Radu Simion, Senior Associate Wolf Theiss

by Wolf Theiss Rechtsanwälte GmbH & Co KG

The tax on "special" constructions, lowered by 0.5% as of 1 January 2015, is now expected to be repealed beginning 1 January 2016. Meanwhile, tax authorities decided – the tower of a WTG is subject to taxation.

Investors in the energy business in Romania, amongst other investors, needed to put up with a new tax starting 1 January 2014 – the tax on the so-called "special" constructions, which was set at a rate of 1.5% from a tax base determined starting from the book value of the constructions. Before 2014, the tax had been levied, at the level of the local municipalities, exclusively on those constructions that qualified as buildings (i.e. structures with a roof and walls, apt to serve to social or commercial activities).

At the end of 2013, the government made the election to increase the base of the tax and, hence, a substantial list of other constructions that did not meet the criteria of a building became subject to taxation. This resulted in a new, separate tax levied at the level of the central government this time.

“Thus, an investor that operates a wind farm in Romania, for instance, is now obliged to pay taxes on constructions such as the concrete foundations that support the wind turbines, the crane pads that are used for interventions to the wind turbines, or the privately owned roads that ensure the access to the farm,” declared Radu Simion, Senior Associate Wolf Theiss Rechtsanwälte GmbH & Co KG.

In September 2014, the Commissions within the Chambers of Deputies of the Romanian Parliament, after having examined a draft law for the amendment of the tax legislation, proposed a reduction in the rate of the tax on constructions from 1.5% to 1%. The measure aimed at being a positive influence on the competitiveness of the Romanian players within the regional energy business environment.

The draft law, with the aforementioned proposal included, was enacted as Law no. 11/2015 into effect as of 1 January 2015. On 18 February 2015, the Romanian Government made available for public debate a draft Tax Code which, inter alia, aims at repealing the tax on constructions as of 1 January 2016 (following the multiple negative reactions to it received from the business environment). In the explanatory notes, the Government reiterates the initial rationale, upheld by the Commissions within the Chambers of Deputies, adding also the wish to offer a stimulus to the investments.

The draft Tax Code was approved by the Government on 25 March 2015, and recent statements by Government's officials indicate the political intention to have the debates over the draft and approval thereof by the Parliament completed within April – June 2015.

In the meantime, the Central Tax Commission shed light, through a decision issued on 9 September 2014, on a concern which was reasonably raised by investors that hold wind farms.

Thus, it has been noticed that in the practice of the local municipalities before 2014, there was a difference of opinion on whether the tower that supports the wind turbine meets the criteria of a building and should, hence, be subject to the local tax on buildings. The difference of opinion resulted in unjustified discrimination between investors with presence in different local counties; certain of them were asked to pay additional local taxes, while others were exempted, based on the personal interpretation of the various municipalities.

The problem became even more complex after 2014 as certain practitioners flagged that the towers should be regarded as special constructions, subject to the tax established at the level of the central government. The entire situation may have therefore easily led, in certain instances, to double taxation at local and central levels.

This matter was eventually clarified by the Central Tax Commission which ruled that the tower that supports the wind generator shall be qualified as a building and, hence, subject to the tax on buildings, at the level of the local municipalities.