On June 13, 2017, ANAF abruptly announced, via a press release, a change in its approach to the taxation of individual real estate developers, thus ending a practice tolerated for more than ten years.
Until recently, many individual real estate developers opted for the more favorable taxation option, by which they sold real properties from their personal patrimony applying the taxes in the rates provided by Article 77¹ of the old Fiscal Code or Article 111 of the current Fiscal Code. Thus, although the real estate transactions were recurrent and subject to VAT, these individual developers benefited from the reduced tax on income from transfer of real properties from personal patrimony, instead of the 16% tax on income from transferring real properties from business assets.
The practice of individual developers was well known to the tax authorities, either based on information provided by notaries completing Declaration 208 or following tax audits carried out on individuals in the context of VAT refund requests. In other situations, the tax authorities themselves issued opinions that the incomes of individuals deriving from the delivery of real property goods do not represent income from independent activities, and that income tax is calculated and paid according to Article 77¹ of Law 571/2003, even when the tax authorities had knowledge that the person in question had the obligation to be registered for VAT (a taxable person carrying out economic activity of exploiting tangible property to gain continuous income).
From the ANAF press release it appears that a goal is the retroactive reclassification of the incomes obtained by individual real estate developers in the sense that they owed tax as income from independent activities instead of tax on income from transfer of real property from personal patrimony. Such an approach would be contrary to the obligation of tax authorities to guide and assist taxpayers, and to the principle of accessibility and predictability of the law. The tax authorities’ conduct would expose the taxpayer to paying large sums of interest, penalties, and increases related to the difference in income tax and specific contributions owed, which they would not be liable for if the tax authority had exercised its active role.
Conclusion. Regardless of ANAF’s behavior regarding transactions already carried out, it becomes clear that the objective of the press release is to compel individual real estate developers to register as if they were conducting independent activities. This obligation must be correlated with the new practice of tax administrations that are beginning to refuse VAT registration for real estate developers because they do not have an organizational form registered in the Trade Registry.
Going forward, recurrent real estate transactions will be carried out only under registered and authorized forms at the Trade Registry, applying the specific taxation regime in the Fiscal Code, and the benefit of the reduced tax on income from transfer of real property from personal patrimony will be eliminated.