My first tax inspection

Who

Which are the individuals considered to be high risk: all taxpayers which have expenses significantly greater than the income declared in the Single Tax Statement (=ro. Declarația Unică) will be subject to an analysis from the tax inspectors, to identify if the taxpayer has income which she has not declared. A tax inspection can also be launched.

What

The likely outcome of a tax inspection for High Net Worth Individuals is the following:

• continue research, in-depth;
• issue a tax inspection report, stating that I am not a high risk taxpayer. The justification in the report is a clear presentation of the sources of income matching the expenses I’ve had;
• tax the undeclared income.

Where

In principle, the tax inspection will take place in my home city. However, there is a limited number of tax inspectors teams in the entire country which cross-check. So there are cases when, even if my home address is in one city, I’ll be invited to a different city by the tax inspectors.

How

For any tax inspections, the inspectors will present me a tax inspection mandate (=ro. Aviz de Inspectie Fiscala), a book of rights and obligations for the taxpayer. The tax inspection mandate specifies the interval of the tax inspection and the documents I need to display.

For practical purposes, the first thing the tax inspectors will do will be to invite me to fill in a Statement of Assets and Income (=ro. Declaratie de Patrimoniu si de Venituri), from the date when becoming tax resident of Romania. It requires information about the assets held in property at the date of starting the tax inspection - and then, how these assets developed: land, buildings, financial investments, stock exchange assets, debt, cars, bank deposits, jewelry, paintings, racing/breed horses etc. that I own as a private individual - and also the shares I have in companies. All these categories are applicable both for the assets held in Romania as well as abroad.

When it comes to the companies in which I have shares, I need to be specific about the information I provide. For instance I need to declare the name of the companies of which I am a shareholder and the percentage of my stake in the business. Also, I need to offer a picture of the shareholder loans I’ve offered to the company.

As an example, if the tax inspection is for the interval 2015-2017, then:

• I first need to declare the assets I had in my posession on the 1st of January 2015, in Romania and abroad.
• Afterwards, I need to declare the cash ins and outs during the inspection period (1 January 2015 - 31 December 2017 in this case), in Romania and abroad: my purchases & sales of assets.
• I also need to declare the current assets I have in my posession.

The scope of this exercise is to demonstrate back-track linearity between expenses and the sources of income, lowering the risk score to an acceptable level. Otherwise, the tax inspectors reasonably believe it to be tax evasion: expenses without a credible source of income, or non-declared gifts, or even money laundering. There must always be a visible correlation between what I purchase and the income I obtain.

The best is for me to include supporting documents for everything I declare in the Assets & Income Statement, to increase the confidence of the tax inspectors that all the assets I have are correctly declared.

A specific part of the Assets & Income Statement relates to the personal expenses, which I need to declare by type of expenses: living expenses, family, children education etc.

After I submit the Assets & Income Statement, the tax inspectors will draft a minute of the discussion, with guidelines for the next interval.

When

I have to submit the Assets & Income Statement within 30 days from the moment when I am presented the tax inspection mandate. If I need more time to provide supporting documents (contracts, bank statements etc.), I can ask for an extension and be granted one, for an additional 30 days.