Controls carried out by tax authorities on individuals have increased in scope over the past five years, against the backdrop of diversifying their sources of income and discovering situations where the income thus obtained was incompletely declared.

Areas at risk of underreporting

Therefore, as part of the program to encourage voluntary compliance by taxpayers, central tax authorities have carried out significant verification actions, targeting areas at high risk of undeclared income, such as cryptocurrency trading, beauty activities, online promotion of certain products, etc., or individuals where discrepancies have been identified between the declared income and that estimated by ANAF (differences exceeding 50,000 lei in one year).

At the same time, legislation has been continually adapted to the trends identified in practice, so as to create a sufficiently broad framework for conducting control activities over individuals. Therefore, currently, taxpayers in this category may be subject to either a "personal tax situation check" – equivalent to a tax inspection for commercial companies, with all the implications involved (a check exclusively within ANAF's competence, a lengthy period of execution, comprising a thorough analysis of the situation, concluding with the issuance of a tax assessment decision, etc.), or a "documentary check" (which may also fall under the competence of the General Antifraud Directorate, carried out more rapidly, with the tax assessment decision issued subject to further verification).

The evolution of these controls is clearly highlighted by the data contained in ANAF reports. Thus, while in the entire year of 2022, 284 control actions were completed on individuals, resulting in 141 tax assessment decisions being issued, with a total value of 47.6 million lei, in 2023 a significant increase in verifications for this category of taxpayers is observed.

In just the first three quarters of last year, ANAF completed 512 control actions (representing an increase of over 80% compared to the entire year of 2022), resulting in 127 tax assessment decisions, with a total value of 53.5 million lei.

Drastic changes adopted in 2023

And most likely, the figures will be much higher starting this year, at least regarding the amounts included in the tax assessment decisions, considering the new impactful regulations in this area adopted in 2023.

On the one hand, there are the specific rules (by order of the ANAF president) for individuals with "large fortunes," exceeding 25 million euros, and on the other hand, there is the increase in the tax rate for income from unidentified sources, from 16% to 70%, provided for in Law no. 296/2023.

In other words, controls conducted on individuals should bring at least four times more money to the state budget in the coming period, simply by increasing the tax rate, without considering the related interest and penalties.

Under these conditions, individuals targeted by ANAF controls need to be informed about when the 70% taxation of income from unidentified sources applies, what the basis of taxation is, what problems it may generate, how to approach or prepare for such a verification, and what potential remedies are available.

Too much time

The practice so far shows that such a control requires a tremendous amount of time from taxpayers, not only for collecting the documents that need to be provided (for example, bank account statements for accounts that have since been closed, obtaining duplicates from notary offices where originals are no longer available, requesting original certificates from income payers outside Romania, etc.), but also for organizing them in the manner required by legislation, with sufficiently detailed yet synthetically presented explanations so that they can be easily understood by the authorities.

Additionally, we have noticed that understanding correctly the type of information requested during the verification, the deadlines available for delivering them to the authorities, as well as finding a balance between the formalism imposed by law for requesting/transmitting information and documents and creating a rapid communication channel with the authorities for clarifying certain aspects are extremely important.

And last but not least, we have noticed that sometimes the control, due to its investigative nature, tends to informally extend to other periods than the one being verified, either because individuals are asked for documents that precede by far the period under scrutiny, or because individuals themselves provide information and documents that concern a period subsequent to the one under scrutiny in order to document some responses to the explanatory notes requested.

In any case, a good understanding of both the legal texts and the court practice on the subject of verifying the personal tax situation is essential but not sufficient.

It remains for each of those targeted, even if they do not consider that there are reasons to be on the list of individuals at risk of non-compliance, to get used to the idea that they may be subject to a tax inspection at some point and to prepare for what will mean a difficult ascent on a very steep road.

(Photo: Freepik)

(Opinion material by Raluca Bontaș, Partner, Tax Services, Deloitte Romania, and Alex Slujitoru, Partner, Reff & Associates | Deloitte Legal)