the fiscal registration code attributed by the competent fiscal organ subordinated to the National Agency of Fiscal Administration.

Main idea: In order to receive the fiscal identification code, the above-mentioned persons are obliged to submit the declaration of tax registration. Moreover, they are obliged to submit a declaration of fiscal registration and the physical persons have the quality of employers. On the basis of fiscal registration declaration, the competent fiscal organ subordinated to the Fiscal Administration National Agency will issue the Fiscal Registration Certificate, within 15 days from the submittance of the declaration, that will contain the compulsory Fiscal Identification Code. The issuing of fiscal registration certificates is not submitted to tax stamp. Contributors who obtain incomes from trade or from services addressed to population, are obliged to display the fiscal registration certificate in places where they develop their activities. Register of Contributors According to the law, the fiscal organ organizes the evidence of tax payers, contributions and other sums owed to state budget, the budget of social state insurances, the budget of the Unique National Fund of Health Insurances, the budget of unemployment insurances, in the Register of Contributors, that contains: Identification dates of contributor; Categories of fiscal obligations regarding declaration, according to the law, named fiscal vector; Other information necessary to fiscal obligations. The dates are filled in according to information transmitted by contributors, by the Commerce Register Office, by other authorities and institutions, as well as from personal observations belonging of the fiscal organ. The dates mentioned by the Register of Contributors can be modified everytime they do not correspond to reality and this situation must be transmitted to contributors.

Observation: Contributors who are juridical persons or other entities without juridical personality who do not fulfill their declarative obligations within two consecutive declaration deadlines, and to whom, by request, it has not been approved a measure regarding the fulfillment of fiscal obligations, by the competent fiscal organ, are declared inactive by the fiscal organ. Obligation of conducting the fiscal evidence. In order to establish the fiscal situation and the fiscal obligations of payment owed, the contributors are obliged to perform fiscal observations, according to normative acts. Accounting evidences as well as fiscal evidences must be kept, by case, at the fiscal residence of the contributor, to his secondary offices, on electronic support inclusively, or can be assigned to a company authorized to fulfill archive services. Observation: By exception, accounting and fiscal book-keeping of the financial are kept at the fiscal residence of the contributors, at their secondary offices, or between 1-25 days of the following month, at the office of the physical or juridical person authorized to perform their modifications in order to elaborate fiscal declarations. If the accounting and fiscal evidences are kept with the help of electronic systems of administration, in addition to dates archived in electronic form, the contributor is obliged to keep and present informatic applications that have helped him perform this task. Main idea: Moreover, the contributors are obliged to underline their incomes and their expenses resulted from unfolded activities, by the elaboration of registers or of any other documents foreseen by the law, and they are obliged to use primary documents and accounting reports established by the law, purchased from units established by present legal norms, and to fill in the forms, according to registered operations. The fiscal organ may take into consideration any evidences relevant for the imposition kept by the contributor. Obligation of submitting fiscal declarations The Fiscal Declaration is submitted by the persons obliged, according to the Fiscal Code, within terms established by it, and if the Fiscal Code should not foresee it, the Ministry of Public Finances establishes the deadline for submitting the Fiscal Declaration. The payment of the Fiscal Obligation has been performed; Obligation of submitting That fiscal obligation is free of payment,; the fiscal declaration is mentained in cases The fiscal organ has established ex-office the basis of in which: imposition and the fiscal obligation; For the fiscal obligation do not result sums of payment but it exists for the declarative obligation.

Main idea: In the case of temporary inactivity or in the case of obligations of declaring incomes that, according to the law, are free of the payment of the income tax, the competent fiscal organ may approve, at the request of the contributor, other terms or conditions of submitting fiscal declarations, according to the necessities of applying fiscal obligations. The fiscal declaration is elaborated by filling in a free form granted by the fiscal organ. In the fiscal declaration, the contributor must calculate the quantum of fiscal obligation, if foreseen by the law. The contributor is obliged to fill in the fiscal declarations by writing correctly, completely, and in good faith the information foreseen by the form, corresponding to its fiscal situation. The fiscal declaration is signed by the contributor or by the delegated person. The fiscal declaration is submitted to the competent registry office, of the competent fiscal organ or by mail, but it can transmitted also by electronic means or by distance sending systems, according to the procedure established by the Order of the Minister of Finances. The date of submitting the fiscal declaration is the date when this declaration has been registered on the Internet page of the fiscal organ, as it can be demonstrated by the confirmation e-mail sent after the receiption of the declaration.

Observation: If the fiscal declaration has not been submitted, the fiscal organ may proceed in establishing taxes, fees, contributions, as well as of other sums owed to the consolidtaed general budget. The establishing from ex officio of fiscal obligations cannot be made before a 15-days term accomplishment from the day the contributor has been informed with a view to the exceeding of the legal term of deposition of the fiscal declaration. In the case of contributors who are obliged to declare taxable goods and incomes, the ex officio establishing of fiscal obligation is made by estimating the imposition basis. This imposition is not made in the case of inactive contributors or in the case of the contributors found in the special evidence, as long as they face this situation.

2.3. Establishment of taxes, contributions and of other sums owed to consolidated general budget. Taxes, contributions by fiscal declaration assimilated with an and other sums owed to imposition decision under the reserve of the consolidated general budget a following check; are being established in the following manner: by a decision emitted by the fiscal . organ, in other cases.

The decision of imposition The decision of imposition is emitted by the comptent fiscal organ everytime it modifies the imposition basis, but it is emitted, if necessary, also in the case in which it has not been emitted a decision with a view to the imposition basis.


If the law should not foresee the obligation of tax calculation, the fiscal declaration is assmilated to a decision referring to the imposition basis. According to the law, the imposition decision and the decision referring to accessory payment obligations are considered as payment notice, from the date when they have been transmitted. The decision of imposition must fulfill the conditions foreseen for any fiscal administrative act. The decision of imposition must comprise tax category, contribution, or any other sums owed to the consolidated general budget, imposition base, as well as their quantum, for every taxable period. Main idea: The following fiscal administrative documents are assimilated to imposition decisions: Decisions regarding reimbursements on a value-added tax as well as decisions regarding tax drawback, contributions and other incomes of the general consolidated budget; Decisions regarding imposition basis; Decisions regarding other payment obligations; Minutes regarding the accesory calculation minutes in the case of forced execution and the minutes of establishing forced execution expenses; Decisions regarding the non-modification of imposition basis. Observation: Imposition bases are established separately, by a decision refering to the imposition basis, in the following situations: : when the taxable incomehas been performed by seversl persons. The decision will comprise the distribution of taxable income for every person who has participated to the fulfillment of the income; when the source of the taxable income is found on the territory of another fiscal organ than the territorial competent one. In this case, the competence of establishing an imposing basis is held by the fiscal organ on the territory of which the source of the income can be found. The prescription of the roght to establish fiscal obligations. The right of the fiscal organ to establish fiscal obligations is prescribed on a 5 years notice, except the case in which the law does not foresee otherwise.. The prescription term starts from the date of January the 1st of the year following the one in which the fiscal claim has been established. The right to establish fiscal obligations within 10 days if these are the results of the a committed felony foreseen by the penal law. This term starts from the date when the felony has been commited; the felony represents an offense sanctioned accordingly by a final Court decision. The law foresees that deadline regarding the prescription of the right to establish a fiscal claim is suspended within the period between the moment of start for the fiscal inspection and the moment when the imposition decision as a result of the fiscal inspection has been issued.


Obligation and fiscal claim Fiscal claims represent patrimonial rights that result from the rightful reports regarding fiscal material right.


Content of fiscal claims results from determined rights that comprise:

the right to collect taxes, contributions and other sums that represent incomes of the consolidated general budget, the right to reimburse the value-added tax, the right to drawback taxes, contributions and other sums that represent incomes of the general consolidated budget, known as main fiscal claims;

the right to collect delay increases, known as accesory fiscal claims.. Observation: In cases foreseen by the law, the fiscal organ in entitled to request the finalization of the fiscal obligation by the person who is obliged to execute that obligation by replacing the debtor. In the case of the payment of sums regarding taxes, contributions and other incomes from the consolidated general budget performed without legal reason, the entity that has payed, has the right to receive the refund of that sum.


The term of fiscal obligations refers to: Obligation to declare goods and incomes that are taxable or, according to the case, taxes, contributions and other sums owed to consolidated general budget; Obligation to calculate and rgister in fiscal book-keepings, taxes, contributions and other sums owed to consolidated general budget; Obligation to pay within legal periods taxes, contributions and other sums owed to consolidated general budget; Obligation to pay delay increases, corresponding to taxes, contributions and other sums owed to consolidated general budget, known as payment obligation decisions; Obligation to calculate, retain and register in accounting bookkeepings, on legal terms, taxes and contributions fulfilled by souce blocking; Any other obligations of contributors, physical or juridical persons, regarding application of fiscal laws.


Establishing fiscal obligations and claims. The rights regarding fiscal claim and correlative fiscal obligation are born at the moment when, according to the law, the imposing basis that generates them is formed. In this way, the right of the fiscal organ of establishing and determined owed fiscal obligation is born. Within relations of fiscal material right, the creditors represent titular persons of fiscal claim rights, while debtors are those persons who, according to the law, have the correlative obligation to pay these rights. Main idea: If the payment obligation has not been fulfilled by the debtor, the following persons become debtors: : The inheritor who has accepted the succession of the debtor contributor; The person who will take over totally or partially, the rights and obligations of the debtor submitted to distributionm fusion of juridical reorganisation; The responsible person established according to legal provisions regarding bankruptcy; The person who assumes payment obligation of the debtor, by a payment engagement or by any other act closed in an original form, by ensuring a real guarantee insurance with a view to payment obligation; The juridical person, for fiscal obligations owed by its secondary offices.


The payer of fiscal obligation is the person who, according to the law, has to obligation to pay or collect and pay taxes, contributions, fines and other sums owed to consolidated general budget, in the name of the debtor.

Observation: In the case of juridical persons who activate on romanian territory, with secondary offices, the fiscal obligations payer is the juridical person, except for the income tax from salaries, for which the payment of income is made, according to the law, by secondary offices of the juridical person. Fiscal claims collection refers to exercising stocks with fiscal claims as main goal. Fiscal claims collection is made according to a claim title or to an executor title, by case: Definition: Claim title is a term that defines the act by which it will be established an individualized payment obligation regarding fiscal claims, elaborated by competent fiscal organs.


These titles can be represented by:

The decision of imposition emitted by fiscal organs; The fiscal declaration, payment pledge or the document elaborated by the payer comprising fiscal obligations, if these are established by the payer, according to the law; The decision that establishes and individualizes the sum that has to be payed, for accessory fiscal claims, representing delay increases, established by fiscal organs; Customs declaration for payment obligations at the customs; The document that establishes and individualizes customs debt, including accessories, The minutes of approving and sanctioning contravention, elaborated by the organ foreseen by the law, for obligations regarding the payment of contravention of fines; Prosecutor ordinance, closing or the device of Court order, or a certificate excerpt elaborated on the basis of this acts in the case of fines, of judicial expenses, and of other established fiscal claims, established, according to the law, by the prosecutor or by the Court.

2.5.3. Forced execution

If the debtor does not willingly pay owed fiscal obligations, competent fiscal organs will proceed in applying forced execution. Budget claims that are collected, administrated and used in public institutions, resulted from individual incomes, as well as those resulted from contractual juridical connections, are being executed by individual organs, that are entitled to fulfill insurance measures and to elaborate forced execution procedure. Main idea: Forced execution of fiscal claims will be fulfilled according to an executory title emitted by the competent executory organ on the territory of the fiscal residence of the debtor or according to a document that, according to a document that, according to the law, represents an executory titile. The executory title emitted by the executory organ, will comprise all fiscal claims that have not been payed within the period of payment, representing taxes, contributions and other incomes of consolidated general budget, as well as their accessories, established by the law.


