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PART III. — METHODS OF ALLOCATING TAXABLE INCOME

A. FOREIGN ENTERPRISES WITH LOCAL BRANCHES OR SUBSIDIARIES

I. GENERAL QUESTIONS AND METHODS OF APPORTIONMENT

As already stated, branches and subsidiaries are taxed in their own names, on the basis of their own profits quite without regard to the general results obtained by the enterprise from its operations as a whole.

(a) Book-keeping and Accounting Requirements

The accountancy is regarded as the first and most important means of establishing the taxable net income of merchants who are required to keep books. If the books are regularly kept, the Assessment Committee is bound to take them into consideration as the basis of taxation. The accounts may only be disregarded in certain cases, of which the following are examples:

In every case where the Assessment Committee disregards the evidence of the accounts, it must be able to give satisfactory reasons for so doing.

$$$Page No. 400 and 401 is missing [?]

II. APPLICATION OF THE METHODS OF ALLOCATION IN SPECIFIC CASES

(a) Industrial and Commercial Enterprises

Roumanian law does not distinguish between profits according to their origin (manufacture, purchase and sale). Therefore, although the goods may be manufactured or bought abroad, the whole profit at the time of sale in Roumania is liable to tax. Similarly, if goods are manufactured in Roumania and sold abroad, the entire profit from manufacture and sale is taxable in Roumania. If, however, the enterprise makes a reasonable distribution of these various profits in accounts which are recognised to be regular, the tendency in practice is to take account of such distribution.

1. Selling Establishments

As regards local establishments selling in national markets, the basis of assessment is, as already stated, the declared income as checked by the accounts, without regard to any existing links between the local establishment and the parent enterprise, centre of management abroad, etc. Accordingly, the tax is levied on the total income of the local establishment, without regard to the fact that the enterprise buys or manufactures abroad the goods sold in Roumania.

In the case of a sales establishment belonging to a foreign enterprise and selling abroad, it is taxed on the entire amount of the profits as shown by its accounts, and consequently on the total amount of its profits derived from sales made abroad.

2 and 3. Manufacturing and Processing Establishments

If a foreign enterprise owns in Roumania a factory, works or any other establishment manufacturing or processing goods which are sold abroad, the tax is only levied on the profits shown in the accountancy of the Roumanian establishment. Taxation of the Roumanian establishment, therefore, only takes place if profits are shown in its books.

4. Buying Establishments

When a foreign enterprise buys goods in Roumania, through a permanent establishment, with a view to manufacturing and/or selling them abroad, it is only taxable if the accounts reveal a profit.

Purchases made by a foreign enterprise in Roumania which are not followed by a corresponding sale in the country are not taxable, because the commercial transaction is not complete and also because a presumed profit, that is, a profit whose existence is not established, may not be taxed.

5. Research or Statistical Establishments, Display Rooms, etc

If a foreign company has an establishment in Roumania which does not directly engage in any profit-making transactions, but contributes indirectly to the realisation of profits — e. g., a statistical bureau, a display room — the foreign company is not taxable, since it engages in no commercial or industrial activities in Roumania. This applies also to the Roumanian establishment itself.

(b) Other Kinds of Enterprise

As regards banking and insurance companies and land or water transport enterprises, the general rules set forth above (see pages 400 and 401) are applied — that is, in principle, the basis of allocation is constituted by the special balance-sheet of the establishment situated in Roumania, subject to corrections and amendments.

Railroads belonging to the State, questions of taxation only arise in connection with the International Sleeping-Car Company. This company is taxed on the basis of its receipts in Roumania.

No question relating to foreign gas, light and power companies has come before the tax authorities. Telephones are exploited under a concession and, under the terms of the agreement entered into with the State, the concessionary company is exempt from all tax.

Mining and oil companies are all Roumanian.

B. NATIONAL ENTERPRISES WITH BRANCHES OR SUBSIDIARIES ABROAD

There are few Roumanian companies which have branches or subsidiaries abroad, for Roumania is too new a country to have been able to make investments abroad.

I. GENERAL METHODS OF ALLOCATION

The same methods of allocation in force for foreign enterprises are applicable to national enterprises.

The profits of branches or subsidiaries abroad are only taxed in Roumania when they are added to the profits of the Roumanian enterprise and are amalgamated therewith. There is therefore no occasion for special computation or determination as the taxable profits are those which are ascertainable from the accounts of the enterprise, and income from abroad is taxed in the same way and under the same conditions as income derived from Roumania.

II. ALLOCATION OF PROFIT TO REAL CENTRE OF MANAGEMENT WITHIN THE COUNTRY

The question of the allocation of the special ratio of the profits of the branch situated abroad to the Roumanian enterprise to which it belongs does not arise. The entire amount of the profits of the branch are taxable as soon as they appear in the accounts.

C. TRUSTS AND HOLDING COMPANIES

The law makes no provision for holding companies, which are therefore regarded as ordinary companies, and, further, both in the case of a Roumanian holding company having subsidiaries abroad and of foreign holding companies having subsidiaries in Roumania, the rules set forth above are applied.

On the other hand, with regard to the taxation of subsidiaries, no account is taken of whether or not they are controlled by a holding or trust company, and taxation is carried out exactly in the same manner as for any other company.

Further, it should be noted that holding companies are, like any other companies, taxed on their profits, after deduction of the income derived from the securities of subsidiaries, if these securities have already been subject to the tax on income from personal property in Roumania.

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