The issue of gift vouchers and their tax status, debated as we speak, allows us to state from the beginning of this article that in Romanian tax law the efficiency of current legal texts is restricted due to the lack of practical vision and rational regulation.
In this context, we would like to mention the fact that the aspects related to the legal framework conferred in this matter are regulated by Law no. 193/2006 for the gift vouchers offered from 2006 to 31.12.2018 and Law no. 165/2018 for those offered from 1.01.2019 to this day.
Chronologically, until the 1st of January 2007, the regime of these allowances was that they were not subject to income tax, as per the Old Fiscal Code. Only at a later time, the gift vouchers became a taxable income, and the nursery vouchers remained non-taxable even after this moment.
Preliminarily, the subject caught our attention due to the different interpretations raised at the level of the existing practice at this moment in Romania, the fiscal bodies being those that, often interpret some legal texts abusively in order for them to collect taxes and contributions without having a legal basis.
The way in which the legislator understood the approach on this subject is an interesting one because, although the legal provisions are quite clear at the country level several divergent opinions have been identified regarding their practical application.
Referring to the current tax implications, our team understands to provide the following interpretation the relevant legal texts, starting from the different beneficiaries that actually receive these gift vouchers.
Therefore, if the employer offers vouchers to its own employees, the corporate income tax perspective is that the expanses made for the gift vouchers shall be deductible expanses up to 5% of salary expenses. However, in relation to employees, only certain events will exempt them from the payment of income tax and the mandatory social security contributions, such events being specifically referred to in art. 76 para. (4) lit. a) of the Tax Code and only in case the legal cap of 150 lei is not exceeded. For what exceeds this amount, both income tax and mandatory social security contributions will be due.
If the events are not part of the categories provided exhaustively by the tax law, they will be subject to income tax, but not mandatory social contributions, as these revenues will be assimilated to assets of patrimonial nature, according to art. 76 para. (3) lit. h) Tax Code.
In the case where gift vouchers are offered to third parties, from the corporate income tax point of view the expanses could be registered by the company that actually distributes the gift vouchers:
- either as fully deductible expanses registered as marketing expenses, expanses for market research, for promotion on existing or new markets, advertising and advertising expenses incurred in order to popularize the company, products or services
- or as protocol expenses, these being partly deductible up to a threshold of 2% applied to the accounting profit.
This is the source for a number of discussions generated by the fact that tax authorities, through their interpretations, are pushing for the payment of the mandatory social security contributions stating that the main reason for the offering of gift vouchers is a dependent relationship between the company granting the vouchers and the third party receiving them.
From our point of view, the provisions are also clear regarding this aspect, establishing through art. 114 para. (1) lit. h) Tax Code the fact that these incomes are qualified as income from other sources, thus resulting that a tax will be due by applying the rate of 10% on the gross income, with the subsequent obligation being that tax is withheld by the distributing company.
With regard to compulsory health contributions, only by way of exception, in case income exceeds the threshold of 12 times the gross minimum wage per country, the legal entity will owe a social health insurance contribution and will be required to submit the tax return.
In some cases, distribution of gift vouchers is also made between two legal entities.
What do the tax authorities really want to do in this situation? Through its practice, developed in 2020, tax authorities intend to consider these distributions between one legal person and another legal person as an award of vouchers based on a link of subordination and dependence between the first legal person and the administrator of the second person which would, in fact, be a disguised employment relationship.
The stake of the discussion thus shifted to the real reasons for granting this benefit to third parties, as they have no working relationship with the company, the opinions generated in practice being far from unanimous. Regarding the tax law, we conclude that this is far from providing us with an adequate legal framework for structuring business plans.
In an intermediate opinion, we believe that a re-qualification as that put forward by the tax authority is purely artificial and lacks a legal base in the current Tax Code.
Another legislative gap is the way in which the withholding tax is achieved, because the tax legislation, again, does not offer an explicit solution on how it can be done. It is our opinion that, at the time being, in the case of any gift vouchers distribution that falls under art. 114 Tax Code, the distributing company will have to claim the payment, by the beneficiary, of 10% of the value of gift vouchers and then pay the corresponding amount to the state budget.
The latest legislative amendments to Law no. 227/2015 are far from giving us clarifications on the issues related to the subject of gift vouchers, thus leaving room for arbitrariness through the abusive practice of tax authorities to tax the granting of gift vouchers, including from the perspective of social contributions.
This article has been prepared for the Blog of Costaș, Negru & Asociații by Ms. Larisa Mărginean, in the framework of an extended professional practice programme.