The terms for restructuring budget debts as set forth in GO 6/2019 on tax amnesty

In brief

On 8 August 2019, Government Ordinance no 6/2019 introducing tax relief measures (“GO 6/2019”) entered into force. The document regulates the restructuring of liabilities toward the state budget, which are higher than RON 1 million and overdue as at 31 December 2018. GO 6/2019 also allows the annulment of accessory tax liabilities, under specific conditions laid down.

In detail

1.      Measures for restructuring debtors’ liabilities to the state budget, which are higher than RON 1 million and overdue as at 31 December 2018

The first chapter of GO 6/2019 stipulates measures for debt restructuring, available to debtors fulfilling all the following requirements:

  • they are legal entities governed by public or private law;
  • they experience financial difficulties, have not been dissolved, are not subject to insolvency proceedings, but are at risk of being subject to insolvency proceedings;
  • they do not qualify for tax debt rescheduling under the terms of the Fiscal Procedure Code;
  • they have filed all their tax returns in accordance with their tax file, before notifying their debt restructuring intention, or they will submit such tax returns no later than 10 days after being so required by the tax authority.

Tax liabilities covered by GO 6/2019:

  • principal budget liabilities overdue as at 31 December 2018, including those imposed under tax assessment decisions communicated after this date, of RON 1 million or higher and unpaid by the issue date of the tax clearance certificate, and relevant accessory liabilities;
  • principal or accessory tax liabilities assessed by authorities other than tax authorities, referred for recovery to the tax authorities after 1 January 2019;
  • fines of any type, referred for recovery to the tax authorities after 1 January 2019.

Tax liabilities outside the scope of GO 6/2019:

  • tax liabilities which can be subject to offsetting, capped at the amount to be reimbursed / refunded / paid from the public budget; tax liabilities assessed in administrative deeds for which the enforcement has been suspended under the terms of the Administrative Litigation Law; however, for such liabilities, debtors can choose to waiver the effect of suspension;
  • principal and accessory liabilities which represented state aid subject to recovery.

 

To avoid insolvency proceedings and to revitalise their businesses, the debtors fulfilling the requirements above may apply to the tax authorities for tax debt relief. Debt restructuring can consist of one or more measures, one of which must be budget liability relief. Tax debt restructuring measures are:

  • relief from payment of budget liabilities over a period of seven years at the most with a possibility of extension, in the form of:

a.      scheduled payments of principal budget liabilities, and / or

b.      annulment of up to 50% of the principal budget liabilities which are overdue, and 100% annulment of accessory liabilities, providing that the restructuring plan measures are observed.

  • conversion of principal budget liabilities into shares, for debtor entities in which the state is 100% or a majority shareholder;
  • discharge of liabilities through payment in kind of immovable property.

To qualify for these measures, debtors have to notify the competent tax authority of their debt restructuring intention no later than 30 September 2019. Non-compliance with this time-limit results in forfeiture of the right.

Subsequently, the debt relief request can be filed within six months from the entry into force of the ordinance, more precisely by 10 February 2020. For debtors that are subject to inquiry or investigation proceedings by the European Commission on the subject of state aid legislation, the six-month term starts running after the method of granting the tax relief has been approved by the European Commission. Non-compliance results in forfeiture of the right.

It is mandatory that such a request be accompanied by a restructuring plan and a prudent private creditor test, prepared by an independent expert and containing information on the causes of the debtor’s financial difficulties, the restructuring measures proposal, the period proposed for recovery and the method of payment of tax liabilities over the restructuring period. As of the request filing, no enforcement proceedings may be initiated and the existing enforcement proceedings will be suspended.

If all the requirements in GO 6/2019 are fulfilled, the competent tax authority will issue a decision approving the debt restructuring. Budget liabilities subject to restructuring will no longer be deemed as overdue, and no accessory liabilities will be owed or assessed in relation to them. During the restructuring period, each debtor will be permanently monitored and supervised by an independent expert who is required to provide a report to be communicated to both the debtor and the tax authority.

If a debtor notifies the tax authority of its debt restructuring intention, but fails to follow up with a relief application, or if its request is turned down or the restructuring fails, the tax authority is required to request the initiation of insolvency proceedings against such debtor.

2.     Annulment of accessory liabilities for debts lower than RON 1 million where principal budget liabilities are settled by 15 December 2019

The second chapter of GO 6/2019 allows debtors that are legal entities, individuals or entities without legal status with overdue budget liabilities below RON 1 million as at 31 December 2018, administered by the central tax authority, to benefit from the annulment of accessory tax liabilities.

