The application of the reinvested profit incentive – under the scrutiny of the tax authorities

As part of the recent tax inspections carried out by NAFA at national level, the control bodies are thoroughly reviewing the conditions for applying the tax incentive for reinvested profit claimed by taxpayers who reduced their corporate income tax by using this facility.

Among other aspects, there have been multiple instances where the tax authorities have invalidated the reinvested profit incentive in cases where the investments were made by using financing sources / funds which were non reimbursable.

Although this interpretation is not supported by the current provisions of the Fiscal Code regarding the conditions for applying this tax incentive, taxpayers have nonetheless been assessed with additional corporate income tax liabilities and related ancillary obligations.

Furthermore, based on publicly available information, it appears that the tax inspectors’ interpretation has already been upheld by one of the Courts of Appeal in Romania, which dismissed the taxpayer’s challenge on grounds of illegality and ruled in favor of the tax authorities.

In light of these recent practices and interpretations, we recommend that taxpayers verify whether they might be affected by such situations and closely monitor the forthcoming decision of the Central Fiscal Commission on this matter, currently in the drafting stage, to anticipate the potential implications in the event of a tax audit.

For more information regarding the above, the EY team is at your disposal.