Methodological norms on the calculation of indicators used in calculating the tax on assets, established by GEO 114/2018
In brief
Government Decision 524/2019 (GD 524/2019) was published on 31 July 2019. GD 524/2019 approved the methodology for calculating the market share, interest margin, net financial assets and tax base deductions, and for reporting the indicators needed for calculating the tax on assets, provided by art. 86 - 88 of Government Emergency Ordinance no. 114/2018 (GEO 114/2018). The ordinance establishes this tax for banking institutions (credit institutions which are Romanian legal entities, including their foreign branches, and Romanian branches of foreign legal entities).
In detail
Establishing net financial assets for calculating the tax base for the tax on assets
The established rules apply to all credit institutions obliged to pay the tax on assets, both Romanian legal persons and the Romanian branches of foreign credit institutions.
For determining the tax base for the tax on assets, GD 524/2019 refers to the reports prepared by credit institutions for prudential supervision purposes according to National Bank of Romania (NBR) Order no. 9/2017 approving the Methodological Norms on the preparation of FINREP financial statements at the individual level, in accordance with International Financial Reporting Standards (Methodological Norms on FINREP financial statements) applicable to Romanian credit institutions and Romanian branches of credit institutions with headquarters in a third country. In the case of Romanian branches of credit institutions in other Member States, GD 524/2019 refers to the corresponding provisions of National Bank of Romania Order no. 9/2017, although the applicable provisions are those corresponding to NBR Order no. 10/2017 for the approval of the Methodological Norms on preparing periodic reports containing financial and accounting statistical information applicable to branches in Romania of credit institutions having their head offices in other EU Member States *.
* This omission should not prevent the application of the corresponding rules in the case of branches in Romania of credit institutions in other Member States.
a. Establishing the net financial assets included in the computation base for the tax on assets
For Romanian credit institutions and Romanian branches of third-country credit institutions obliged to pay the tax on assets, the net financial assets are determined according to the positions in the form F 01.00 - Balance sheet “statement of financial position”, prepared in accordance with the Methodological norms on FINREP financial statements.
The correspondence between the categories of assets for which this tax is due and the positions in form F01.00 will be made according to the following table:
| Net financial assets as per GEO 114/2018, art. 86 para. (2) b) | Code position Form F01.00 - Balance Sheet F01.01 - Active |
| A | B |
(i) Cash, cash balances at central banks and other demand deposits |
010 |
(ii) Financial assets held for trading |
050 |
(iii) Non-trading financial assets measured at fair value through profit or loss |
096 |
(iv) Financial assets designated at fair value through profit or loss |
100 |
(v) Financial assets at fair value through other comprehensive income |
141 |
(vi) Financial assets measured at amortized cost |
181 |
(vii) Financial derivative instruments - hedge accounting |
240 |
(viii) Fair value changes of the hedged items in portfolio hedge of interest rate risk |
250 |
(ix) Investments in subsidiaries, joint ventures and associates |
260 |
(x) Fixed assets and disposal groups, classified as held for sale |
ex..** 370 |
**Syntax "ex." refers to the presentation of the extract from the value of the reported indicators.
To identify the assets referred to in row (x) of the above table, the financial assets classified as held for sale are taken into account, identified as an extract from the code position 370, “Fixed assets and groups destined for disposal, classified as held for sale” from the Reporting Form F01.01 - Assets.
b. Establishing the net financial assets deducted from the tax on assets tax base
For Romanian credit institutions and Romanian branches of third-country credit institutions that are obliged to pay the tax on the net financial assets, the financial assets, at semester- or year-end of the year for which the tax on assets is due, to be deducted from the taxable base, are identified based on the positions presented in F 01.00 - Balance sheet “statement of financial position”, F 04.00 - Breakdown of financial assets by instrument and by counterparty sector and F 18.00 - Information on performing and non-performing exposures, prepared in accordance with the Methodological norms on FINREP financial statements.
