We can observe a new trend taking over the tax audits conducted recent.
The target is represented by the companies that carry out their activity in the field of waste collection, as regards the method of calculating and withholding the income tax related to the income generated by the persons who handed over the waste.
Generally speaking, a common approach was noticed while providing legal assistance to taxpayers during the tax audits regarding this type of legal issues.
Thus, in tax inspectors’ opinion persons who repeatedly hand over waste or who have handed over waste that has a value exceeding a threshold set randomly by the authority (e.g. 5,000 lei) do not benefit from the tax exemption provided by art. 62 lit. f) of the Tax Code. The norm referred established as non-taxable incomes the amounts obtained by the natural persons as a result of the sale the waste from their personal patrimony.
Therefore, on a constant basis, revenue of this type were reclassified into income from other sources, as referred by art. 114 para. 2 g) of the Tax Code – incomes from activities, other than those of production, trade, for which the provisions of chap. II – Income from independent activities.
Following this conclusion, the tax authorities ruled that the companies operating in the field of waste collection, as income payers, had the obligation to calculate, withhold and transfer the income tax related to the amounts paid to persons who handed over “significant” amounts of waste.
Although we understand the desire of the tax authorities to collect significant amounts for the state budget, the reasoning presented by them in tax audits seems to have a number of shortcomings:
The exception set forward by art. 62 f) of the Tax Code establishes that incomes of any kind, in cash or in kind, received when handing over waste from personal patrimony are non-taxable.
We have no definition in the tax legislation for the notion of waste from personal property. As a result, the unilateral and arbitrary interpretation by each tax authority is illegal and tends to violate the principle of legal certainty. This modus operandi illegally circumvents the law, introducing additional criteria. However, we must remember that in the tax field art. 139 of the Constitution enshrines the principle of legality, a principle that requires that the establishment of taxes, fees and contributions is made only by law or by legislation with force of law (emergency ordinances or simple ordinances issued in compliance with constitutional requirements).
Moreover, since it does not have an autonomous meaning from a tax perspective, the notion of personal property/patrimony must be interpreted according to civil norms, these being the only ones that regulate the issue of property, respectively according to the legislation specific to the collective waste field, GEO no. 31/2011, amended by Law no. 38/2014.The latter established the obligation for the waste collection companies to purchase from natural persons only waste from personal property, which was proved to be so by the affidavit submitted by the person who handed over this waste.
As long as the companies operating in the field of collection have such affidavits, which attest to the fact that the waste is from the personal patrimony, drawn up in compliance with the provisions of GEO no. 31/2011, amended by Law no. 38/2014 and where the affidavits were not invalidated in any way, we wonder if the control teams managed to prove that the waste had a different origin than the one mentioned in the affidavits.
Our opinion is that the answer is no, which is why from the income payer’s perspective the waste comes from personal property, so it is illegal that income is excluded from the category of non-taxable income.
Another issue that arises concerns the person liable to pay the income tax.
The argument of the tax authorities is as follows: the taxation of the natural persons is justified in relation to the continuous nature of the waste delivery activity, undertaken by individuals. Basically, it is claimed that we are in the presence of an activity carried out by individuals in order to obtain profit, on a continuous basis, in an organized manner.
This justification appears to be completely incompatible with the text referred by the tax authorities to support the taxation – art. 114 para. (2) lit. g) of the Tax Code. The latter excludes from its application income from the trade activity, specifically income that has been classified in the category income from other sources.
Therefore we wonder if it the correct approach would not have been that taxation, collection and payment is done at the level of individuals – the natural persons who undertake this organized and continuous “activity” of waste delivery, an activity that seems to have an imprint of independent activity.
At the same time, in relation to the ambiguous nature of the notion of waste from personal patrimony, at the request of taxpayers a series of guidelines were issued by the fiscal bodies, in application of the exception from art. 62 lit. f) of the Tax Code.
According to those, as long as we are in possession of affidavits attesting that the goods come from personal patrimony, the companies have fulfilled their legal obligations and it is no necessary to withhold at source and transfer the income tax related to the amounts paid to persons who have handed over waste.
The tendency to ignore these official interpretations seems to raise – in the light of the European Union Court of Justice’s case-law in cases such as Salomie and Oltean (C-183/14) and Tomoioagă (C-144/14) – legitimate questions about compliance with the principle of legal certainty.
At the time being a team from our law firm led by dr. Cosmin Flavius Costaș and Alexandra Tomuta is building up an “iron defence” and has already been successful in securing a temporary judicial protection for companies that have been subject to aggresive tax audits.