Tax audits on individuals’ wealth

Income from cryptocurrency, social media, activities on various economic platforms, NFTs, e-games, foreign-sourced gambling, entertainment services and other conventional and unconventional sources? This summer and the upcoming fall can bring interesting evolutions.

Pressure is rising with taxpayers in recent days for taxpayers – natural persons with high income or high fiscal risk. The most recent Order of the President of NAFA states that audits will begin for individuals who have determined their own taxes and social contributions. Basically, the objective of the tax authorities is to verify the source of wealth for every natural person.

The risk analysis carried out would have allegedly found that over 500,000 people have accrued a difference between the revenues estimated by NAFA and the revenues declared and taxed of over 20 billion euros. The National Agency for Fiscal Administration became aware of this phenomenon on social networks.

At this moment, the aim is to identify exorbitant discrepancies between the declared income and the income estimated by the tax inspectors. Basically, these individuals cannot justify the origin of goods of a much higher value than the declared income.

From a legal point of view, the audit of the personal financial situation by the central fiscal body is regulated by Law no. 207/2015 on the Fiscal Procedural Code and other rules derogating from the common law on tax controls. The object of this procedure is represented by the tax audit of the whole personal financial situation of the individual regarding the income tax.

Procedurally, a risk analysis will be carried out in advance for the risk of non-compliance of the concerned individuals, with regard to the declaration of taxable income. Shall it be a significant difference – more than 10% of the declared income, but not less than 50,000 lei, individuals shall be audited in descending order of risk level.

As a further step, it is mandatory for the tax inspectors to send a written notice of verification to the targeted individuals. Through it, the individual will be required to present supporting documents for his financial situation, within a maximum period of 60 days.  To this extent, the individuals will provide a breakdown of all incomes, irrespective of the place of obtaining them, in the country or abroad.

In order to define the characteristics of individuals with a potential risk of non-compliance when declaring taxable income, the following fiscal indicators will be taken into account: the income declared by the individual, increases or decreases of its assets, personal expenses and cash flows. Following this analysis, both the declared and realized revenues will be settled.

In order to establish the taxable base adjusted for income tax, all of the following information will be taken into account: the information presented by the individual, those obtained by the fiscal body, official information published by public authorities or institutions, and the fiscal declarations submitted by the individual. From this perspective, we consider that legal assistance to the conduct of the entire procedure of individuals is of utmost importance.

The methods by which the taxable bases will be established are the indirect ones. The selection of the indirect method of determining the revenue to be used in the verification is the responsibility of the tax authority. Hence:

  • The method of source and use of funds is selected when it is noticed that the verified individual has used funds with a higher value than the identified sources;
  • The cash flow method is selected when it is noticed that the transactions performed by the audited individual have been carried out mainly through bank and financial accounts and that there are significant inflows into these accounts;
  • The net worth method is selected when it is noticed that the net assets of the audited person have increased significantly during the audited period and the value of the assets at the beginning and end of the audited period has been established with a reasonable degree of certainty.

It is undeniable that during the entire control period the individual has all the rights provided by the Fiscal Procedure Code, as well as by the Charter of rights and obligations of the individual subject to the audit of the personal financial situation.

The result of this financial audit will be outlined through the Verification Report in which the findings will be presented from a factual and legal point of view. It is vital to remember that the taxpayer’s rights in the common law procedure must not be disregarded – in this sense, he will be given the right to express his views on the findings of the tax authorities.

Following this procedural step, the verification report will be the basis for issuing a tax decision or a decision to terminate the verification procedure, if the tax base is not adjusted. The tax decision issued may be challenged under the conditions of the common law in question, respectively within 45 days from the time of communication, under penalty of preclusion.

We recommend individuals keep any expenses or income evidence (contracts, receipts, invoices, bank statements). The National Agency for Fiscal Administration will carry out controls on several segments and large taxpayers administered by the General Directorate of Large Taxpayers will be subject to control. The targeted persons are those who operate on the cryptocurrency, influence, buying actions, use of video chat platforms markets, and those who promote various products, services, or companies on social networks.

These people will be chosen based on the risk analysis performed by the tax authority, having in view even elements such as the lifestyle they display on social networks or any other proof that would lead to the conclusion that there is reasonable doubt about the fulfillment of tax obligations. With direct reference to the activity of social creators, all of the following are targeted: influencers, social media experts. All these are part of the category of independent activities, being subject to legal registration for payment of related taxes and declaration of income to the National Agency for Fiscal Administration.

Regarding the crypto-investors gains obtained from the transfer of virtual currency, they are subject to income tax, applying the 10% rate. In conclusion, this type of income will also come under personal tax audit. Thus, it is estimated that 97% of the targeted persons are shareholders, and associates, focusing, at the same time, on the revenues obtained from cryptocurrency trading.

The team of lawyers at Costaș, Negru & Asociații has a significant experience with personal tax financial situation since it successfully managed the previous wave of similar tax audits from 2015.

This article has been prepared for the website of Costaș, Negru & Asociații by Ms. Larisa Mărginean.

Costaș, Negru & Asociații is a lawyers’ civil partnership with offices in Cluj-Napoca, Bucharest and Arad, providing legal assistance, representation and consultancy in a number of practice areas with a team composed of 13 lawyers and consultants. Details regarding legal services and the members of the team can be found on the website All rights for the materials published on the company’s website and on social media belong to Costaș, Negru & Asociații, their reproduction being allowed only for information purposes and with the correct and complete disclosure of the source.

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