The correspondence between the categories of assets which are deducted from the tax base and the positions in the previously-mentioned forms is made according to the following table:
Nr. crt. |
Net financial assets that are deducted from the tax base for the tax on assets as per GEO 114/2018, art. 87 para. (1) |
Code positions Forms
|
| 1 | (a) Cash
|
F 01.01, rd.020, col.010 + ex2.F 01.01, rd.370, col.010 |
| 2 | (b) Cash balances with central banks at net value, excluding non-performing exposures |
F 01.01, rd.030, col.010 + ex.F 01.01, rd.370, col.010 – (ex.F 18.00, rd.080, col.060 + ex.F 18.00, rd.335, col.060 + ex.F 18.00, rd.080, col.150 + ex.F 18.00, rd.335, col.150) |
| 3 | (c) Non-performing exposures at net value |
F 18.00, (rd.180+rd.201+rd.231+ rd.335), col.060 + F 18.00, (rd.180+rd.201+rd.231+ rd.335), col.150
|
| 4 | (d) Debt securities issued by public administrations at net value, excluding non-performing exposures |
F 18.00, (rd.030 + rd.183 + rd.213 + ex.rd 335), col.020 + F 18.00, (rd.030 + rd.183 + ex.rd.335), col.140 + F 04.01, rd.080, col.010
|
| 5 | (e) Loans and credit advances granted to public administrations at net value, excluding non-performing exposures
|
F 18.00, (rd.090 + rd.193 + rd.223 + ex.rd 335), col.020 + F 18.00, (rd.090 + rd.193 + ex.rd 335), col.140 + F 04.01, rd.140, col.010 |
| 6 | (f) Loans granted by credit institutions to the non-governmental sector guaranteed by the central public administration at net value, excluding non-performing exposures
|
F 18.00, ex.(rd.100 + rd.110 + rd.120 + rd.150 + rd.194 + rd.195 + rd.196 + rd.197 + rd.224 + rd.225 + rd.226 + rd.227 + ex.rd 335), col.020 + F 18.00, ex.(rd.100 + rd.110 + rd.120 + rd.150 + rd.194 + rd.195 + rd.196 + rd.197 + ex.rd 335 +), col.140 + F 04.01, ex.(rd.150 + rd.160 + rd.170 + rd.180), col.010 |
| 7 | (g) Loans granted to credit institutions, debt claims and amounts to be depreciated, at net value, from which non-performing exposures are excluded; deposits with credit institutions, related receivables and amounts to be depreciated, at net value, excluding non-performing exposures; correspondent accounts at credit institutions (nostro) and related receivables, at net value, from which non-performing exposures are excluded; reverse repo operations and borrowed securities, related receivables and amounts to be depreciated at net value, excluding non-performing exposures. | F 18.00, ex.(rd.100 + rd.194 + rd.224 + ex.rd 335), col.020 + ex.F 18.00, (rd.100 + rd.194 + ex.rd 335), col.140 + F 18.00, ex.(rd.080 + rd.192 + rd.222 + ex.rd 335), col.020 + F 18.00, ex. rd.080 + rd.192+ ex.rd 335), col.140
|
To identify the non-performing exposures at net value (row (c) of the above table), the non-performing exposures classified according to the provisions of point 39 of the Methodological Norms on FINREP financial statements are considered.
If there are exposures that can be classified simultaneously under several categories of financial assets, such exposures are deducted only once from the tax base, under one single category of financial assets.
Loans granted by credit institutions to the non-governmental sector bearing guarantees received from the central public administration (provided in row (f) of the above table) include "First House" loans and other loans guaranteed by the National Credit Guarantee Fund for Small and Medium Enterprises SA IFN, Rural Credit Guarantee Fund IFN SA, Eximbank SA, etc. To identify the participants (non-governmental sector and central public administration), GD 524/2019 refers to the provisions of point 11 of the Methodological Norms on FINREP financial statements.
Bank market share calculation
According to GEO 19/2019, the tax rate is 0.2% for banks with market share below 1% and 0.4% for those with a market share equal to or above 1% (for more details, consult the PwC Tax and Legal Alert on GEO 19/2019, accessing this LINK).
The market share of a banking institution is calculated as a ratio between the total value of the banking institution’s net accounting assets and the total amount of the aggregate net accounting assets for the banking system, including the Romanian branches of foreign credit institutions, where:
- the total amount of aggregate net accounting assets for the banking system will be published on the NBR website.
