“The victory, obtained after more than five years, was recorded in a complex litigation which involved the analysis of a large number of legal and tax issues regarding the deductibility rules for both corporate income tax and VAT,” according to Deloitte representatives.
The decision obtained by the Reff & Associates | Deloitte Legal team confirms that the tax authorities can analyze the deductibility of expenses strictly considering the conditions provided by the legislation, without having the possibility to issue opinions on business decisions.
On the other hand, the solution confirms that the deductibility for the expenses incurred as a result of the change of the business model cannot be granted proportionally, depending on the result obtained after such an operation. In this case, the tax authorities rejected the deductibility for part of the expenses, as they considered those expenses not necessary for the client’s activity, since they did not lead to a cost efficiency result.
“The authority came to this conclusion after applying a mechanism that assumes that the average of the expenses made after the business model change must not exceed the share of expenses in the year prior to the change, and the amount exceeding this share is not tax deductible,” Deloitte representatives also said.
The solution is all the more important because, during tax inspections, tax audit bodies tend to interpret the deductibility rules in a broad manner, sometimes going as far as challenging the taxpayer’s business decisions. Thus, when analyzing the deductibility of the expenses incurred in order to carry out the activity, the tax authorities also take into account the financial results obtained by the taxpayer as a result of the commitment of those expenses. If they have not generated the expected benefits, they are considered as non-deductible expenses.
The tax litigation team that obtained this solution for the client was led by Bogdan Marculet, Senior Managing Associate, with the support of Stefan Mihartescu, Senior Associate, Reff & | Associates | Deloitte Legal, with the involvement of Deloitte Romania’s tax practice, through the team made of Elena Rosculet and Ioana Nastase, Senior Managers within the consulting firm.
Deloitte provides worldwide audit, consulting, legal, financial advisory, risk advisory, tax and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500 companies through a globally connected network of member firms in more than 150 countries and territories, bringing world-class capabilities, insights, and high-quality service to address clients’ most complex business challenges. Deloitte’s goal is to make an impact that matters through its more than 345,000 professionals.
Deloitte Romania is one of the leading professional services organizations in the country providing, in cooperation with Reff & Associates | Deloitte Legal, services in audit, tax, legal, consulting, financial advisory, risk advisory, business processes as well as technology services and other related services, through over 2,600 professionals.