The claim title, becomes executory title from the date to which the fiscal claim is overdue by the end of the payment term foreseen by the law or established by the fiscal organ. Forced execution starts only after the period when the fiscal organ has transmitted to the debtor the payment notice by which he will be transmitted the owed sum, and after a 15 days period from the notice. Accordingly, the payment notice represents a precursory act of forced execution. Forced execution follows the following rules:: 1) Forced execution may apply to all incomes and to all debtor goods, foreseen by the law, and their capitalization takes place only in the case of practised fiscal claims and of execution expenses. Forced execution of goods that represent the property of the debtor, foreseen by the law, is usually performed within the 150% threshold from the value of fiscal claims, including the value of execution expenses. 2) Debtor goods will be submitted to seizure and capitalization; goods displayed by him and/or identified by the execution organ, are: Mobile and immobile goods that are not used directly in the activity that represents the main income source; Goods that are not necessary destined to the fulfillment of the activity that represents the main income source ; Mobile and immobile goods that are temproary detained by other persons on the basis of rent contracts, concession contracts, leasing contracts and so on; Tool cars, plants, raw materials and other mobile goods, as well as immobile goods belonging to the activity that represents the main income source; Finite products. The fiscal organ may seize goods from the above-mentioned category everytime the capitalization is not possible. 3) Goods submitted to a special regime of circulation can be followed only by respecting conditions foreseen by the law; 4)Within forced execution procedure there can be used successively or simultaneously all forced execution approaches; 5) Forced execution of fiscal claims is not played out; 6) Forced execution takes place until the end of fiscal claims comprised by the executory title, including delay increases or of other sums, owed or granted according to the law through it, as well as of execution expenses; 7) If the executory title does not foresee delay increases or other sums, without having been established their quantum, they will be calculated by the execution organ and countersigned in a minutes that represents executory title, that will be transmitted to the debtor. Observation Forced execution starts with the announcement of the payment call. If, within 15 days from the communication of the call for payment, the debt will not die off, forced execution process will continue. The call for payment is accompanied by a sheet of the executory title. The call for payment comprises 15

the following elements: the number of execution records, the sum that has determined the forced execution, the period of time in which the person who has been called for payment has to pay the sum foreseen by the executory title, as well as the presentation of the consequences resulted from disrespecting it. The goods have to be evaluated before being capitalized. In order to achieve this goal, the execution organ will contact entitled organs and persons, that are obliged to fulfill their duties regarding this problem. The execution organ revises the evaluation price taking into account the inflation rate. Forced execution may be suspended, interrupted or may cease. Forced execution is suspended in the following cases: When suspension has been decided by the Court or by the creditor; At the date when the facilitation of payment has been approved; In the case when the distraint has been applied to the administrator; Forced execution is interrupted at the date when it has been declared the status of insolvability of the debtor. Foorced execution ceases if: All fiscal obligations foreseen by the executory title have died out completely , including payment obligations regarding accessories, execution expenses and any other sums considered as debtor`s duty; The executory title has been eliminated; Forced execution measures are eliminated by a decision elaborated within 2 days, at most, from the date when forced execution has been abolished by the execution organ. If fiscal claims written in executory titles are abolished by payment, by seizure or by any other means foreseen by the law, the distraints applied on those titles over goods, with a value that is lower or equal to the sum of fiscal claims eliminated, they will be abolished by a decision elaborated by the execution organ; within 2 days at most, from the date of elimination. The law foresees that, in the case in which the seizures established by the execution organ generate the impossibility of the debtor to continue his economic activity, with special social consequences, the fiscal creditor may dispose, at debtor`s request and taking into account his requests, either total temporary suspension or partical temporary suspension of forced execution by seizuring banking accounts. . Observation: If the fiscal claim does not die off within 15 days from closing seizure minutes, there will be capitalized seized goods, except situations in which, according to the law, the abolishment, the seizure, or the suspension of forced execution has been decided. In order for forced execution to be accomplished with positive results, taking into account the legitimate interest and immediate interest of the creditor, as well as rights and obligations of the debtor, the execution organ proceeds by capitalizing seized goods, as foreseen by actual legal dispositions. Hence, the competent execution organ may proceed to value seized goods by: Agreement of the parties; Sale in consignment regime mobile goods; 16

Direct sell; Tender sell; Other modalities admitted by the law, including capitalizing goods by tender houses, real estate agencies or brockerage companies;

Observation: In the case of perishable seized goods or degradable goods, these must be urgently sold. According to the law, sale of seized goods is made only by physical or juridical persons that do not detain bad debts. Capitalization of goods according to the agreement of parties is performed by the debtor himself, with the persmission of the Court, so as to ensure an appropriate refunding of fiscal claim. The debtor is obliged to present in written form to the execution organ, the proposals that have been made to him, as well as the level of covering fiscal claims, by indicating the name and address of the potential buyer, as well as the term in which the latter will pay the proposed price. The price proposed by the buyer and accepted by the execution organ cannot be lower than the evaluation price. The execution organ, following the analysis of proposals regarding the price, will transmitte by indicating the term and the budget account in which the price of the good will be delivered by the buyer. In the case of sale in consignatory regime, the execution organ delivers mobile seized goods to the unit responsible for sale in consignatory regime. The deliverance is made on the basis of a minute, elaborated in two sheets, each of these two sheets being taken by the parties. If during the period of displaying in order to sell, the debtor pays the owed sum, the execution organ is obliged to transmit to the selling unit in consignatory regime to cease goods sale. Capitalization of goods by direct sale is performed in the following cases: - before the start of capitalization procedure by tender, if the fiscal claim is recuperated entirely; - during the procedure of capitalization by tender or after its finalization, if the good has not been sold and a person offers at least the price of evaluation. Main idea: Direct sale is performed by closing a minutes that represents a property title. If the execution organ registers more requests, it is obliged to sell the good to the person who offers the highest price compared to the evaluation price. Attention: In order to capitalize goods by direct sale to buyers, the execution organ makes the announcement regardindg the sale. Direct sale of goods is performed even if a single buyer is present. In order to capitalize goods seized by tender sale, the executory organ is obliged to announce the sale within a period of at least 10 says before the date of 17

the tender. The publicity of the sale is performed by displaying the announcement at the office of the execution organ, of the city hall within the area of seized goods, at the residence of the debtor and at his office, at the place of sale, if this differs from the one where seized goods can be found, on the building on sale, and by announcements in a national newspaper, in a local newspapea, on the Internet page or, by case, in the Official Monitor of Romania. Main idea: The tender takes place at the place where seized goods can be found or at the place established by the execution organ and the adjudication is performed in the interest of the participant who has offered the highest price, that should not be lower than the initial price. If a single tenderer is present, the commission is entitled to declare him adjudicator if he offers at least the initial price of the tender. Following the adjudication of the good, the adjudicator is obliged to pay the price, diminished with the countervalue of participation date, in lei, in cash, at a unity belonging to the State or by banking deduction, within at most 5 days from adjudication date. If forced execution goods couldn`t be capitalized, they will be given back to the debtor mentaining indisponibility measure, until the accomplishment of the prescription term. Within this term, the execution organ may rerun capitalization procedure, and may nominate, mentain or change the sequestred-administrator or of the custodian. Occasional expenses derived from applying forced execution represent obligations of the debtor. The sum of forced execution expenses is established by the execution organ, by a minute, that represents executory title and that is based on documents regarding performed expenses. Forced execution expenses of fiscal claims represent the sum of expenses necessary to performing the procedure of forced execution, representing payments of services, such as: Sums representing expenses for the communication of the call for payment and of other procedure acts; Sums representing evaluation expenses of execution goods; Sums representing other expenses regarding the seizure, manipulation, transport, conservation, etc; Sums representing expense performed in order to administrate immobile goods; The payment of custodian or of the sequestered-administrator; Sums representing expenses resulted from the organization of tender; Other expenses necessary to he fulfillment of forced execution procedure of fiscal claims. . Observation: Interested persons can make an appeal against any execution act that breaks legal provisions, performed by execution organs, as well as in the case in which these organs refuse to fulfill an execution act according to the law. The appeal can take place also against the executory title considered as the basis of the execution, if this title does not represent a Court order or any other decision made by a jurisdictional organ and if for its denial there is no other procedure foreseen by the law. 18

2.5.4. Refunding

The following sums are refunded to the debtor: Sums payed without the existence of a claim title; Sums epayed in addition to the fiscal obligation; Sums payed as a result of a calculation error; Sums payed as a result of wrong application of legal provisions; Sums to be reimbursed from state budget; Sums established by decisions of judicial organs or by decisions of any other competent organs; Sums remained after the distribution of sums resulted from forced execution; Sums resulted from capitalization of seized goods or from seizing retentions, by case, according to the Court Order by which forced execution will be eliminated. Observation: Refunded sums that represent tax differences resulted from annual regularization of income tax owed to physical persons, is refunded by competent fiscal organs, within at most 60 days from the date when the imposition decisions have been made. In the case of confiscated refundings in currency, according to the law, is performed in lei at the actual reference appreciation of currency market for euros, transmitted by the National Bank of Romania, from the date of final Court Order that will establish the refund. The rule foresees that if the debtor should register fiscal obligations, refunding of sums is performed only after the compensation has took place. If the the refund sum is lower than fiscal obligations, the debtor has to pay, the compensation will be performed until the reimbursement or restitution. Attention: If the reimbursement or restitution sum is higher than the sum representing bad debts of the debtor, there will be performed an evaluation, the resulted difference being refunded to the debtor. 2.5.5. Prescription

The right to request forced execution of fiscal claims is prescibed within 5 days form January the 1st of the year following the year in which this right has been born. The prescription term shall be suspended: In the cases and under the terms established by the law for the suspension of prescription term of the right to act; In the cases and under the terms in which the suspension of the execution is foreseen by the law or has been decided by the Court or by any competent organ; 19

Within the availability of a delay granted according to the law; As long as the debtor circumvents his incomes and goods from forced execution; The period of prescription is interrupted: In the cases and under the conditions established by the law for interruption of precription term of the right to act; At the date of the fulfillment by the debtor, before the start of forced execution or during the period in which it is performed, or of a voluntary act of payment for the obligation foreseen in the executory title or of the acknowledgement in any other way, of the debt; At the date of accomplishment, during forced execution, of an act of forced execution; At the date when the act of noticing the insolvability of the contributor is elaborated; Observation: If the execution organ notices the fulfillment of the prescription term regarding the right to ask forced execution of fiscal claims, he has the obligation to proceed in ceasing performing measures and to substract payers from the analytical evidence. Attention: Sums payed by the debtor on the account of fiscal claims, after the deadline of the prescription term, are not refundable.. 2.5.6. Insolvency

Fiscal claims will not be observed by executory organs anymore if the debtor is subject to insolvency. Insolvency procedure is applied in the following situations: When the debtor has no incomes or goods that can be recorded; When after ceasing forced execution of the debtor suspense flows can be noticed; When the debtor has vanished or died without leaving any inheritance; When the debtor is not found at his last known fiscal residence or in other places, and there is no evidence regarding his fortune, there are no incomes or goods that can be recorded; When, according to the law, the debtor who is a juridical person ceases his existence and there are unpayed fiscal obligations.. Main idea: For fiscal claims of declared debtors in insolvecy, the manager of the execution organ decided to eliminate the claim from current record and to register it into a special record. If after this moment the debtors have acquired incomes or goods that can be observed after the declaration regardin insolvency status, the execution organs are obliged to take the necessary measures of redebt regarding the sums and forced execution. 20

2.5.7. The annulment

In situations in which execution expenses, exclusively expenses regarding mail communication, are higher than fiscal claims submitted to forced execution, the manager of the fiscal organ may approve the annulment of respective debts. Expenses generated by the communication of collection letter by mail are payed by the fiscal organ. Bad debts found in the account at December 31 of the year, lower than 10 lei (RON), are annuled. According to the law, the Government will decide every year the guaranteed fund of fiscal claims that can be annuled. In the case of fiscal claims owed to local budgets, the established sum represents the maximum threshold to which, by an order, deliberative authoritues can establish the guranteed fund of fiscal claims that can be annuled.


3.1. Content and rate of fiscal pressure A quantification element of the fiscal system finality is the fiscal pressure.


Fiscal pressure (fiscality level) is the result of the rate regarding compulsory samples, that can be calculated by reporting the total sum of compulsory samples (taxes, contribution to social insurances) within a certain period of time, ussualy a year, for measuring gross national product performed within the same period of time by national economy.