Individuals and entities without legal status, territorial-administrative units and subdivisions of the Bucharest municipality or public institutions with principal budget liabilities of RON 1 million or higher and overdue as at 31 December 2018 can also benefit from this measure. However, this measure does not apply for taxpayers - legal entities.

The overdue principal budget liabilities for which the annulment of accessory tax liabilities may be requested  are:

  • liabilities which became due / payable by 31 December 2018 inclusive;
  • additional budget liabilities as imposed under tax assessment decisions issued by 31 December 2018 inclusive;
  • other liabilities listed in enforcement deeds issued as per the law and registered in the tax authorities’ records for recovery purposes as at 31 December 2018.

The following are not deemed as liabilities overdue as at 31 December 2018:

  • liabilities subject to tax relief which has been granted and is ongoing, as per the law, as at 31 December 2018;
  • liabilities assessed under administrative deeds the enforcement of which has been suspended as per the law, as at 31 December 2018. Debtors can waive the effect of such suspension to benefit from the annulment of accessory tax debts.

To benefit from annulment of accessory tax liabilities, all the following conditions must be met:

  • all budget liabilities overdue as at 31 December 2018 inclusive, administered by central tax authority, must be settled by 15 December 2019 inclusive.
  • all principal and accessory budget liabilities administered by central tax authority and having due dates between 1 January 2019 and 15 December 2019 inclusive must be settled by the date of filing the accessory payment annulment request;
  • all tax returns of the taxpayers must have been filed;
  • filing of the annulment request by 15 December 2019, under penalty of forfeiture of this right.

Cases in which the annulment of accessory tax obligations may be sought:

1.      Status of principal budget liabilities overdue as at 31 December 2018 due toward the general consolidated budget in accordance with initial tax returns filed by taxpayers, and unpaid. The related accessory liabilities will be annulled if all the principal budget liabilities are settled by any legal means no later than 15 December 2019, and all the general requirements above are fulfilled.

2.      Status of principal budget liabilities as additionally reported in rectifying returns filed between 1 January 2019 and 15 December 2019. The related accessory liabilities will be annulled if all the principal budget liabilities in the rectifying return are settled by any legal means no later than 15 December 2019, and all the requirements above are fulfilled. Taxpayers subject to a tax inspection when the ordinance enters into force have the right to file rectifying returns within 10 days (i.e. 18 August 2019), which will be considered for granting the annulment of the accessory payments.

3.      Status of principal budget liabilities with payment dates prior to 31 December 2018 and settled by that date. The related accessory tax liabilities will be annulled if the general requirements above are met.

4.      Status of principal budget liabilities with payment dates by 31 December 2018 and imposed under tax assessment decisions issued as part of tax inspections in progress at the date of entry into force of the ordinance. The related accessory tax liabilities will be annulled if all the additional principal budget liabilities as per the tax assessment decisions are settled by any legal means within the payment term provided for in art. 156 para. (1) of the Fiscal Procedure Code, and the accessory tax payment annulment request is filed within 90 days as of the communication of the tax assessment decision. Non-compliance results in forfeiture of this right.

The debtors who find themselves in one of the situations above and wish to benefit from the annulment of the accessory tax liabilities may file a notification with the tax authority. Starting with the notification date, the payment of the accessory tax liabilities is postponed for annulment purposes, and the debt enforcement proceedings will not be initiated / existing enforcement proceedings will be suspended.

[Source: Government Ordinance no 6/2019 introducing tax relief measures (“GO 6/2019”), published in the Official Gazette no 648, Part I, on 5 August 2019]

The takeaway

  • Government Ordinance 6/2019 introduces relief measures for tax liabilities higher than RON 1 million and overdue as at 31 December 2018. The tax relief measures are available to the legal entities governed by public or private law that meet all these requirements: they experience financial difficulties, are at risk of becoming subject to insolvency proceedings so do not qualify for rescheduling of their budget debts, have filed all their tax returns with the tax authorities or will do so in 10 days after so required by the relevant tax authorities.
  • The procedure to be followed is laid down in the ordinance. Taxpayers with overdue tax debts higher than RON 1 million must notify the authorities of their intention to benefit from restructuring of their tax liabilities no later than 30 September 2019,  and must file a request no later than 10 February 2020.
  • The Ordinance also allows debtors–legal entities, individuals or entities without legal status with overdue budget liabilities below RON 1 million as at 31 December 2018, administered by the central tax authority, to benefit from the annulment of accessory tax liabilities, providing that they discharge their principal debts to the state budget. Generally, the deadline for discharge of the principal debt is 15 December 2019.
  • Individuals, entities without legal status, territorial-administrative units and the subdivisions of the Bucharest municipality can also benefit from annulment of their principal tax liabilities of RON 1 million or higher, overdue as at 31 December 2018.

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