Peligrad Law has obtained the cancellation of tax liabilities of over 6million euros for a shipyard in Romania

Peligrad Law has obtained the cancellation of tax liabilities of over 6million euros for a shipyard in Romania, a reference decision for tax practice

Peligrad Law team obtains the definitive annulment, at the High Court of Cassation and Justice (HCCJ), of tax liabilities of almost 6.3 million euros, representing corporate income tax and VAT, additionally imposed by ANAF on a company in the shipbuilding industry.

The case, a rare and landmark one, represents a landmark for judicial practice in Romania.

The team of lawyers of Peligrad Law consisting of Vlad Peligrad, Founding Partner and Călin Dragoman, Partner and Coordinator of the Litigation Practice, successfully assisted and represented an important company in the maritime shipbuilding industry / shipyard before the High Court of Cassation and Justice, obtaining the rejection of the appeal filed by ANAF against the sentence of the Court of Appeal of Constanta, by which administrative fiscal acts that required payment of approximately 6 million euros were annulled.

Thus, Peligrad Law's lawyers convinced the High Court of Cassation and Justice to maintain the resolution given by the Court of Appeal of Constanta on the case that aimed at the annulment of an additional taxation in the amount of approximately 32 million lei (approx. 6.3 million euros).

Less than half of the amount represents corporate income tax additionally established as a result of the adjustments made by ANAF on the transfer pricing file prepared by the company. The difference represents the value added tax (VAT) additionally established as a result of there classification of the services provided by the company regarding the transformation of a barge into a floating dock, services erroneously assessed by ANAF as being provided on an immovable property by destination (the barge transformed into a floating dock being mistakenly assessed as an immovable property by destination by the ANAF inspectors).

As for the corporate income tax liabilities, they resulted from the adjustments made by ANAF on the companies considered by the taxpayer in establishing the comparability interval for calculating the weighted profitability indicator as well as on the expenses assessed by the taxpayer as not related to the transaction tested and analyzed in the transfer pricing file.

In this regard, by rejecting the appeal filed by ANAF, the High Court of Cassation and Justice confirmed the correctness of the claims of the Peligrad Law team of lawyers, as well as of the reasoning of the Court of Appeal of Constanta by which it was shown that:

·      the provisions of art. 8 of Order 446/2016 are applicable in the case and there is no legal provision requiring the elimination of companies that record recurring losses from the comparison of the analyzed transaction, as long as the entire industry is in the situation of generating recurring losses;

·      what is relevant in the field of transfer pricing, and especially in the adoption of the TNMM method (net margin method) when preparing the dossier, is the similarity of the activity carried out as a functional profile to the functions and risks assumed, which can be taken into account as relevance when comparing the tested party with the companies in the comparability set;

·      the companies illegally rejected by ANAF from the set of comparable, could be retained, even if some of them either did not actually have activities that were 100% in line with the activities of the applicant company but presented afunctional profile with that of the applicant, or even if they recorded losses, during the reference period, the shipbuilding industry faced an unfavorable economic regime,  the recording of losses being thus justified, even being recurring.

·      the company correctly proceeded to adjust the profitability indicator by eliminating the expenses that occurred for objective reasons, independent of the commercial relationship with the group to which it belongs, respectively, the management expenses, the expenses caused by the fixed costs of the unused production/construction capacity, the expenses with the dismissal of personnel;

As regards the additional VAT imposed, following the administration of the evidence as well as the legal arguments referring to the incidence of the special legislation in the naval field, the High Court of Cassation and Justice validated the decision given by the Court of Appeal of Constanta by which it held that the tax authority proceeded to an erroneous legal qualification of the floating dock as an immovable property,  since the floating dock has never lost its legal status as movable property. The fact that it remained in the area of the shipyard basin does not qualify it as an immovable, inert, rooted asset, but, by the fact that it is used for launching ships, respectively, it uses the diving maneuver in the water, denotes its mobile character, the dock being able to be moved from the shipyard basin at any time. Also, the fact that certain changes were made to the barge does not mean that the dock would have turned into an immovable property, in its own right, but it, as the name suggests, isa dock that floats, being mobile, performing certain ship launching operations that involve mobility.

Consequently, the Supreme Court decided that the court of first instance correctly censured ANAF's claim that the works to modify the property fell under the provisions of art. 278 para. 4 letter a) of the Fiscal Code, which would have imposed on the company the payment of value added tax.