Fiscal practise uses other derived indicators of measuring fiscal pressure, such as: : Consolidated fiscal rate eliminates certain redundant samples, in order to express more clearly the share of incomes corresponding to financing the activity of public administrations. The second consolidation level is obtained from the elimination of all self-financed compulsory samples (only those payed by public administrations, as well as those supplied by incomes belonging to public admininstrations) Main idea Net fiscality rate is obtained from the elimination from compulsory samples of the part redistributed directly to economic agents, especially under the form of social contributions for families and of subsidies for companies. In this way, it will be obtained the sum of compulsory samples necessary to the functioning of public administrations; the resulted sum depends on the total Gross Internal Product. 21

Enlarged fiscality rate refers to the fact of taking into account certain financing sources of public expenses, other than compulsory samples. Observation: In addition to the objective fiscal pressure, technically determined according to financing necessities of budget expenses (public expenses), there must be taken into consideration a psychological fiscal pressure that measures the threshold of income tolerance. Most often, the latter represents individual fiscal pressure that refers to the relation between the total of samples borned by the contributor and the total of incomes obtained by him before taxation.

Fiscal pressure at the level of the economic agent is represented by the percentage relation between compulsory payments towards the state that the latter has to perform and his added-value within a period of time, ussualy a year. Main idea : Over time, the experts in this field have tried to find a maximum threshold of fiscal pressure. The threshold of fiscality bearable by the contributor has always been higher and higher according to experts, while the practise seems to have had exceeded it everytime. Vauban, who had a modern conception about taxes, in his workProjet de Dixme Royal published in 1702 claimed that the 10% level must never be reached. Fisiocrats have situated this threshold to 20% from individual incomes. Proudhon, in 1868, has raised it to 10% from the national income. Colin Clark has raised the total fund, in 1945, to 25% from the national income. For France, Giscard dEstaing has situated the threshold of fiscality, in 1974, to 40% from Gross Intern Product, but it has exceeded it in 1983, as it has exceeded 44%. After 1974, 6 states, including scandinavian states have exceeded this threshold. According to the above-mentioned ideas, if there is a maximum threshold for fiscal pressure, it is difficult to determine it scientifically. The fiscal fund cannot be determined with accuracy as the maximum fiscal pressure is more of a perception that varries depending on economic, political, and psychological circumstances of a given country, than an objective concept. However, there have been many tries made especially by A. Leffer and by american theorists of offer school, to rethink the problem of fiscal optimism. Using as a basis market economy in the U.S as well as mathematic reasoning, the american economist underlines, with the help of a curve, the connection between the fiscal pressure rate and the flow of fiscal earnings, known as Laffer Law. He has come to the conclusion that an increase of fiscal pressure does not necessary determine the growth of fiscal registrations, while a lower fiscal pressure creates conditions favourable to fiscal earnings growth. The explanations regarding fiscal pressure evolution, regarding its growth, must be looked for in the inexorable growth of public expenses, that are exposed to certain economic, social and political laws.


Wagner Law:

The growth of importance regarding public expenses within the total of the economic activity, is connected to industrialization. The industrialization is accompanied by the development of urbanization, by a growth of the complexity of economic activities and by a growth of living level. Hence, the state must intervene and spend more money for the accomplishment of urbanization attributes, the growing needs of individuals in educational field, culture field, of social actions, as well as for the accomplishment of infrastructure works. According to other authors (Marc Guillaume) public expenses would correspond to generalized social compensations: excesses, inconveniences and disfunctionalities of industrial society (pollution, urban agglomerations, etc.) that necessitate public interventions for correction or diminishing, through public expenses, of sources or of their effects.

Shifting effect:

Has been mentioned by the english economists A. T. Peacock and J. A. Wiseman, as being connected to the rigidity of decresing public expenses and to tolerable fiscal charge. According to these authors, during normality periods (political and social calmness), the population perceives in a clear manner the tolerable level of fiscal pressure; this knowledge thresholdates public powers regarding possibilities or intentions of rising the pressure. On the contrary, dangerous events (war, for example) may create a shifting effect, producing a growth of public expenses and a rise of tolerable fiscal charge.

Public services necessity:

According to authors such as: A. Wolfelsperger, Ph. Delmas, M. Albert, in democratic and developed societies, in which social disparities are mentained, the rise of public expenses is the price that has to be payed for social peace guarantee. These expenses refer to social expenses as well as to expenses for the intervention of the state within certain economic activities. Public Choice approach has appeared in the U.S during 1960`s; according to it, the state is not the absolute warrant of the general interest. He is simply a wide human organization in which decisions are made by persons, politicians, functionaries, who are no better or worse than others, and who are just like the latter ones, equally susceptible to mistakes and preoccupied by personal interests. The above-mentioned ideas are sustained by three analysis themes of analysing political market (comprinsing offering entities: politicians and solicitants-the contributors, in which some make promises to others, and in exchange for those promises, the latter ones give their consent regarding financing public expenses), economic analysis of bureaucracy (the bureaucts public functionaries are more preoccupied of the prestige and their power as of the general interest); and assimetrical events and financial illusion (public expenses permit to public powers to attribute special advantages to certain social categories or to certain interst groups, sharing their financing task over a large number of contributors). 23

Public Choice approach:

3.2. The level of fiscal pressure in Romania in the context of adhesion to the European Union There is a thesis shared by more and more fiscal specialists: the thesis according to which tax kills tax better said, exaggerated growth of an existing tax or the introduction of a new unjustified tax that reduces bearable degree of fiscal tasks. In this manner, the run from taxation emerges; this phenomenon is represented by fiscal evasion, underground economy, illegal work. Observation: Governments and politicians have always been preoccupied in maintaining fisclaity level, fiscal pressure, within bearabel thresholds. This threshold has differed from country to country according to social and economic conditions as well as on the will of rulling political class. During the last two years the tendency at the level of EU, but also in other states, has been represented by the reducion of taxes, especially of those profitable for the companies. The reason refers to the rivalry between the states in order to attract foreign investments that will draw new work places and prosperity. All states make all possible efforts to create a competitive business environment, as it has been demonstrated by the reduction of total weight of taves in the profit of companies, whith a diminshed rate from 50,6% in 2004, to 49,3% in 2008. In Romania, during post-war period, taxes brought less than 5% from the total budget incomes, the largest part of incomes (considerated as non-fiscal) resulted from state socialist enterprises ( tax on trade, tax on total retribution fund, tax on benefits, etc.) From 1991 the percentage has been inversed, and taxes detained more than 97% from the state budget. Our country has had, during last period of time, a relatively low fiscality as opposed to E.U countries. However, due to fiscal pressure wrongly distributed (taking into consideration social contributions considered as the highest in Europe), due to bureaucracy, to legislative instability and corruption, Romania is far from being a fiscal paradise. According to a study performed by K.P.M.G. company, Romania occupies today a high rank in the top of the countris with the lowest tax income from the 86 states mentioned by the study: Top 10 states in the world with the lowest profit tax. (Year 2008) (%) 1. Cayman Islands 0 2. Cyprus 10 3. Macao 12 4. Oman 12 5. Ireland 12, 5 6. Letonia 15 7. Lithuania 15 8. Bulgaria 10 9. ROMANIA 16 10. Macedonia 10 Sorce: Study K. P. M. G. Profit tax in the states of E.U. (average level in 2009 is 23,6%) (Year 2008) (%) 1. Cyprus 10 6. ROMANIA 16 8. Poland19 9. Slovakia 19 11. Czech Republic 15 18. Greece 29 21. Great Britain 30 22. France 33, 33 26. Italy 27,5 27. Denmark25



It is considered however that low tax of 16% is not sufficient and that profit declaration procedures and payment of the respective tax should be simplified (in most E.U states, are deposited every year and not every trimester, and during the year only estimative advance payments are performed).

Cayman Islands are the most attractive with a tax of 0%, followed by Cyprus, the european state with the lowest profit tax of 10%. Romania, new member of E.U., is situated among the most attractive destinations of corporate investors in E.U. The highest profit tax rates are payed by the firms in Japan 40, 69%, South Africa37, 9%% and Canada 36%. There can be identified more types of fiscal structures: Scandinavian countries, that register very high fiscal samples (over 45% from GIP) with a fiscal structure characterized by direct taxes prevailing, low or average social royalties, and a very oppressive indirect fiscality; Latin countries, with lower fiscal samples, apply relatively less to direct fiscality, but the income tax is lower compensated by higher social royalties, indirect fiscality is higher, but still below the level of the fiscality in scandinavian countries; Anglo-saxon countries, that are confronted with low or average global taxes with a situation opposed to the one in latin countries in the sense that tax income is high, the appleal to social royalties is thresholded, indirect fiscality is reduced in the cas eof general consuming taxes, but the excises are highly efficient.. There could be added group d) in which Romania is situated, as the fiscal structure of the country is characterized by very low direct taxes, average to high indirect taxes and oppressive social contributions.

3.3. Factors that influence fiscal pressure

According to specialists, fiscal pressure influences two categories of factors: external factors and factors of practised taxation system. External factors are representd by: The level of development of every country reflected by the the G.I.P for every citizen. It is obvious that in developed countries, with a developed economy, the incomes and fortunes of people are more consistent, businesses are more profitable, and the contributing capacity of tax payers is higher. The state can ask for high taxes, without the possibility that fiscal charge become unbearable. It is precisely why, in most developed countries, the rate of fiscal pressure is higher, and direct taxes over incomes and over the fortune are predominant. It is not the case, however, of least developed countries where payment possibilities of people are reduced and the state, not being able to collect consistant direct taxes, supplies the budget from indirect taxes, while the global fiscal pressure is, generally more relaxed than that of developed countries. There are, of course, exceptions from this rule. There are highly-developed countries such as the United States, in which fiscality is more relaxed than in the other developed countries and there are developing countries that, in order to eliminate the handicap, establish high taxes, or, on the contrary, offer fiscal facilities in order to stimulate investments and development. The level of fiscality in other countries also influences the fiscal pressure, as an excessive pressure determines the shift of persons and capitals from the so-called fiscal hell to fiscal oasis or fiscal paradise, where their net incomes are higher. 25

The structure of public expenses in different countries also determines a different level of fiscality. In the countries where the state grants priority to social security actions, teaching expenses, health, sport, leisure, culture and art expenses that directly and positively affect the contributors, he has the necessary motivation to establish consistent taxes, with a high level of reversability. Government policies are influenced by the doctrine favoured by the party or rulling coallition. We can divide two types of fiscality: o Liberal fiscality, that is more relaxed as the state is not involved in the economic and social life, granting market freedom and, spending less, claims lower taxes. On the other hand, familiy budgets are more charged with expenses and actions that are generally assumed by the state. o Fiscality favoured by social-democrate doctrine is generally higher, as budget expenses, made for the benefit of the beneficiary, are higher, the reversability rate is also higher, and the redistributive role of the budget is more important. Political options may influence in another way the level of fiscality. A populist Government may, especially during ellections, to undertake ralaxing measures of fisclaity, if it offers familiy allowances as well as significant subventions, making also significant loans in order to compensate for tax reduction. The following Government will deal with a very difficult task, as it will have to withdraw fiscal facilities, to rationalize expenses, by very unpopular measures, in order to deal with the charge of public service duty. C. Tulai has identified other factors such as factors belonging to the taxation system. These factors influence on their turn, fiscal pressure, and are represented by: The type of practised quotas, progression bringing taxe that are more consistant than proportional imposition; Fiscal facilities granted by exonerations, reductions of quotas for certain categories of contributors or deductions from taxable material; Practised evaluation methods can determine over-evaluation or under-evaluation of taxable material.

