Non-payment of taxes and contributions – again, a criminal offense

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From 1 March 2022, failure to pay taxes, and withholding taxes to the State could be punishable by imprisonment of 1 to 5 years.

As of 1 March 2022, an old decriminalized offense is brought back into the criminal sphere, being re-criminalized by GEO No 130/2021. In December 2021, the Romanian Government decided to re-incriminate the offense of withholding or collecting and non-payment of withholding tax and contributions to the state. The main impact of the re-incriminated offense will be on Romanian employers, who will be liable to criminal prosecution if they do not pay taxes and contributions to the State for their employees. Still, other categories of taxpayers are also targeted.

GEO No 130/2021 amends Law No 241/2005 on preventing and combating tax evasion as follows:

“Art. 6 ind. 1 of Law no. 241/2005:

(1) The withholding and non-payment, collection and non-payment of taxes and/or contributions provided for in the Annex to this Law within 60 days of the due date provided for by law shall constitute offenses and shall be punishable by imprisonment for a term of one to five years or a fine.

(2) The provision of para. (1) shall enter into force on 1 March 2022.”

The taxes listed in the schedule to the Act and covered by the offense are as follows:

  1. Tax on dividends paid by a Romanian legal person to a Romanian legal person;
  2. Tax on income from self-employment under sports contracts;
  3. Taxation of income from intellectual property rights;
  4. Tax on income from wages and salaries;
  5. Tax on rental income;
  6. Tax on interest income;
  7. Tax on taxable income obtained from the liquidation of a legal person or the reduction of the share capital, according to the law;
  8. Tax on dividend income;
  9. Tax on pension income;
  10. Tax on income from prizes and gambling;
  11. Tax on income from other sources;
  12. Tax on income obtained by an individual from an association with a legal person, taxpayer according to Title II of Law No. 227/2015, as amended;
  13. Tax on income earned by an individual or entity – unincorporated association from an association with a legal person, taxpayer according to Law No. 170/2016 on specific tax, as amended;
  14. Tax on income obtained by an individual from an association with a legal person, taxpayer according to Title III of Law No. 227/2015 as amended;
  15. Social security contribution;
  16. Health insurance contribution;
  17. Withholding tax on income earned in Romania by non-residents;
  18. Tax due on revenue from the transfer of real estate from personal assets;
  19. Contribution to the Environment Fund.

The enumeration of taxes and contributions targeted by the legislator represents a change from the previous version of the incrimination, which did not make such a reference and did not indicate concretely which withholding taxes and contributions it referred to, which is why the CCR held in 2015 that the rule was not accessible and predictable. By Decision CCR No 363/2015, the Court held that “a subject of law cannot be required to comply with a law which is not clear, precise, predictable and accessible, since he cannot adapt his conduct according to the normative hypothesis of the law; it is precisely for this reason that the legislative authority, Parliament or the Government, as the case may be, is obliged to enact rules which comply with the above-mentioned features.”

Various criticisms have been raised in the business community regarding the re-incrimination of this offense because criminal sanctions would not have an adequate deterrent effect in the fight against tax evasion, and it would be more appropriate to gradually apply other types of sanctions, and only finally to apply criminal sanctions.

Other criticisms are rightly aimed at the fact that the offense was re-incriminated by an emergency ordinance, the urgency not being justified, given that more than six years have passed since the original offense was decriminalized by Decision CCR No 363/2015. In the explanatory memorandum, Gurvenul justifies the need to re-incriminate the act at this time by the fact that the state budget must be protected, but also people who have taxes withheld for various purposes but are not paid to the state budget, “in which case they will not be able to prove and claim various rights to which the payment of these taxes and contributions is linked, in practice, there are cases where, for example, on retirement, some people in this situation find that they have been awarded a lower pension than they are entitled to, as a result of non-payment of individual social security contributions, and that certain periods or income for which contributions have not been paid have not been taken into account when determining their contribution period, a situation which is often settled in court.”

Finally, it is essential to note that the offense is committed with intent and involves taxes or contributions being collected or withheld but not remitted to the state budget by the person with this obligation. By way of example, if an employer withholds money from employees’ gross pay, which is due by way of tax or social security or health insurance contributions, but does not pay them to the state budget after the 60-day deadline, he may be held criminally liable.

Please note that the following grounds for non-punishment or reduction of the penalty provided for by Law no. 241/2005 will apply:

  • if during the criminal proceedings or trial, the damage caused is fully covered and its amount does not exceed EUR 100,000, a fine may be imposed;
  • if the damage caused and recovered under the same conditions is up to EUR 50 000, the penalty is a fine;
  • if during the criminal proceedings or the trial until a final judgment is handed down, the damage caused does not exceed EUR 100,000, and this amount, increased by 20% of the basis of calculation, plus interest and penalties, is fully covered, the offense shall not be punished.