Taxation at 70% of undeclared income by individuals identified by the National Agency for Fiscal Administration (ANAF) comes into effect on July 1, 2024. However, this date does not target the moment of earning income or the start of control over the respective individuals, but rather the moment of issuing the tax assessment decision. Thus, any individual taxpayer who receives a tax assessment decision after July 1, 2024, could be subject to the new 70% rate.

According to Law 296/2023, those who do not correctly declare their income risk, in addition to the increased tax rate, interest and penalties for non-declaration of 0.02% and 0.08% per day of delay, respectively.

These will be calculated until the date of payment of the principal debts, but the value of non-declaration penalties may be reduced by 75% in case of payment or offsetting of debts by their due date or in case of successful completion of a payment installment plan.

Issuance of the tax assessment decision and application of the new tax rate

Although the change in the tax rate is set to occur from July 1, 2024, it is crucial to mention that the law expressly provides that the new rate, 70%, will apply to "tax assessment decisions issued by the tax authorities starting from the same date."

In practice, for individuals who have either undergone a tax audit and receive the tax assessment decision before July 1, 2024, or will be subject to an audit after this date, things are clear regarding the application of the tax rate – 16% and 70%, respectively. For individuals who will be under a tax audit on the date set by the legislator, the aforementioned legal provision raises concerns about how it will be applied by the tax authority.

For example, it is possible that ANAF may have initiated a verification procedure against a person during the year 2023, in 2022, or even earlier - considering the practice of tax audits in Romania, where staff shortages have often extended the duration of audits - for which the tax assessment decision is issued after July 1, 2024. According to the provisions of the law, the new rate of 70% can be applied in this case, even though it is possible that the specific activity carried out by the audit authorities occurred, partially or entirely, before July 1, 2024.

However, would such taxation be fair, given that the law considers the "ascertainment" of income from unidentified sources, which takes place under the influence of a more favorable law but materializes in a tax administrative act issued under the influence of another? The answer can only be negative. Nevertheless, such an answer will have to be obtained in court.

Consequently, not only individuals who are to be audited by ANAF after July 1, 2024, should take into account the new tax rate, but also all individuals who are currently undergoing an audit, regardless of when it was initiated, or who have been notified of the initiation of an audit in the near future, as the corresponding tax assessment decision may be issued after the new tax rate comes into force.

At the same time, since the law makes no distinction between the verification procedures that individuals may be subjected to – personal tax situation verification or documentary verification, referring only to "tax assessment decisions" – it follows that the new tax rate will apply to both procedures.

How should those who want to expedite the issuance of the tax assessment decision act?

In light of the above, it is advisable for individuals targeted by tax audits, especially those already undergoing a verification procedure, to take all necessary actions to finalize it by issuing the tax assessment decision as soon as possible, before July 1, 2024 – for example, promptly provide the audit authorities with relevant documents and information, respond with explanations before the deadline set by the audit team, request the immediate resumption of the audit after the cessation of the reason for its suspension, request the conclusion of the audit, etc. (Photo: Freepik)

Opinion piece by Alex Slujitoru, Partner at Reff & Associates | Deloitte Legal, and Cătălin Barbu, Manager, Income Taxation, Deloitte Romania