3.4. Laffer Curve

A. Laffer is famous for the idea he has demonstrated with the help of a curve that bears his name, according to which, starting with a certain threshold, any increase of fiscal pressure will determine a decrease of compulsory prelevation sums collected by the public power. Main idea: According to this curve, the sum of compulsory prelevations is an increasing function of the fiscal pressure rate, but only to a certain maxim threshold, named M, corresponding to the maximum level of the curve, after that, it becomes a decreasing function of this rate: it is annulled if the rate reaches the theoretic level of 100%. This is explained by Laffer by the fact that very high compulsory samples determine resistance and reduction of productive effort phenomena(disintegration of work, of economies, and of investments) that reach such an extent to determine the decrease of total sum. More precisely, Laffer`s curve is divided into two areas: in the left are, called normal or acceptable zone, the reduction of samples prelevation is inferior to the increase of the rate of fiscal pressure; on the contrary, the right zone, called inacceptable zone, any increase of the 26

fiscal pressure is not sufficient for compensating the decrease (reduction) of the obligations samples basis they provoke: therefore, there will result a decrease of the sum of earnings obtained by the public power. Except for the maximum level of earnings M corresponding to T2 rate, the same sum of fiscal samples may be obtained from two rates of fiscal pressure situated as it follows: one in the acceptable zone and the other one in the inacceptable zone (in this way, N sum may result either form T1 or from T3). Laffer estimates that, when the maximum threshold is exceeded and it would normally be followed by a decrease of fiscal pressure, this effect would determine the increase of the efficiency regarding obligatory samples; as a result, we would witness a revitalised economy, and a favoured work, a favoured economy and favoured investments. But the Leffer curve remains a purely theoretical representation that does not allow the exact identification of taxation threshold size M, where the fiscal pressure might be considered as excessive. This threshold is variable according to countries and circumstances; therefore, it cannot be sustained that at a given fiscal pressure rate, a country cand be found on the right or on the left of M point. Fiscal pressure determines a series of problems such as: Risks of diminishing productive efforts. On this matter the liberal economists are to be noticed, as they insist on the discouraging effects provoked by the high levels of compulsory samples over work, economies and investments, as well as over the enterprise spirit. Therefore, from the point of view of challenging the work, it is estimated that there are two opposed reactions that can be determined by an increase of income tax. The substitution effect ( of diminishing work time of an individual resulted from the diminish of his net remuneration) ; Income effect (growth of work quantity in order to compensate the loss of net income due to tax growth). The risk of inflation by fiscality is connected to the fact that any tax growth or social contribution growth affects the processes of determination of prices and salaries and contributes to the growth of inflation. Therefore, even if the enterprises try to include in their sale prices tax growth, functionaries want to recuperate, under the form of higher salaries, the reduction of their selling power resulted from tax growth or social contributions growth, as well as from life price increase. Fraud and tax evasion These practises have always existed, but they are even more stimulated as sampling rates (tax rates) are higher. Therefore, there can be mentioned two procedures by which contributors manifest their resistance to compulsory samples: Underground economy, that refers to different activities with a common characteristic represented by the evasion from any compulsory sample form, as it is the case of illegal work; International evasion, that reflects the interest of certain enterprises for certain countries where fiscal and social legislations are more favourable. Attention: It is not compulsory that, by a simple reduction of fiscal pressure, tax evasion diminsh immediately; this process may require longer time. Certainly, by the increase of fiscal pressure, the phenomena of resistance to taxes represented by tax evasion, will appear. Political resistances, corrution.


Theme no. 4 FISCAL INSPECTION 4.1. Object and functions

Fiscal inspection refers to:

legal inspection and of conformity of fiscal declarations; correctness of obligations fulfilment by the contributors; following fiscal and accounting legislation provisions; establishment or inspection of imposition basis; establishing the differences of payment obligations and of their accessories;

Fiscal inspection has the following tasks: fiscal investigation and observance of all acts and facts resulted from the activity of the contributor who is subject to inspection or to other persons regarding legality and conformity of fiscal declarations, the correctness of fiscal obligations acknowledgement in order to uncover new elements relevant for the application of the fiscal law; Tasks of fiscal analysis and evaluation of fiscal information, in order to inspection confrunt fiscal declarations with personal infomration or with information of other sources; sanction of observed facts and the disposing of measures in order to prevent and combat breaking of fiscal legislation procedures. In order to fulfill its atributions, fiscal inspection organ has the following obligations: investigation of documents comprised by fiscal record of contributor; investigation of the connection between the data in the fiscal declarations with the data in the accounting record of the contributor; ebate on the observations and request of written explanations made by legal spokespersons of Fiscal inspection contributors or by empowered persons; obligations information request from third parties; correct establishment of imposition basis, of differences owed in respect to declared or/and established fiscal claim, at the beginning of fiscal inspection; establishment of payment fiscal obligations differences;


inspection of places where taxable income activities take place; Fiscal inspection disposing insurance measures; obligations performing fiscal investigations; sanctions when the fiscal laws are broken. Observation: The fiscal inspection organ has the right to request written explanations during fiscal inspection, everytime they are necessary in order to clarify and finalize observations regarding the fiscal declaration of the contributor. If the person who is subject to this inspection refuses to co-operate, the fiscal organs have the right to transmit the question by a written address, requesting at least 5 working days notice, for response. If the requested response is not obtained, the refusal is countersigned on the report regarding fiscal inspection or on the minutes. Main idea: Establishing an imposition basis, as well as tax and contributions differences, during fiscal inspection activity, is made on the basis of accounting or fiscal evidences, or of any other records relevant for imposition or by using estimative measures. Persons submitted to fiscal inspection Fiscal inspection is exerted over all persons, no matter their organisation form, who have establishing, retaining, and payment obligations regarding taxes, contributions and other sums owed to the consolidated general budget, foreseen by the law.

Forms and expansion of fiscal inspection general fiscal inspection, that represents the activity of investigation of all fiscal obligations of a contributor, within a determined period of time; partial fiscal inspection that represents the investigation of one or more fiscal obligations, within a determined period of time.

Fiscal inspection forms

Observation: Fiscal inspection may be extended over all connections relevant for taxation, if these favoure the application of fiscal law. Fiscal control procedures In order to accomplish its tasks, the fiscal inspection may apply the following control procedures:

Unnanounced inspection

refers to the activity of factual and documentary investigation, mainly as a result of an intimation regarding


the existence of a fact that contravenes fiscal legislation, without announcing the contributor; refers to the inspection of taxable documents and operations of the contributor, in relation to the ones held by other persons; crossed inspection may also be unnanounced;

Crossed inspection

Observation: The law foresees that, in the case of announced or crossed inspection, the inspection be closed with a minute. The fiscal inspection may apply the following control methods: survey inspection, that refers to the selective inspection of significant operations and documents, that reflect calculation method, as well as the payment of fiscal obligations owed to the consolidated general budget; electronic inspection, refering to the activity of investigating the accounting and its sources, processed in an electronic environment, by using analysis, evaluation and testing methods assisted by specialized computer devices. The use of control procedures cand be made individually or combined, according to the goal, the objectives, the complexity, the difficulties and the specific activity as well as according to the fiscal inspection period and the selection of documents and significant operations is appreciated by the inspector taking into account the volume, the value as well as their predominance in the activity of the contributor. Attention: Fiscal inspection must be performed within the framework of prescription regarding the right to establish fiscal obligations. In the case of large contributors, the period of time submitted to fiscal inspection starts at the end of the period that has been investigated. In the case of contributors from other categories, the fiscal inspection is performed over claims born during the last 3 fiscal years for which there is an obligation regarding fiscal obligations deposition. Fiscal inspection may extend to the enitre period of prescribing the right to establish fiscal obligations, if: there are clues regarding the decrease of taxes, contributions and of other sums owed to consolidated general budget; no fiscal declarations have been submitted; there have not been fulfiiled payment obligations regarding taxes, contributions and other sums owed to consolidated general budget.


4.2. Fiscal Inspection process Fiscal inspection is exerted exclusively, without any interference by the National Agency of Fiscal Administration, or by specialized compartments of local public administration authorities. Observation: The National Agency of Fiscal Administration has a general competence, more precisely, a material and territorial competence, in performing the fiscal inspection of taxes, social contributions and other sums owed to consolidated general budget for the administration of which it is responsible.. Administrative-territorial units, by their specialized compartments, have the material and territorial competence to perform fiscal inspection of taxes and of other incomes for the administration of which they are responsible.. The selection of contributors that will become subject to fiscal inspection is performed by the territorial fiscal organ. Hence, the contributor is not entitled to make any objection regarding the selection procedure. Attention: Before performing the fiscal inspection, the fiscal organ has the obligation to notice the contributor with a view to the the process that will take place, by sending a fiscal inspection notice. Juridical basis of fiscal inspection; The date of beginning the fiscal inspection; Fiscal obligations and periods that will be submitted to fiscal inspection; Possibility to claim the delay of the date when the fiscal inspection begins;.

The fiscal inspection notice comprises:

The delay of the date when the fiscal inspection begins may be claimed, a single time, for justified reasons. Main idea: Fiscal inspection notice will be transmitted to the contributor, in writing, before the beginning of fiscal inspection: 30 days for large contributors; 15 days for other contributors. In certain situations, the communication of fiscal inspection notice is not necessary: granting a request of the contributor; in the case of actions performed as a result of a request made by authorities; in the case of announced control.


Place and time of fiscal inspection The fiscal inspection will be performed, ussualy, at the working place of the contributor. Therefore, the contributor must offer an appropriate room, as well as the logistics necessary for the fulfillment of fiscal inspection. If there is no working place appropriate for the fulfillment of the fiscal inspection, the inspection activity may be performed at the main office of the fiscal organ or in any other place established by the contributor and the fiscal organ. Observation: Irrespective of the place where the fiscal inspection is performed, the fiscal organ has the right to investigate the places in which the activity will take place, in the presence of the contributor, or in the presence of a person designated by the contributor. Fiscal inspection ussualy takes place during working schedule of the contributor, but it can also be performed during non-working schedule of the contributor, by a written agreement of the contributor and with the approval of the manager of the fiscal organ. Attention: Duration of fiscal inspection is established by fiscal organs or, according to the case, by specialzed compartments of local public administration authorities, according to the objectives of the inspection, and cannot exceed 3 months. In the case of large contributors or of the contributors with secondary offices, the duration of the inspection cannot exceed 6 months. The fiscal inspection must follow these rules: Fiscal inspection must take into account the examination of all factual situations and the juridical relations that are relevant for imposition.; Fiscal inspection must be performed in such a manner to affect as little as possible the current activity of contributors and make use of the time reserved to fiscal inspection; Fiscal inspection is performed a single time for every tax, contribution or other sums owed to the consolidated general budget as well as for every period of time reserved to taxation. By exception, the competent leader of the fiscal inspection may decide to investigate again a certain period of time if, from closing time of fiscal inspection to the date of prescription term achievement, there can be noticed suplimentary data, unknown to fiscal inspectors or even calculation errors that influence their results; Fiscal inspection is exerted on the basis of independence principles, of uniqness, of autonomy, of ranking, of territories and decentralization; Fiscal inspection activity is being organized and developed on the basis of annual programs, trimestrial and monthly programs, approved in the conditions established by an order of the president of National Agency for Fiscal Administration, or by acts of local public administration authorities; At the beginning of the fiscal inspection, the inspector is obliged to present to the contributor the inspection identity card as well as the order of inspection signed by the leader of the control organ. The beginning of the fiscal inspection must be mentioned in the Unique Register of Control.; At the end of the fiscal inspection period, the contributor is obliged to make a written affidavit, according to which, all requested information and documents have been presented to the fiscal inspection. The affidavit will also mention the fact that all requested documents have been given back to the contributor; 32

The contributor is obliged o fulfill all the measures foreseen in the document that has been elaborated when the fiscal inspection took place, according to conditions established by fiscal inspection organs. Observation: Additional data, that are unknown to fiscal inspection organs when performing the fiscal inspection of the contributor, that represent the foundation of the reinvestigation decision regarding a certain period of time, may result in the following situations: Performing a crossed inspection of justifiable documents belonging to a contributors group that includes the respective contributor; Obtaining documents or additional information refering to the activity of the contributor, during fiscal inspection performed for other contributors, during a period of time that has already been subject to fiscal inspection; Claims of penal organs or of any entitled organs or institutions; Information obtained in any other way, that will modify the results of previous fiscal control. The contributor must be informed with a view to conclusions of fiscal inspection during the entire period of inspection. Therefore, at the end of the fiscal inspection period, the fiscal organ will present to the contributor the fiscal conclusions regarding the problems that have been discovered; the contributor will have the possibility to express his point of view, except for the case in which taxation bases have suffered no modification following the fiscal inspection, or except for the case in which the contributor gives up this right and announces the fiscal organs with a view to this situation. At the same time, the contributor has the right to present, in writing, his point of view regarding the conclusions of fiscal inspection. Attention: According to the law, the fiscal organs are obliged to notice penal organs with a view to conclusions of fiscal inspection and that might represent constituent elements of an infraction, according to conditions foreseen by the penal law. The result of the fiscal inspection is mentioned in a written report, that comprises the conclusions of the inspection, from a factual and juridical point of view. If, as a result of inspection, the imposition basis is modified, the report represents the basis of imposition. If the imposition basis changes, this fact is transmitted to the contributor in written form. The result of general fiscal inspection or partial fiscal inspection, is mentioned in a fiscal inspection report that is signed by fiscal inspection organs, as well as verified and advised by the chief-in-service. The elaborated report represents the basis of issuing decision that comprises differences from the existent fiscal claim at the moment of beginning the fiscal inspection. If the imposition basis is not modified, this fact will be established by a decision regarding nonmodification of imposition basis. Foreseen decisions will be transmitted within 7 days from the date of finalizing the fiscal inspection report.