- the total value of the banking institution’s net accounting assets corresponds to the net value from rd.380, col. 010 - Total assets of Form F 01.01 (in the case of Romanian credit institutions and Romanian branches of credit institutions in third countries) and of Form F1.1. (in the case of Romanian branches of credit institutions from other Member States, completed according to the Methodological Norms on preparing periodic reports containing financial and accounting statistical information applicable to branches in Romania of credit institutions with their head offices in other EU Member States, approved by NBR Order no. 10/2017).
Defining the specific elements of the mechanism for reducing the tax on assets - interest margin and loans balance
GEO 19/2019 allows the tax to be reduced in case the financial institutions increase the loans balance above a certain target and / or if they reduce the interest margin below a certain level (for more details, consult the PwC Tax and Legal Alert on GEO 19/2019, accessing this LINK). GD 524/2019 provided rules regarding the following, for identifying those indicators:
1. Defining certain terms used: non-financial corporations, households, loans, non-performing loans, loans intended for debt restructuring at rates below those applied on the market, performing loans, loans sold, loans purchased and deposits.
2. Formula for calculating the weighted average of the interest rate on RON-denominated loans, granted by a banking institution to non-financial corporations and households:
where,
= the weighted average of the interest rate on RON-denominated loans, granted by a banking institution to non-financial corporations and households (including performing loans sold) during month i of the semester or the year for which the tax is due, determined according to NBR Regulation no. 4/2014, Annex II.1. The following elements are excluded from the calculation basis of this indicator:
- performing loans purchased;
- performing loans sold and repurchased during the same year;
- non-performing loans;
- loans intended for debt restructuring at rates below those applied on the market.
n = the number of months in the semester or the year for which the tax is due
3. Formula for calculating the average weighted interest rate on RON-denominated deposits, attracted by a banking institution from non-financial corporations and households:
where,
= the weighted average of the interest rate on RON-denominated deposits, received by a banking institution from non-financial corporations and households during month i of the semester or the year for which the tax is due, determined according to NBR Regulation no. 4/2014, Annex II.1.
n = the number of months in the semester, i.e. the year for which the tax is due
4. Formula for determining the interest margin:
where,
M = the interest margin, calculated both at the level of the semester or the year for which the assets tax is due and at the level of the previous year, in percentage points.
= the average weighted interest rate on RON-denominated loans, granted by a banking institution to non-financial corporations and households.
= the average weighted interest rate on RON-denominated deposits, received by a banking institution from non-financial corporations and households.
5. Formula for calculating the interest rate margin decrease:
where,
D = interest margin decrease
= interest margin calculated for the semester / year for which the tax on assets is due
= interest margin calculated for the previous year
6. The balance of loans granted by a banking institution to non-financial corporations and households is determined based on the definitions provided by NBR Regulation no. 4/2014. The methodological norms established by GD 524/2019 also include an example for calculating this indicator.
Rules on determining the tax on assets
To determine the tax on assets at the end of the semester:
- the balance of loans increase indicator is compared with 50% of the target set for increase in lending (4% for 2019), and
- the interest margin decrease indicator is compared with 50% of the target set for interest margin decrease (-4% for 2019).
The tax on assets rates (0.4% and 0.2%, depending on the market share) are applied for calculating the tax on asset both at semester and at year-end.
Source: Government Decision 524/2019 for approving the methodology for determining the market share, the interest margin, the net financial assets and those that fall from the tax base, as well as reporting the indicators necessary to calculate the tax on assets, provided in art. 86 - 88 of the Government Emergency Ordinance no. 114/2018 regarding the establishment of measures in the field of public investments and of fiscal-budgetary measures, the modification and completion of some normative acts and the extension of certain terms, published in the Official Gazette no. 636 dated 31 July 2019.
The takeaway
The established rules apply to all credit institutions obliged to pay the tax on assets, both Romanian legal entities and Romanian branches of foreign credit institutions, and they reference the Reporting Regulations established by the NBR.
The main provisions of GD 524/2019 provide clarification regarding:
- establishing net financial assets for calculating the tax base for the tax on assets;
- the method for calculating a bank’s market share;
- defining the specific elements of the mechanism for reducing the tax on assets - interest margin and loans balance - and their calculation formulas;
- the rules for determining the tax on assets at the end of the semester.
The methodological norms include an example of calculating the loans balance and the interest margin, as well as an example for the computation of the loans balance increase indicator.
Form 109 „Statement on the tax on net financial assets” was published in ANAF’s President Order no. 2085/2019.
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