Waste and Income. Can We Recycle Incoherent Tax Rules?

For almost three years, some tax officials have been trying to convince that the income obtained by individuals from the disposal of waste should be taxed. Without success and above all without any concern for the correct solution of the equation that includes waste and income: the recycling of incoherent tax rules.

The issue of the purchase of waste from the personal patrimony of natural persons has been strongly debated at the level of tax audits since 2020. From the very beginning, the lawyers Costaș, Negru & Asociații supported by referring to the provisions of art. 62 lit. f) Fiscal Code the fact that it is not the responsibility of the company to prove whether or not the purchased waste came from the personal patrimony of natural persons. Our thesis was in the sense that the fiscal body is obliged to provide clear evidence that those goods do not have as their source personal patrimony, the allegation in this sense not being sufficient. We have therefore directed taxpayers who have been assessed additional tax liabilities to challenge the control acts.

We praise the excellent case decisions on this matter obtained by the Tax Law team of Costaș, Negru & Asociații in 2022. In particular, the Court of Appeal of Cluj and the Court of Appeal of Oradea admitted the filed actions in the tax litigation, canceling the tax administrative actions by which additional tax liabilities were imposed as a result of the reclassification of these revenues obtained from the sale of waste from personal property as revenues from other sources.

Taking into account the number of transactions of people who repeatedly handed over waste, the tax authorities emphasized that a reasonable threshold of waste from personal patrimony shall be settled, against which to consider that the goods are not part of the personal property of a person. In the opinion of tax authorities, this estimated threshold would be correctly determined based on … the principle of reasonableness.

Therefore, the tax authorities have come to the conclusion that the exemption from taxation provided by art. 62 point f) Fiscal Code is no longer applicable. The sums obtained by a person as a result of the recovery of waste from personal property are considered nontaxable income by the norm referred to.

On a regular basis, in terms of tax audits, these revenues were reclassified as revenues from other sources, by reference to art. 114 para. 2 point g) Fiscal Code – income from activities, other than those of production, and trade, for which are applicable the provisions of chapter II – Income from independent activities.

Following this conclusion, the tax authorities claimed that the companies active in the field of waste collection, as revenue payers, had the obligation to calculate, withhold and remit the income tax related to the amounts paid to people who handed over “significant” quantities of waste.

Practically, from the very beginning, our position pursued the following aspects:

  • It is obvious from reading the legal provisions that there is no minimum threshold for the number of transactions in relation to which the companies could qualify the purchased waste as belonging to the personal property of a person;
  • Establishing a value threshold by referring to the estimates in Government Decision no. 942/2017 regarding the National Waste Management Plan, with the aim of determining tax liabilities, represents a serious abuse on the part of tax authorities, as they unilaterally and abusively establish value thresholds, making unauthorized additions to the provisions of the Fiscal Code;
  • Considering the legal provisions, the only way to prove the origin of the waste is represented by the affidavits included in the purchase slips, since the powers of the criminal investigation authorities cannot be transferred to the taxpayers.
  • Rules that have not been written or published in the Official Gazette, therefore inexistent, cannot be opposed to the taxpayer.

If we refer to the legal framework of the tax authorities, since, according to their allegations the handing over of large quantities of waste took place constantly and at extended intervals of time, the persons seeking thus to obtain income, we conclude that this represents an independent commercial activity within the meaning of the Fiscal Code.

As a result, the correct classification of the income would have been as income from independent activities, which does not impose on the taxpayers any liability to withhold at source or to transfer these liabilities.

We also want to draw attention to other aspects, namely the obligation of probation of the income tax regime falls on a person, as the beneficiary of the income. Therefore, they must prove that the source of the waste is personal property.

Proof of waste source is useful from two perspectives:

    – On the one hand, it is directly useful to the income beneficiary;

    – On the other hand, it is indirectly useful to the income payer because in its absence, the income paid becomes taxable and, in relation to their classification, it is possible to attract liabilities to the collecting entity.

As we have shown above, the law does not provide the criterion regarding the way in which the company can assess the extent to which the waste collected comes from personal property or not. Thus, taking into account the fact that the legislator fails to show not only the means of proof but also the person on whom this obligation will fall, it cannot lead to a reversal of the burden of proof in the sense of the income payer, who cannot objectively know the source of income.

Moreover, certain aspects are obvious especially if we are discussing the tax consequences of their qualification as taxable income, as follows:

  • If the handing over of waste is continuous, then the income is obtained from an independent activity, according to 67 Fiscal Code;
  • If the handing over of waste is occasional, then the income payers will not have the obligation of withholding at source provided that the natural persons declare that they are tax registered.

In particular, taxpayers are included in the category of income from other sources if they meet the following conditions: they are not tax registered and they carry out independent activities, without continuity.

If the income is obtained on a continuous basis, then the taxpayers will receive the regime of income from independent activities regardless of whether or not the income payer has the beneficiary’s tax registration statement, a situation in which the obligation to pay the tax rests with the person.

Regarding what tax authorities claim, we note that they are the ones who appreciate that the activities carried out by a person are continuous. Or, it is precisely the frequency of activities of a person that represents the element forming the conviction of the tax authority that the waste handed over does not come from personal property.

All these arguments were shared by the tax litigation courts, the tax administrative actions issued to the taxpayers being thus sanctioned with the annulment. In such a way, the civil law firm Costas, Negru & Asociații managed to build an “iron defense” and was successful in securing definitive decisions to cancel the tax administrative actions issued on this matter, although the taxpayers were subject to aggressive tax controls.

Practically, court decisions that ensure compliance with the basic principles of taxation were finally issued, the possibility of creating a situation given by arbitral interpretations being thus excluded.

Consequently, a future regulation would be much appreciated; through it each taxpayer will be informed, in the future, of the amounts, terms, and method of payment, being thus aware of the tax duties they have.

This article was prepared for Costaș, Negru & Asociații’s Blog by Ms. Larisa Mărginean (Arad Bar Association).

Costaș, Negru & Asociații is a civil society of lawyers with offices in Cluj-Napoca, Bucharest and Arad, which offers assistance, legal representation and consultancy in several areas of practice through a team composed of 16 lawyers and consultants. Details regarding legal services and team composition can be found on the website https://www.costas-negru.ro. All rights for the materials published on the company’s website and through social networks belong to Costaș, Negru & Asociații, their reproduction being permitted only for informational purposes and with correct and complete citation of the source.

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