Prescription of the right to establish fiscal obligations The right of the fiscal organ to establish fiscal obligations is prescribed within 5 years from January the 1st of the year following the one in which the fiscal claim has been born. The right to establish fiscal obligations is prescribed within a 10 years term, if they are the results of commiting a felonyforeseen by the penal law. The above-mentioned term starts from the date of committing a felony that represents an infraction sanctioned accordingly by final Court decision.. The prescription term of the right to establish the fiscal obligation is suspended during the period between the starting point of the fiscal inspection and the moment of issuing the imposition decision as a result of performing the fiscal inspection. If the fiscal organ notices the fulfillment of the prescription term regarding the right to establish the fiscal obligation, it is obliged to cease the issuing procedure of the fiscal claim title.

4.3. National Agency of Fiscal Administration and Financial Guard


The Financial Guard is a public intitution of control, with juridical personality, that exerts an operative and unnanounced control in order to prevent, uncover and fight any facts in the financial, economic and customs fields, that are subject to fiscal fraud and evasion, organized as a special organ of central public administration subordinated to the Ministry of Public Finances National Agency of Fiscal Administration.

The Financial Guard performs the operative and unannounced inspection as current or theme based inspection, by case, regarding the following tasks: Participation, with its own personnel or in collaboration to specialized organs of other ministries or specialized institutions, to actions of tracking and fighting against illicit activities that generate fiscal fraud and evasion phenomena; Respecting trade norms, observing the prevention, tracking and elimination of illicit operations; The producing manner as well as storage, circulation, and capitalization of goods, in all the places and speaces where the economic operators activate; Complying with normative acts in order to prevent, to uncover and to combat any acts and facts forbideen by the law, according to material competence. Attention: The Financial Guard is entitled, at prosecutor`s request, to perform observations regarding the facts that disrespect dispositions and obligations they protect, by elaborating minutes that represent evidences, and is entitled to observe contraventions and to apply appropriate sanctions, according to competences foreseen by the law.


Every inspection is performed by at least 2 investigators, and the conclusions resulted from the inspection are mentioned in control documents, that describe the facts, the broken provisions, the sanctions applied, as well as the legal measures that will be performed.. In the case of actions of control with a high degree of danger, investigator teams are accompanied by members of units specialized in police interventions, and the inspectors are invested with the power of public authority, being protected. Observation: The law does not allow the personnel belonging the the Financial Guard to participate to fiscal investigation actions as the actions regarding the establishing, tracking and collection of budget incomes. The documents elaborated by inspectors of the Financial Guard are commmunicated to the General Directorates of Public Finances in order for fiscal measures to be taken, or are transmitted to penal organs, by case: General Commissariat Territorial organisation of Finacial Guard County departments and Bucharest Municipal Department The General Commissariat is the main structure of the Financial Guard, organised in divisions, directorates, offices and compartments. County departments and Bucharest Municipal Department, are territorial units under the authority of Financial Guard, with juridical personality, organised in divisions, directorates, offices and compartments. County departments and Bucharest Municipal Department are subordinated to the General. The number of leading positions within departments, directorates and compartments in the structure of the Financial Guard has been pproved by an order of the president of National Agency of Fiscal Administration, at the proposal of the general commissary (approximately 2000 positions in 2009). Main idea: The Financial Guard is coordinated by a general commissary, a high public functionary, tertiary authorising officer, appointed by an order of the Minister of Public Finances, and comprises a central aparratus, the General Commissariat, entitled to function within the entire romanian territory, and a territorial aparratus, comprising county departments and Bucharest Municipal Department, that are entitled to control the activity in the entire territory, respectively of the Bucharest municipality, in which they activate. However, according to dispositions of the general commissary or with the his written approval, at the request of chief-commissaries of county departments and of Bucharest Municipal Department, to certain investigations cand participate commissaries from any of county departments and/or Bucharest Municipal Department. In the case of operative situations 35

that cannot be delayed, the written approval may be obtained following the beginning of the investigation. The General Commissary co-operates with the Executive General Commissary and with 3 Executive General Commissaries, appointed, according to the law, by an order of the Minister of Economy and Finances. County departments and Bucharest Municipal Department are coordinated by a department chief commissary along with executive chief commissaries.

National Agency of Fiscal Admininstration Main objectives of the activity performed by the National Agency of Fiscal Admininstration: Collection of incomes from the state budget, representing taxes as well as other incomes of the state budget, according to competences, as well as of the incomes of the budget of unemplyment insurances, of the budget of Unique National Fund of Health Insurances, representing social insurance contribution, unemployment insurance contribution, health insurance contributions, work-related disease or work-related accidents insurance contribution, owed by payers, juridical or physcial persons, with employer quality or persons assimiliated to them and other persons with obligations towards state budget. MAIN OBJECTIVES Unitary application of legal provisions regarding taxes, social contributions and other budget incomes in its field of activity. Exerting prerogatives established by the law by applying a treatment equal to all contributors. Application of provisions resulted from Governing Programme and from the customs service legislation, to customs service. In order to fulfill its objectives, the National Agency of Fiscal Administration must accomplish the following tasks: To ensure correct, unitary, and non-discriminating application of fiscal legislation; To ensure and/or to advise normative act projects that comprise provisions regarding the administration of budgetary incomes; To participate, together with specialized directorates subordinated to the Ministry of Public Finances, at project elaboration of normative acts regarding the establishing of budgetary incomes; To prevent and combat tax evasion; To exert operative and unannounced control of prevention, detection and combat with a view to any facts and acts from economic, financial and customs fields, that result in tax evasion; 36

To exert tracking, surveillance and fiscal control, in the entire national territory, of respecting the legislation regarding the field of taxes, social contributions and other budgetary incomes for which it is competent according to the law; To perform fiscal investigation procedures during inspection; To exert the activity of customs inspection, and any other form of inspection regarding the legislation in the cutoms service; It has permanent delegates at the Mission of Romania in the E.U or within other international organisms, that ensure an operative connection regarding customs issues; To elaborate admininstrative procedures regarding taxes, social contributions and other budgetary incomes; To admininster the deposition of declarations of tax imposition, social contributions and other budgetary incomes according to the law, as well as the evidence of performed payments, of tax payers; To initiate and develop legal actions in the case of non-conformity of contributors regarding the accomplishment of declarative obligations and payment; To elaborate and apply procedures of imposition for physical and juridical persons, according to legal provisions; To elaborate and apply the procedures regarding the evidence of contributors, fiscal report management, as well as the management of fiscal record; To elaborate and present to his personnel informative materials regarding the application of the specific legilsation for every field of activity; To observe and encourage voluntary conformation of contributors by developing services offered to them, that are ment to facilitate the accomplishment of their fiscal obligations; To elaborate and apply the procedures regarding voluntary payment and the stablishment of means of payment, along with specialized departments within the Ministry of Public Finances; To elaborate procedures regarding the activity of guidance and information of contributors and to ensure unitary implementation of them at the level of all territorial fiscal units; To ensure, by administrative structures, guidance of contributors in applying the fiscal legislation and of the provisions of the conventions regarding the avoidance of double-imposition; To elaborate informative materials such as guides, brochures, fliers and other such means, in order for contributors to understand the fiscal subjects they are interested in. Observation: In order to fulfill its activity, the National Agency of Fiscal Administration cooperates with ministries and authorities of central public administration, with local public administration authorities, with other public intitutions, as well as with juridical and physical persons and other entities. The National Agency of Fiscal Administration co-ordinates, from a methodological point of view, administrative structures within general 37

directorates of county public finances as well as of the General Directorate of Public Finances of the Municipality of Bucharest, as well as the General Directorate of Administration of Large Contributors. In order to fulfill its tasks, the National Agency of Fiscal Administration is authorized: To exert absolute fiscal inspection, as well as absoulte customs and financial inspection,according to actual legal provisions; To abilitate economic agents to take measures in order to respect the law; To apply sanctions foreseen by the law according to its competence; To approve restitutions, and compensations from the payment of taxes, of social contributions as well as of other budgetary incomes; To observe and take measures in order to apply legislation regarding state aid, according to its competences; To apply, by responsible organs, forced execution measures as well as insurance measures, according to the law and according to its competences; To close exchange informations protocols as well as cooperation protocols with the ministries, with public institutions and with other ogranisations, according to its competences; To solve prior complaints and petitions and to present all public information to all interested parties.. Main idea:: Within the Ministry of Public Finances the National Agency for Fiscal Administration, activates the National Authority of Customs, as a specialized organ of central public administration, public institution with juridical personality, with its own budget. This is also the case of the Financial Guard, as a specialized organ of central public administration, a public institution with juridical personality, with its own budget..

Theme no. 5 TAX EVASION

5.1. Notion of tax evasion and its manifestation forms


For the first time after 1989, tax evasion has been defined as evasion by any means, completely or partly, from the payment of taxes and other sums owed to state budget, to local budgets, state social insurances and of special non-budgetary funds by foreign or romanian physical and juridical persons


Oreste Anastasiu has defined tax evasion as the sum of illicit and licit procedures with the help of which the interested persons will circumvent their entire fortune or part of it, from obligations established by fiscal laws. Main idea: Hence, it can be sustained that, any action of the economic subject, that diminishes the monetary value of legal payments to state budget (and other public funds established according to the law), are classified within the economic category called tax evasion.

Observation: Human nature has always had the tendency to favour personal interest and to disrespect the general interest; it views taxation more as a prejudice than a legitimate contribution to public expenses and to always perceive in a negative way the person who wants to diminish its patrimony. Antifiscal spirit has always been a characteristic of town contributors as the peasants, as a social class with a fiscal tradition that has been created hundreds of years ago, has always been a good contributor. Unfortunatelly, no matter how many laws regarding repression of tax evasion would appear, this problem will never completely dissappear, especially during this period of transition towards market economy when, tax evasion along with the corruption, are the social and economic phenomena with the largest publicity. It could only be softened by coercive measures, by a fiscal education of all categories of contributors, through an adequate fiscal policy, during a renewed economy. Causes of tax evasion The most important reason of a romanian contributor when he wants to diminish taxes owed to the state, is exactly the exaggerated size of these taxes; therefore, fiscal pressure is a determinant cause of tax evasion. Observation: At a first glance, the fiscal pressure in Romania is relatively low in comparison to that of the developed countries in the E.U., but, due to high social contributions, due to bureaucracy, of legislative instability and of the corruption, Romania is far from being a fiscal paradise. Another cause of tax evasion is the instability, low rate of predictability, and the bureaucracy in the romanian fiscal system. Therefore, if we take into consideration the example of profit tax, that has decreased during the last years, in Romania (16% from 2005), has been proved that it simple reduction is not a sufficient strong argument to encourage foreign investments. Observation: Countries like the USA, Germany, France, or Canada are entitled to apply a higher tax than Romania, or Bulgaria as they offer different advantages to investors, such as: a modern infrastructure, efficient and honest justice, qualified work force, or the access on larger markets. Similarly to many individual consumers, many investors do not desire to obtain the cheapest product. A large group of them want to activate in a high quality environment, not to lose time with submitting declarations, even if they pay higher taxes. . 39

Corruption of public functionaries is another cause of tax evasion. Due to extremely low salaries (a fiscal inspector or a commissary from Financial Guard, with seniority, receives a gross salary of 1.500 lei); therefore the inspectors are highly vulnerable when dealing with billion lei profits of various institutions. Another cause of tax evasion is the non-existence of tax instances. Fiscal claims are discussed in Courts where there are no specialists in this field, and many lawsuits are won by evasionists, with severe consequences. there are also psycho-social causes, such as the weakness of human being when dealing with tax evasion, no matter how low the income is and no matter how precise income rules are. This is the reson why tax evasion will never be completely eradicated, but reduced by measures always adapted to the ingenuity of those who practise it. Forms of tax evasion Legal evasion would signify, according to persons who sustain this conception, the exploitation of the existent normative framework, in the sense of intelligent capitalization of inconsistency or equivocal legal provisions, in order to avoid the payment of legal obligations towards the state. Main idea: Contributors try to obtain a favourable position, in order to benefit as musch as possible from the advantages offered by actual fiscal regulations. Hence, contributors usually make use of legal procedures and even of possibilities left opened by the lawmaker, sometimes with a certain purpose. It is known, for example the fact that, in order to promote certain economic activities, there are foreseen exonerations as well as different forms of fiscal stimulation, that will be adopted by certain persons who have no right to benefit from them. Tax evasion or tax fraud is committed by flagrant breaking of regulations, making use of the specific manner in which the imposition is made. Usually, the imposition is established on the basis of the declaration of the person in question, who is obliged to transmitte to resort organs all the elements according to which there will be established payment sums. The fraud consists of an incorrect declaration that has been submitted or of a tax declaration that has been submitted, although incomes are obtained. Observation: In the case of income taxes of physical persons, the fraud consists of incomplete declaration regarding obtained incomes. In the case of profit taxes of companies, fraudulent diminishing of taxable material may result in diminishing the real turnover, by registration of personal expenses of the owners, by registration of expenses that are not real. Also a fraudulent practise are those sales performed without a bill, as well as the issuing of bills without real sale, that hide real operations submitted to imposition. 40

Main idea:

Tax evasion or tax fraud may appear under various illegal forms varying from exaggeration of positions, as exaggeration of expenses, to positions issues (usually incomes), the latter ones being characterised by a higher extent of gravity, as they are more difficult to evaluate.

