I. Context: the tax respite of 2019
Considerint the low collection rate of budget receivables through the two usual ways available to the State – forced execution and insolvency proceedings – on 8 August 2019, the Government Ordinance no. 6/2019 regarding the establishment of tax facilities entered into force. With the primary purpose of ensuring the best possible coverage of the debts that taxpayers had to the state budget, the measures provided by the ordinance also contributed to satisfying private interests: revamping companies and avoiding the opening of insolvency proceedings through restructuring measures in order to re-enter the economic market.
The first chapter of GO no. 6/2019 improves the situation of companies without cash and with main budget debts (excluding, therefore, interests and penalties) of at least one million RON accrued until 31 December 2018. This category includes any amounts due to the consolidated general budget by the taxpayers and payers, registered in the records of the main tax body (ANAF and subordinated units), in order to recover: VAT, excise duties, micro-enterprises income tax, profit tax, dividend tax, income tax, contributions due to the state social insurance budget and special funds, levies and fees due to public institutions, fines of any kind, amounts granted to the State (lato sensu) by final court judgments.
If the requirements provided by the ordinance are met, big budget debtors can benefit, in addition to lifting the unpleasant bank garnishments, from:
cancellation of all ancillary tax obligations – which may, over a long period of time, exceed the main ones;
payment by installments of the main debt for a period of up to 7 years, according to a payment schedule agreed by the tax authorities. Adherence to this schedule means that no ancillary payments shall be accrued during the entire restructuring period;
cancellation of up to half of the main debts => out of a debt of one million RON, the amount of RON 500,000 can be “erased”;
settlement of the main budget obligations through the transfer of certain immovable property in lieu of payment or through a debt-to-equity swap.
The ideal candidates for these facilities must, inter alia, be in financial difficulty, but not insolvency, and must not meet the requirements to benefit from the payment rescheduling regulated by the Tax Procedure Code (i.e. are not be able to provide the guarantees under the law).
Initially, in order to begin the necessary procedure to obtain these benefits, the interested companies had to submit a notice to the competent tax authorities by 30 September 2019. This deadline was successively deferred to 31 October 2019 and 31 March 2020, and then, by GEO no. 29/2020 on certain economic, tax and budget measures, is was postponed until 31 July 2020.
II. Business restructuring during a pandemic
We live in a time when, from a high level, we are warned that the pandemic economic shock will be stronger than that of the 2008 financial crisis and the states imagining a quick return to normality have vain illusions. At best, we can hope for a U-shaped scenario – a gradual fall followed by a similar revamp – but the necessary decisions must be made to avoid an L-shaped scenario – a steep and prolonged collapse.
Under these conditions, after long analyzes, debates and press releases, the Government published on 21 March the GEO no. 29/2020 by which it materialized a small part of the promises made and the measures necessary to be taken in such a truly urgent situation. The changes made to the business restructuring process can be summarized as follows:
1. by 31 July 2020, legal persons that have accrued by the end of 2018 budget debts of at least one million RON may submit to the competent tax body a notice expressing their intention to restructure;
2. by 30 October 2020, the companies must:
draft, with the help of an expert, a plan outlining the restructuring measures they intend to adopt; for instance, corporate restructuring by changing the share capital structure, or restricting the activity by partially capitalizing the assets held;
draft, also with the help of an expert, an analysis proving the superior performance of the debt payment through the method of restructuring compared to forced execution/ insolvency (the test of the prudent and diligent private creditor);
pay all budget obligations due between 01 January 2019 – 30 October 2020;
if it is also desired to cancel part of the main debt, it is necessary to pay an appropriate percentage of it, as follows: for the cancellation of up to 30% of the debt, 5% of it must be paid; for the cancellation of 30% to 40% of the debt, 10% must be paid, and for the cancellation of 40% to 50% of the debt, 15% of its value must be paid.
For companies with budget debts of at least one million RON at the end of 2018, which do not follow the steps provided by GO no. 6/2019 to ensure the restructuring of their activity, the tax bodies have the legal obligation to request the opening of the insolvency proceedings.
III. Other tax instruments for the protection of natural and legal persons
In addition to extending the possibility of business restructuring, the GEO no. 29/2020 also provides other tax cut measures:
the postponement of the deadline for paying the first installment of the tax on buildings, land and means of transport until 30 June 2020 inclusive. The full payment of annual taxes by this deadline shall be rewarded with a bonus set by the local councils (in principle, 10%);
no interest and late payment penalties shall be due for the tax obligations due from 21 March 2020 and not paid within 30 days from the end of the state of emergency;
the tax debts accrued from 21 March 2020 do not represent outstanding tax obligations and, as such, are not recorded in the tax offense record;
the forced execution measures by garnishment of the budget receivables shall be suspended or shall not commence, except for those originating from final court judgments rendered in criminal matters. The banks shall apply this measure without further formalities from the tax authorities – and we believe that they should also extend this conduct to the situation of precautionary measures.
The postponement of the deadline for submitting the tax returns has been waived, but the Ministry of Public Finance and ANAF reassure us that all exceptional and justified cases of delays in submitting such returns will benefit from a favorable treatment under the law.
The leaders assure us daily that they are carrying out discussion with the sectors severely impacted by the pandemic. We hope these discussions will lead to more daring temporary tax relief with regard to, for instance, regarding the VAT which had to be paid by the persons subject to the monthly tax period, which in February issued invoices for services provided or products delivered,until 25 March; regarding the persons obliged quarterly to pay VAT for the entire activity invoiced in the current year shall pay it until 25 April.
Livia Moldovan, lawyer at Iordăchescu & Associates