Tax implications of offsetting an external liability with an external receivable

Question:

The company, a Romanian legal entity has a liability of 2,000 euros for purchases of raw materials and a receivable of 1,000 euros for deliveries of finished products, both in relation to a partner from Italy. The two entities decide to compensate the sum of 1,000 euros, following which the difference will be settled thru bank account. The exchange rate from the date of registration of the debt is 4.5 lei/euro, and the one from the date of debt registration, of 4.4 lei/euro.

What are the tax implications of offsetting an external liability with an external receivable?

Răspunsul:

Answer:

As regards the clearing of liabilities and receivables with external partners, it is necessary to use a document in which to record the titles (contracts, invoices, order notes, etc.) that generated the mutual obligations and the way in which they are extinguished following the clearing, for example a compensation report (compensation protocol) in the format agreed by the company, which will be used as a supporting document for accounting purposes. This document contains the invoices in euro as they were issued.

The company resident in Romania has the obligation to report to the National Bank of Romania (NBR) all the transactions of the nature of the balance of payments, in accordance with the provisions of the art. 51 letter a) of NBR Regulation 4/2014 on data reporting and statistical information at the National Bank of Romania with subsequent modifications and completions.

According to art. 58, the residents who perform non-monetary operations have the obligation to report these transactions to the National Bank of Romania - the Statistical Directorate, by the 20th of the month following the one for which the reporting is made, by completing and transmitting the annex no. V.6. The form can be found on the official website of the National Bank of Romania, the Statistics/ Reporting section to the NBR/ Non-financial companies/Balance of payments statistics. A copy will be sent to the National Bank of Romania - Statistical Directorate.

In accounting, the settlement of liabilities and receivables is recorded in lei, at the exchange rate communicated by the National Bank of Romania valid for the date on which the clearing was performed (the date of signing the bilateral record).

In case, the external liability resulted from activities subject to taxation in Romania, according to Title VI, Tax on the incomes obtained from Romania by non-residents and the tax on the representatives of foreign companies established in Romania, at the time of compensation, which will be considered a payment, the company must withhold and declare tax, as the case may be.

Relevant legal base:

- art. 51 letter a) and art. 58 NBR Regulation no 4/2014

See answer in romanian here