The ways in which taxes can be diminished by using tax evasion or tax fraud are: 1. Undeclared activities and hidden incomes result from them as well as undeclared offices, or undeclared deposits to the fiscal organ and to the Commerce Register; 2. Double or triple accounting evidences so that the evasionist agent may keep an evidence only for himself, or may perform an accounting evidence for the fiscal organ, according to which, incomes are much lower or expenses much higher than the real ones, there cand be established an accounting evidence only for banks, in which incomes be exaggerated, an evidence that will never be presented to fiscal organs; 3. The creditation by the owner of his own firm with money obtained from underground economy and perception of intersts that exceeding legal thresholds; 4. Destruction of legal documents that comprise the incomes of the company and nonrecovery of these documents within the legal term (their deliberate arson, declaring them as lost or stolen); 5. Partial usage or non-usage of fiscal cash registers, the consequence being nonregistration of incomes.; 6. Non-registration in accounting registers of differences established by fiscal organs following the inspection (lately, the method is not that useful anymore due to the upgrading of payer record performed by the fiscal organ); 7. Registration in workman`s pass of employees of sums that are much lower than those sums granted in reality, usually within the minimum salary. This procedure is widely used in our country due to excessive social contributions. Money difference is payed by the owner from the money obtained from illegal work or, most of the times, from dividends;. 8. Performing illegal work by hireing without legal forms in order to avoid state budget tax; 9. VAT deduction to goods and services that are not connected to the activity of the company and including on costs of personal expenses of the owner and of his family; 10. Double deduction of sums representing VAT, hoping that this procedure will not be discovered during a fiscal inspection; 11. Non-collection of VAT when receiving cash advances (advances representing hidden loans between the firms); 12. Non-declaration as VAT payer to the fiscal organ at the moment of exceeding the legal storage (35.000 Euros); 13. Non-declaration as monthly VAT payer by exceeding the turnover of 100.000 Euros; 14. Registration of expenses with providing services from internal to external (management, marketing, consulting etc). In reality, these services are not performed, and there are only documents that artificially raise the expenses, and the providers are dummy-companies; 15. Non-deposit of local tax declarations or depositing of declarations containing false data at the office of local fiscal organ; 16. Non-registration of incomes resulted from liberal professions, of goods cession, from agriculture, at the office of fiscal organ; 41

17. Destruction of charging devices in the cabs, of cash registers or of the memories belonging to gambling; 18. Cashing money from the company as advances, without justifying them, by associates; 19. Elaboration of notarial acts, in which, in order to defend the illegal activity of the moneylender, false data are mentioned, in the sense that the loan lacks interest, being mentioned a quatum of a sum that comprises the credit as well as the interest; 20. Dummy-companies, represent an instrument of evasion that has developed during the last years in Romania, more than in other parts of the world. This phenomenon has been possible as there is no selection procedure of the foreigners who set up a company. Most such dummy-companies belong to arab citizens as well as to chinese citizens. These firms are used as curtains for illicit commercial operations. It is the case of cigarettes transportation that pass through a dummy-company and are sold afterwads with a bill of another company. Taxes cannot be claimed as the owners of the dummy-company disappear, and the clients or the drivers of the transport have no responsibility whatsoever; Also between the arabs, it is practised the establishment of companies, on the name of third parties, without them knowing it. Under false pretences there will be borrowed a passport, and, by forgerying acts, declarations and signatures, with the help of a notary and of a judge, there can be validated the establishment of firms that are not known to their owner. In the files of the General Inspectorate of Police, there has been mentioned the case of a company owned by foreigners, who, according to reports, have never been to Romania. Characteristics of dummy-companies: - it is registered the the Commerce Register; - it has a false office; - stockholders have left Romania or are nowhere to be found; - commercial operations are not registered in the accounting reports; - there are no payments of taxes, therefore there is a complete tax evasion; 21. Transitory regime trade or temporary import. In such situations, customs taxes for extra-communitary transactions are not being payed. This does not forbid to the transporter to brake the seal applied at the customs when entering romanian territory, to sell the merchandise, to restore the seal and flee the country, as nothing had happened. The illegal fact is discovered in the case of a flagrant or if the broken seal is noticed. Sometimes the customs officers are complices. The biggest fiscal frauds have been committed in the petrochemical industry field, with prejudices of hudreds of million of dollars. In this way, have been introduced in the country important quantities of petroleum for processing, in a temporary import regime, but it has been commercialized in Romania, without any customs taxes, after these products have apparently fled the country; 22. Subevaluation of goods, refers to the import of goods on bills on which the caterer mentiones, according to the agreement, a value that is considerably lower than the real value, in order to diminish the value of taxes that have to be payed. Commerce of merchandise in the country is perormed with the help of dummycompanies, that sell the merchandise at the price of the market, without paying taxes. 42

Overevaluation of goods The goal is the same-taxes that are not payed The process consists of buying foreign merchandise of 100$, the owner changes, passing through an off-shore company, and the price rises to 179$, while profit tax is payed for 1$. The main condition is that the price of intrenal market be around 180$, so that nothing seem illegal, and the customs tax be low, in order to obtain maxium profit. All operations are illegal, and the money that should belong to the romanina state are off-shore. This is the main problem of north american fiscal organ and might become deangerous for us as well, as the customs taxes are reduced; 23. Due to bureaucracy and also to corruption, the classical contraband is a form of tax evasion with a very high transformation process. It consists of passing through the customs office, especially on the Danube of cigarettes, alcohol, estc, without paying customs taxes; 24. The method of tops does not necessitate the avoidance of customs, but refers to hiding of the goods under a layer of 1-2 layers of covering merchandise, less valuable (detergent, toilet paper, etc). The latter is mentioned the the papers that accompany the new container, of the truck, etc; 25. Non-deposition of accounting balances or deposition of balances that do not reflect reality, is another means of delaying the payment of budgetary obligations. Taxable incomes, in the case of companies, are established on the basis of the fiscal balance that does not overlap with accounting balance, but must be extracted from it in order to determine the taxable profit. 5.2. Underground economy-complementary phenomenon to tax evasion Internationally, it has been decided that the definition of underground economy must include two aspects: : 1. underground economy is the economy that is not mentioned by statistics, and cannot be precisely quantified; 2. activities comprised by this type of economy must be expressed in terms of GDP, the latter allowing the comparison on size matters, of underground According to a that has been officially measured. economy with the GDPdefinition adopted especially by the countries iN the E.U, activities that characterize the field of underground economy are classified as: 1. licit (legal) productive activities that are not declared (black market economy), include activities that are not registered at the level of the state in the national accounting system (household activities, voluntary work) as well as those activities that are not declared at the financial administrations (fraud and tax evasion, black market work, tips, etc.) and 2. illicit productive activities (illegal) of goods and services (production and trade of drugs, guns traffic, etc. ) not declared.



The experts consider the definition given by Pierre Pestieau as being the most comprehensive definition of underground economy: all economic activities are performed outside penal laws, social or fiscal laws, that are not included in the inventory of national accounts. 43

In another classification of the activities comprised by underground economy, proposed by Pierre Rosanvallon, there is a clear distinction between autnomous economy and occult economy. Autonomous economy groups non-commercial underground activities such as: household work, helping services between neighbours, relatives, friends, voluntary work in the advantage of community, or in general. These activity forms do not parasitate and do not compete with the official economy, but they are its alternatives. Autonomous economy is seen as the ositive side of underground economy due to the fact that it cand produce goods and services in a more economic manner, more adapted, less standardised that the ones offered by the market. Occult economy refers to commercial underground activities, such as: - non-declared legal activities: production of clandestine enterprises, diminished reports of the production belonging to official enterprises, payed salaries or declared salaries at a diminished level; - delictual activities: prostitution, gambling, corruption, bribery, insurance frauds, forgery, etc; - fraudulent activities: black market work, fiscal fraud, workforce traffic, etc. Observation: Frequently, it has been considered that, the prevalence of a form or of another one of underground economy, the way of manifestation and the way it influences the official economy, varies from one country to another, according to the economic and organisational system as well as according to social and historical particularities. In general, in economically developed countries, the legal non-declared activities, in order to avoid fiscal obligations, represent the most important component of undreground economy, while, in non-developed countries, due to their own consumption that is very high, and the possibilities of registering from a statistical point of view all activities, are reduced, the production that is not measured in a conventional manner (non-official licit) is very important, as it often exceeds the official economy. According to a study performed by International Monetary Fund and the World Bank, worldwide, a non-official economy of 10-15% from GDP is accepted as being reasonable. Atention: In Romania, underground economy has developed during the last 3 years, from 48 billions lei in 2005, to almost 87 billions lei in 2007 (according to National Institue of Administration). Forecasts regarding the added-value lost due to illegal work, of fiscal frauds to V.A.T and of losses in the informal sector rose to more than 21% from GDP in 2007. In this way, GDP losses caused by illegal work have been estimated to 10,7 % - calculated as a differnce between the number of persons who declare their work in an enterprise and the number of persons declared by the enterprise for which state taxes are payed. Moreover, GDP losses caused by tax evasion at VAT payment have been estimated to 4,6


% - calculated as a difference between the theoretic VAT and the one registered at the budget of state. GDP losses caused by informal sector (hpuseholds, theachers who grant consultations, plumbers, etc) have been estimated to 5,7 % calculated on the basis of gross added-value of persons who work on illegal basis in the households and the ones registered at M. P. F with independent activities. 5.3. International tax evasion 5.3.1. Fiscal paradises


According to Gordon Report, published in 1983, fiscal paradise is any country considered as such and that wants to be one. Another definition, : belonging Roger Brunet, mentions the fact that a fiscal paradise is any territory on which physical persons or companies have the impression of being less taxed than in any other place. Other authors consider that the fiscal paradise represents the state or the territory on which a physical or juridical person enjoys a privileged fiscal system, due to the fact that he does not pay taxes, or due to the fact that the tax is determined in lower quotas that the country of origin .

Observation: Certain specialist agree that the idea of considering the fiscal paradise as a means of producing fiscal frauds is slightly exagerrated. This statement is based on the fact that fiscal fraud is sanctioned on a pecuniar and penal basis, while contributors who use the advantages offered by these territorial entities are not sanctioned. Therefore, it is better to admit that fiscal paradise is a means, an instrument by which international fiscal evasion is performed by contributors who are looking for a more advantageous fiscal treatment. Attention: According to the statistics of the Organisation for Economic Co-Operation and Development (OECD), 3 decades ago, there were 35 fiscal paradises (the turnover exceeds 70). Businesses performed through them are extremely high. Economic analysts state that aproximately 70% from worldwide monetary mass in enrolled by fiscal paradises. If, in 1978 american corporations transferred toward fiscal paradises, under the form of direct foreign investments, the capitals estimated to 23 billions of US dollars, and the corporations of Western Europe advanced financial resources estimated to 160 billions of US dollars, in the contemporary period, at the beginning of XXI century, the volum of capital operations enrolledin paradise-countries are estimated to 1.600 billions of US dollars, according to officials of the Organisation of United Nations. According to american analysts, the turnover of fiscal paradises would represent 50% from worldwide economy, as opposed to 5% 20 years ago: 45

Fiscal paradises present certain predominant characteristics: Hence, the tradition of establishing fiscal paradises in the vecinity of seas and oceans is highly respectd, even today, with few notable exceptions, form the heart of Europe; The majority of fiscal paradises are small states, newly independent, or autonomus territories with an exotic landscape and a small population. They are ussually characterised by a very good communication network(telephone, cable, telex, etc.), that connect them to many countries, developed airline services, with connections to main airports in economicly developed countries, as well as a geographic settlement that attracts tourists; These juridical entities (fiscal paradises) offer fiscal advantages, in comparison to other juridical entities, to companies that establish their social office or to physical persons whose residence can be found on the territory of the countries. The goal is to attract expanding companies, capital attraction, as well as encouragement of the activities necessary to accomplish the aconomic and social balance. Fiscal facilities used in order to achieve the goal are multiple: tax immunity of incomes and realised profits or application of extremely low quotas; Another essential characteristic refers to protection by law of financial or commercial operations performed by physical or juridical persons. It is not neglected the fact that fiscal paradises dispose of fiscal agreements with industrialized countries, in order to avoid double imposition of incomes; A certain degree of banking secret is characteristic to fiscal paradises, as well as to other states. The difference consists of the idea according to which most conuntries will not protect the information in the case of judicial inquiery, that is legally performed by the authorities of a foreign state, while a fiscal paradise will definitely refuse to break the banking secret, even in the situation of a very serious felony or when the laws of a foreign country are broken; In order to ensure a privileged fiscal regime, these countries, permanently adapt their fiscal legislation according to its international evolution; Another important characteristic refers to the lack of control over the currency. As a general rule, foreigners are not submitted to inspection of foreign currency operations, but when they perform operations in the currency of the fiscal paradise. Hence, any foreigner may set up a company in a fiscal paradise, in order to develop activities in the jurisdiction of other countries; in these case the company will not be submitted to the inspection over operations and exchanges of currency, as long as its activities are developed in the currency of other states and there are no transactions in the fiscal paradise country.

Observation: A very important aspect must be taken into consideration: a fiscal paradise might be advantageous for a physical person not for a juridical person. For example, the Principality of Monaco is a fiscal paradise for physical persons, as there is no tax income. Still, it would not be an advantage to establish a 46

company on this territory as it woul be obliged to pay a 35% tax over obtained benefit, if more than 25% of it is accomplished outside the principality. On the other hand, Jersey Island is one of the most advantageous fiscal paradises for non-resident companies that are being built on that territory, as, on the basis of a 300 pounds a year, they don`t have to declare any benefit or to keep the accounting report. Still, in the case of a physical person, the situation is less favourable, as the tax income is of 20%. Fiscal paradises may be divided accroding to the following criteria: Hence, taking into consideration the fact that any country may become a fiscal paradise or may not be one anymore, fiscal paradises may be classified according to their importance: primary and secondary. Primary fiscal paradises, are also divided according to main legal provisions (in reality, many countries belong to certain categories): countries that apply no imposition over incomes and capital growth (named zero havens) for physical persons: Bahamas, Bahrain, Bermuda, Cayman Islands, Nauru, Saint-Vincent, Turks and Caicos, Vanuatu and the Principality of Monaco; countries in which income tax or benefit is established on a territorial basis: Costa Rica, Hong-Kong, Liberia, Malaysia, Panama, Filipines, Venezuela. In these countries, contributors benefit from an exoneration of benefits obtained from operations performed outside the territory; countries in which imposition quotas are lower: Liechtenstein, Switzerland, British Virgin Islands, Netherland Antilles, Jersey, Guernesey, The Isle of Man, Ireland. Quotas have a low level as they are established by the states as such as a result of the application of the reduction of quotas, owed to fiscal agreements regarding double imposition; countries that offer advantages specific to holding companies or to off-shore companies: Singapore; countries that offer fiscal exonerations to industries created in order to develop the exports: Ireland, in the case of companies created before January the 1st 1981; countries that offer other advanatges specific to certain companies: Antigua, Anguilla, Grenada, Jamaica, Barbados. Secondary fiscal paradises comprise: - small countries: Vatican, Maltese Republic, French Polinesia, Tonga Islands, Maurice Islands, Djbouti Republic, Haiti,Virgin Islands, Jamaica, Taiwan, Norfolk Islands, Christmas Island, Coconut Island, Svalbard Norwegian Archipelago. Characterized by a small surface and a numerically reduced population, without comprising the main characteristics of fiscal paradises, they do not apply any fiscal imposition, any imposition of incomes accomplished by physical persons or companies; moreover they grant exonerations for activities developed by certain companies and establish more reduced quotas; - industrialized countries, that might become a focus of the activities performed by certain companies, such as: USA, France, Italy, Belgium, Austria. Parallel to the combat of tax evasion, industrialsed countries tend to grant attractive fiscal facilities, by granting tax reductions, in order to attract foreign capital or export rise. 47

Secondary fiscal paradises are characterized by the high level of imposition regarding certain income forms, but comprises certain particula dispositions, that can be used within a tax planning operation by investors. According to the geographic area in which they are situated, fiscal paradises are grouped as it follows: - Caribbean Area and Central America Bermuda, Panama, Costa Rica, Belize, Bahamas, Antigua, Dutch Antilles; - Asia-Pacific Liban, Dubai, Marshall Islands, Virgin Islands, Singapore, Hong-Kong; - Africa Indian Ocean Liberia; - Europe Andorra, Cyprus, Gibraltar, Man Islands, Lichtenstein, Malta, Monaco. According to persons who use them, fiscal paradises are divided as it follows: Fiscal paradises for physical persons: Andorra, where tax quota is zero; Bahamas, where there are no taxes, but only traps that should be avoided; Campione dItalia, a very small region that applies no tax income, available for other nationalities than italians, persons who are not involved in businesses with Italy; Cayman, with no income tax; Cyprus, that reserves fiscal privileges to retired physical persons; Monaco, that does not claim tax income, but is forbidden to french, as it is the case of Campione dItalia for italians. Fiscal paradises for juridical persons: Bahamas, Bermuda, Turks, Caicos, Cayman there can be established non-taxable companies, if they refer to an external activity; Bahrain that does not charge foreign companies. It is favoured by arabs; Cyprus a place where a continuous activity is developed, due to a complex mix between the notion of residence and the notion of non-residence; Guernsey and Jersey there are countries where non-resident companies are tax free. Jersey has a special position as its image has been affeted and the relation quality-price is not satisfying anymore; British Virgin Islands an area in which a single talented lawyer sustained by an intelligent government created between 1984-1992 more than 60.000 companies with external activities, that are not taxed; Liberia has a deteriorated image, but this does not mean that non-residents cannot set up foreign companies; Panama in which the manufacture of products is a highly productive process; Factors that influence the selection of a fiscal paradise are divided into: general factors, particular factors and specific factors. General factors are: Juridical status no matter if it is the case of another state or of a territorial entity that is part of a state, it must have a precise juridical status; Political consensus the avoidance of the possibility to limit the freedom of the 48

company at a certain point, under a certain pretext, by the sudden change of legislation towards foreign capital. There will be avoided countries in which governments restrict the participation of foreign capital, the control over certain fields of activity is detained, or national investments are encouraged; Geographic situation the existence of a communications system by telephone, telex, fax, is essential for the development of a business. The storage and transportation of commercial goods are influenced by the existence of a comfortable and fast transport, by air, by water or by land. Moreover, the length of distances influences the cost of operations and the efficiency of affairs; Economic and political stability the decision of governments of certain countries to proceed with nationalizations and expropriations, represents a risk that cannot be neglected; Social structure the company that intends to establish its office in a fiscal paradise claims information regarding the juridical structure, banking structure, hotel-related structure as well as the quality of life in the respective area; Currency and control of exchanges the interest of governments to combat inflation, the existence of a fix currency and of banking structures connected to all financial centres of the world represent essential factors when making the decision. Free transfer of profits and capitals in convertible values influences the development of economic operations as well as the results obtained; Business volume- refers to the existence of a local market representing a secure basis for the development of operations abroad; Cost and time necessary for setting up a company governments that decide to encourage the attraction of foreign capital must ensure compeetitive conditions and resonable costs in comparison to other governments; Fiscal regime along with granted fiscal facilities, the sum of taxes is very important. Although a country cannot establish taxation on the profits of a company, tax income, dividends tax, and interests retained from the source or their quotas be reduced, but there can be risen other taxes. There can exist wealth taxes, succession taxes, taxes on buying immobile goods or certain annual fiscal taxes that cannot be neglected; Fiscal agreements the lack of provisions regarding information exchange between governments and the guarantee of double imposition, in the conditions of granting total or partial fiscal facilities; attracts foreign investors; Granting specific guarantees foreign investors claim written guarantees for initiated businesse, in order to protect the businesss against fiscal organs, against a negative attitude toward foreigners, contrary to initial commitments. Moreover, businessmen ensure that the favourable fiscal regime will be mentained, that they will be able to repatriate capitals and to transfer profits in the case of nationalization or expropriation. Particular factors that influence the decision regarding the establishment of a fiscal paradise are determined by the motivation and by the individual situation of physical and juridical persons. They refer to: - the residence of physical persons and the influence of their transformation estes establish income imposition of physical persons depending on the residence (Great Britain, France), or depending on nationality (USA, Philippines); 49

- office of companies and their transfer shifting the office of a company implies risks connected to economic and political evolutions, as well as to the evaluation of fiscal regulations. Still, in many countries, false transfer of the social office has no effect on the imposition of company`s profits, as companies are imposed if they are residents, better said, if they perform economic operations on their national territory; - capital transfer regers to the analysis of the way in which shifts are regulated in the native country. There are countries (Australia) that do dot allow the transfer of capitals towards fiscal paradises, unless it has been obtained a declaration of the author performing the transfer and fiscal administration approval; - paradise accessibility- refers to the analysis of more elements: the possibility of obtaining entrance visa, the possibility to buy or rent a home, convenient living conditions (the costs are very high in the Bahamas, in Cyprus, in Costa Rica, or in Ireland), costs of means of transportation that are not prohibitive, the language; - guaranteed secret of operations refers to the security of tbanking process and to the protection of certain operations and acts. Generally, fiscal paradises do not publish information regarding companies; - delegates usage refers to the designation of an administrator by the owner, in order to protect his identity. Specific factors comprise extremely different particularities of juridical regimes, of fiscal systems and advantages granted by governments. The juridical framewrok that regulates the development of economic operations may be more important than granted fiscal advantages.

Study case: Cyprus Due to the favourable regime existing in Cyprus regarding tax on the profit of companies (with the lowest global taxation level from U.E. ) as well as due to the efficient network of treaties regarding the avoidance of double imposition of Cyprus Republic with more than 40 states, Cyprus has become a ver well-known place in which international investors as well as multinational companies detain, plan and coordinate transboundariy investments. There are more reasons that must be taken into consideration when developing an activity on the territory of Cyprus: a) favourable regime regarding taxation in Cyprus Dividends received received from secondary offices outside Cyprus are free of payment of taxes, if they detain a minimum percent of 1%. The only exceptions that apply to secondary offices are: they are submitted to a taxation level lower than 5% and higher than 50% if their activities produce incomes from investments. For dividends payable to non-resident stockholders no tax is retained at source. Income from interests obtained by a company in Cyprus is submitted to the following taxes: a special contribution of 10% for Defending Fund and 50% from the income resulted from interests is submitted to the tax on profit of 10%. Interests obtained from ordinary activities of the company (or that are connected to it) are free of the special contribution for defence, but are integrally submitted to taxation regarding the 10% quota of the tax on profit. 50

For interests payed to non-resident creditors in Cyprus there are no source taxes retained. There must be mentioned that Cyprus legislation regarding taxation does not stipulate any rules regarding weak capitalization, that might limit the level of deductions of expenses with the interests if the degree of obligation exceeds a certain limit. Incomes from fees obtained by a resident company in Cyprus are submitted to the tax on profit of 10%. For fees payed by a resident company in Cyprus to a non-resident company there are no source retained taxes, provided the fulfillment of rights to fees take place aoutside Cyprus. Granting a sublicense to a non-resident company subscribes to these provisions. Gainings obtained from selling real-estate properties detained by Cyprus are submitted to taxation to a 20% quota. Regarding capital tax, Cyprus does not collect such a tax or other taxes over capital contributions in the cas eof resident companies. b) treaties closed by Cyprus in order to avid double imposition Cyprus has developed an extended netwrok of treaties in order to avoid the double imposition, with more than 40 countries. These treaties ensure the retention of a minimum tax or a null tax on source in the country that performs the payments, for the dividents, interests and fees payed by foreign creditors towards Cyprus companies. c) other advantages offered by Cyprus : The lack of SSC legislation. In Cyprus there is no concept such SSC legislation (controlled foreign company), according to which the profits of foreign secondary offices of certain resident companies in Cyprus from passive activities such as financing, granting a license, etc. Are included in tax basis of companies from the territory of Cyprus; Competitive taxes for the set up and admininstration of companies; ; Reduced value of compulsory social capital; A strong legislative system based on the english civil law; Strategic geographic position.



Study case: Isle of Man Isle of Man, the nation with the oldest parlamentary structure, dating 1000 years ago, enjoys a successful national economy, with very strong financial, economic and insurances sectors.. On the teritory of the island there are approximately 33.000 offsore companies registered. Moreover, there are other 2.500 companies, from other jurisdictions and that appear as being registered in the Trade Register for foreign companies (Foreign Register). In January 2000, Isle of Man has become one of the first financial centres in the world to regulate the agencied responsible for the registration and administration of offshore companies. In order to initiate an offshore company in the Isle of Man, there exists a procedure regulated by the Law of Companies, dating from 1931. In this way, registration will necessitate a Memorandum and Association Documents. These define, among others, the ativities of the company and the way it will function. Then, there must exist at least two managers and a secretary, an office on the territory if the Isle of Man and a local caterer of services. Taxes for registration rise up to 180 sterling pounds, to which there are added certain taxes that have to be payed to acciuntants and lawyers or to contributors who have offered consultancy. The identity of company owners is not a public information, but the identity of real owners must be transmitted to the caterers of services and transmitted to authorities, at their request. In response to the accusation brought to offshore jurisdictions regarding the favouring of fiscal fraud, there are numerous studies that have confirmed the fact that the Isle of Man cooperates in order to combat fiscal fraud, that the measures adopted against money laundering is performed at the highest international levels. These reports have been set up by the Government of United Kingdom, by the Financial Guard and by International Monetary Fund. The Isle of Man has been included in the best category from this point of view, Group I. Regarding the level of taxes, Isle of Man is an area with very low taxes regarding the private sector, the majority of them being equal to 0. In banking and insurance fields there is a low tax, but in other fields there are no taxes for companies. There are only taxes payed by emplyess. The Island collaborates with Global institutions such as OECD, in order to establish new transfer systems information between the fiscal authorities.

Isle of Man


The justification of Island officials regarding the low level of taxation refers to the fact that there is no tax on profit, the company reinvests it, highers personnel, and the personnel paes taxes.. Approximately 20-25% from this tax goes to the state. In this way there is a rise of sums attracted by the state, and the private sector develops.. 5.3.2. Romania and international double imposition in the context of tax evasion combatting

Fiscal doctrine distinguishes two forms of double imposition: economic double imposition that refers to the submittance of taxable material to two or to more taxes in the favour of the same authority or of different public authorities, in the same financial exercise, and judicial double imposition that refers to the phenomena of submitting the same person two times in a row for the same object of taxation. Defintion: In a more complet definition, the double imposition represents the submission to two or more similar taxes, over the same subject of imposition, for the same taxable object and with a view to the same period of time. Observation: Double imposition phenomena does not take place due to fiscal structures of fiscl systems but due to different conceptions (criteria) that represent the basis of imposition. In fiscal practise there can be applied two conceptions: territorial conception, based on the criterium of incomes source (origin) or the place where wealth is placed; and global conception or worldwide conception, based on residence criterium (of fiscal residence) or of nationality of the contributor who is a physical person, respectively of the office belonging to the contributor who is a juridical person. Observation: In the country in which territorial conception is applied, all incomes are submitted despite their nature (enterprises profit, salaries, gainings form liberal professions, interests, dividents, rents, etc.), if their source has been established on the territory on which the respective state exercises its fiscal sovereignity, without any relevance to the place where the beneficiary of the respective incomes has established his office. Still, in the country in which worldwide conception is applied, all incomes (and goods), belonging to physical and juridical persons who have established their residence (fiscal residence) or the office, by case, in the repective state, are objects of imposition; the source of those incomes or the place of those incomes are not important. . When a state applies territorial conception, and the other state applies global conception, there will appear a conflict of interests between the two countries. Moreover, the conflict of interests may appear when both states apply the same imposition conception. Hence, starting from the hypothesis of applying the global conception by both states, the conflict of interests appears if one of the states uses as imosition criterium the residence of the contributor; while the other one uses the criterium of the nationality of the subject of imposition. For example, USA applies the criterium of the nationality of the contributor, while other states apply the criterium of residence. In these situations, if the contributor has american nationality, and his residence 53

has been established on the territory of a state that applies the criterium of residence it is susceptible to be imposed by both states. When applying territorial conception, there might appear competence conflicts if the states have adopted legislations that define in a different manner the notion of residence with a view to mother-company and its secondary offices outside the borders.. In this situation, the conflict will refer to the determination of taxable profit of mother-company, or the profit of its secondary offices. Main idea: It can be stated that, no matter its origin, double imposition has negative effects, affecting the efficiency of exports and external competitiveness of goods, as the fiscal charge is higher if the income or the weakth have been submitted to fiscal legislation from a single country.

In order to eliminate or to restrain negative influence of double imposition, states, as well as the doctrine, the fiscal practise, have adopted various maesures, internal or external at international level. General modalities most commonly used in order to avoid double-imposition are: national regulations, bi or multilateral conventions, the jurisprudence, the tradition and the doctrine. International measures for avoidance of income double imposition and double imposition on wealth may be divided into two categories of conventions: fiscal conventions that exclusively regulate measures for avoidance of income double imposition and double imosition on wealth as well as international agreements with another main object different from fiscal problems, such as commercial economic agreements, financial economic agreements, etc. That comprise measures referring to taxes along with specific regulations related to the main object. In fiscal conventional practise, the avoidance of double imposition is ensured either by exoneration method (exoneration form payment), either by credited methods. As Fiscal Committee of O.C.E.D. argues that double imposition may be counteracted by both methods, there have been edited different texts that have been included in O.C.E.D Model Convention. With a view to the exoneration method, the state of residence of the beneficiary of a certain tax does not tax incomes that, according to provisions of fiscal conventions, are imosed in the other state (meaning the source state or the state in which taxable wealth can be found), or a permanent office. In fiscal conventions, exoneration method is used in two ways: total exoneration method and progressive exoneration method. Accoding to progressive exoneration method, the state of residence of income beneficiary, when deciding taxable income of one of its residents, will not take into consideration its taxable income in the source state nor the income of a permanent office or of a basis established in the other state that has been contracted. In this way, it will take into consideration only the rest of taxable income. Hence, by not taking into consideration a certain income, there will be granted an income exoneration. Moreover, the state of residence will not take into acciunt the existance of incomes exonerated from taxation, when it will determine the taxable income of the resident contributor of that state. According to progressive exoneration method, taxable income in the other contracted state (that is the source state of income, the state in which the permanent office has been established) the beneficiary of that income will not be refused. Still, the latter state reserves its right to take into consideration this income, when it will establish the tax on the rest of the 54

income. The same procedure is applied to wealth taxation. Regarding the credit method, the state of residence establishes the tax oed by one of its residents on the basis of total volume of incomes belonging to this contributor. This means that the resident state will include in the taxable income taxable income of the source-state or in the state in which the wealth that produces taxable income, as well as in the state where has been established the permanent office or immobile basis. It will not take into account the income and the wealth that are taxable in the other state only. From total tax, established by taking into consideration the sum of chergeable taxes (or of wealth)m the resident state will deduct the tax payed by the respective contributor in the other contracted state. This method is divided into: the method of total credit and the method of ordinary credit (ordinary of limited). According to the method of total credit, the state of residence deducts from income taxes chargeable, the total sum of the income payed by the contributor in the other contracted state; According to ordinary credit method, the state of residence deducts by title of payed tax in the other contracted state, a sum that may be equal or lower that the one payed to the source state. Hence, when tax quotas practised by the two states are identical and when the quotas applied into the state of residence are higher than those in the source state, the fiscal credit granted by the latter state is equal to the sum of the tax payed in the source state. When quotas applied in the state of residence are lower than those practised in the state source, there will appear differences in the sense that, the state of residence reduces from the tax granted by the contributor, with the title of fiscal credit, a lower sum than that of the tax payed in the source state. As fiscal credit granted by the state of residence to its contributor is lower than the tax he pays in the other state, the ordinary credit method leads to partial exoneration of double imposition. Observation: Fighting against the phenomena of double imposition has become an urgent necessity for Romania as well, especially ater 1989 Revolution, being a very important condition for the expansion of trade relations and of economical cooperation, as well as international co-operation. In order to avoid the double imposition, our country uses unilateral legislative measures as well as the negotiation and closing multilateral or bilateral conventions, the two methods of fiscal harmonization being used at the same time. Our legislation applies criteria of territoriality and of citizenship, regarding taxes, contribution and other public income important tools in the fight agains double imposition. In applying the principle of territory, taxes are applied also to incomes detained and of goods that have been acquired on the territory of romanian state, regardless the citizenship of their beneficiary.. In order to sustain that idea, we will mention, for example the Romanian Fiscal Code, which foresees that it is subject of income tax the romanian physical person for incomes obtained in Romania through an immobile basis established in the territory of Romania as well as the foreign physical person for incomes obtained in Romania through an immobile basis established on the territory of Romania or within a period that exceeds 183 days within any 12 months period or at the end of a certain calendaristic year. In conformity to citizenship criteria (competenta ratione personae) romanina taxes are 55

applied to all romanina citizens and romanian juridical persons for incomes and goods obtained on romanina territory or abroad. For incomes and goods acquired abroad, taxation foreseen by romanina legislation may be justified only if for those incomes and goods there have not been payed taxes in the state on the territory of which they have been obtained or acquired; for the difference between taxes payed abroad and those owed on romanian territory if the latters are higher. Regarding these incomes, romanina legislation foresees exonerations, as in the case of customs taxes for goods aquired abroad by romanian citizens; of added-value tax for imported goodsl of customs taxes and for added-value tax for the export of goods. Atention: During the last few years, romanian legislation has been taking into consideration taxes payed by romanian resident abroad for cetain incomes obtained abroad, deducting them from owed tax. In this sense, it has been regulated the institution of fiscal credit, that is very important when our country will not have closed an agreement of avoiding double imposition with the source state of the income.

Hence, according to the Fiscal Code, there will be applied fiscal credit as a unilateral measure of avoiding double imposition, in external relations. It is foreseen that a romanian juridical person has the right to a deduction from profit tax owed in Romania of a sum equivalent to tax income from external source payed directly or by source retention abroad on the basis of documents that prove the payment, confirmed by foreign fiscal authorities. Deducted sum must not exceed tax on profit calculated by applying tax quota foreseen by romanian law over incomes, for every external income source, after deductible expenses have been deducted. Another legislative measure destined to avoid double imposition is represented by the norm regarding fiscal convention. Hence, the Fiscal Code, it is stipulated that if any provision of the present treaty contravenes to a provision of a treaty to which Romania has participated, the respective treaty will be applied. Moreover, the Fiscal Code foresees that in order to apply provisions foreseen by the convention of avoiding double impostion, the non-resident has the obligation to present to tax pyer, when realising the income, the certificate of fiscal residence emitted by the competent authority in his state of residence. When presenting fiscal residence certificate there will be applied the provisions of the convention of avoiding the double imposition, and there will be performed tax regularization within the legal term of prescription, if the fiscal residence certificate stipulates that income beneficiary, has had within the prescription term, the fiscal residence in the contracted state with which it has been closed the respective convention, for the entire period of time in which there have been performed romanian incomes. As above-mentioned unilateral measures do not have a reciprocal correspondent in legislations of all states with which Romania mentains trade relations as well as economic cooperation, or other types of co-operation, our country may face a real threat, as, while romanian legislation may avoid double imposition, the legislation of partner countries may not foresee identical or similar legal measures. Under these circumstances, Romania has had to close conventions in order to avoid double-imposition. Therefore, during the last four decades, Romania has accomplished a great performance, by closing fiscal conventions with 82 worldwide states. 56

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