Tax adjustment in dynamic global development
Dumitru Girdea
Trade Co-operative University of Moldova, Chisinau, Republic of Moldova
Elena Fuior
Trade Co-operative University of Moldova, Chisinau, Republic of Moldova
Ion Maxim
Competition Council, Chisinau, Republic of Moldova
ionmaxim@yandex.com
Abstract. World states with developed national economies are geared towards efficient organization of the entire economic process in order to achieve the best results at minimum costs, which implies the implementation of strict rules with the achievement of efficient performance indicators, including in the fiscal field. Given the fact that the Republic of Moldova has signed the Association Agreement with the European Union, this situation requires the amendment of the national legislation in the field of taxation, and in particular the implementation of the European Community legislation in the field of State aid. The assessment of State aid is based on the criteria deriving from the application of competition rules applicable in the European Community, in particular art. 107 of the Treaty on the Functioning of the European Union, and the interpretative instruments adopted by the institutions of the European Union. Thus, in the context of the implementation of European Community tax provisions on State aid, national legislation is to be amended, which in itself implies compliance with the global fiscal adjustment trend.
Key words: State aid, tax incentives, alignment
1. Introduction
This paper focuses on examining the issue of granting tax incentives in the form of State aid and aligning these incentives to the provisions of the acquis communautaire.
The actuality of the problem under examination stems from the global trends in the efficiency of state spending by rationalizing the use of public money and the concomitant orientation of financial resources towards higher value-added economic sectors. The aim of the paper is to highlight the most important difficulties encountered in the process of using public financial resources, focusing on the fiscal incentives in the form of State aid granted in the Republic of Moldova. Based on this study, in the general political context of harmonizing national legislation with the provisions of the acquis communautaire, it is intended to propose solutions to remedy the situation in order to overcome the economic and financial disparities.
This paper is divided into three chapters. The first chapter is aimed at describing the topic regarding the fiscal incentives granted in the Republic of Moldova in terms of State aid. Chapter two describes the problems Republic of Moldova is facing and faced by the member countries of the European Union during the pre-accession period in the process of alignment of the fiscal legislation in the field of State aid according to the provisions of the European Community legislation. Chapter three proposes solutions to overcome problematic issues in the complex process of aligning tax legislation in the field of State aid.
2. The problems in regulating fiscal incentives in the Republic of Moldova from State aid perspective
At the present stage, the country’s economic strategy needs to be developed and implemented in conjunction with the fiscal policy, part of which are measures to stimulate entrepreneurial activity. From a conceptual point of view, the fiscal policy of the state must be the same for all forms of ownership, also by granting and combining fiscal incentives, especially in the form of State aid, so as to contribute to sustainable economic growth.
For these reasons, tax incentives are the mandatory component of fiscal policy, being in the same time a mechanism for regulating the activity of the undertaking. Thus, from a theoretical and practical point of view, in examining the fiscal policy and the problems regarding the granted incentives, a particular attention is paid to the questions regarding the impact of taxation on the reproduction process, and the reform of enforcing must regulate these incentives, ensuring their consistency with the economic policy of the state and, at the same time, to design a reduction in the amount of tax incentives.
As practice shows, tax incentives are appropriate when there is a well-thought-out and regulated tax mechanism that includes a limited number of incentives, because they occur simultaneously in a double hypostasis: as an element of taxation, i.e. of the structure of the tax and as an instrument of the fiscal policy. For this reason, fiscal policy must be directed towards reducing the number of incentives, which would be aimed at stimulating producers while granting the biggest incentives for the implementation of modern technologies, innovations, scientific research, etc. At the same time, it is worth mentioning that, it would be useful to give entrepreneurs the right to choose the forms of tax incentives used.
The need to reduce the types of tax incentives is caused by two reasons: first, to compensate budget losses related to the reduction of the tax quota, and the second is to increase the influence of the liberal-monetarist school, which argued the necessity of reducing the state’s role in the economy, giving priority to market relations.
According to art. 2 of the Fiscal Code of the Republic of Moldova, the fiscal system represents the totality of taxes and duties, principles, forms and methods of establishing, modifying and canceling them, as well as the totality of the measures that ensure their payment.
Also, pursuant to art. 6 par. (8) let. g) the fiscal incentives as elements to be taken into account when estimating the taxable object, when determining the amount of the tax or duty, as well as its collection, in the form of: partial or total exemption from tax or duty; partial or total exemption from payment of taxes or duties; reduced rates; reducing the taxable object; delays in the payment of taxes or duties; tax breaks, which theoretically can be divided into three large groups, namely: exemptions, deductions and tax credit [2].
Tax incentives can be examined in a broad and narrow sense. In the broad sense, they include all tax incentives: tax amnesty, return of tax paid previously, tax break, tax cuts, tax credits, etc. In a narrow sense, tax incentives include tax deductions and tax credits.
Regarding the tax exemptions, we mention that they provide, for the taxpayer, to be released from the payment of mandatory payments to the budget. It includes: fiscal amnesty, incentives in the form of total tax exemption, return of previously paid taxes, including advance payments, surplus over the amount of tax paid in connection with technical calculation errors, tax breaks, tax deduction and so on. As a way to allow tax incentives, widely applied in developed countries, is to grant fiscal premium for investing, which is given to enterprises at the time of commencement of investments. This measure is correlated with the whole system of capital transfer regulation. [4]
Of particular interest is the tax deductions, as these are incentives that allow the taxable base to be reduced by the expenditure allowed by the legislation and some income categories in order to stimulate them. They have a greater degree of complicity and provide different conditions to be respected.
At the same time, we mention that the most complicated element of the tax relief system is the tax credit. Unlike other facilities, the tax credit is legalized by a credit agreement between the enterprise and the tax authorities. It is necessary to distinguish the credit category of the credit category as a form of transfer of the borrowed capital. The following categories of incentives must be assigned to the tax credits: postponement of taxes, transfer of tax, special purpose tax credit, investment tax credit. It is intended to stimulate the investment and innovation activity of the enterprise.
The tax credit is granted for a certain period and offers companies the possibility to benefit from the reduction of the amounts related to the income tax with subsequent repayment of the loan amount plus a certain interest, corresponding to the refinancing rate of the central national bank. But these incentives are less stimulating, which is why the postponement of payments must be strictly regulated. Characteristically, fiscal credit is a category of incentives aimed at reducing tax liabilities in order to stimulate taxpayers to develop their production and social support and also to avoid double taxation.
Its popularity in developed countries is determined by the opportunities provided by the tax credit compared to other categories of incentives, as it implies the direct reduction of the taxpayer’s tax liabilities, which is combined with the postponement of the tax payment. In case of correct application of the granted incentives, they become advantageous to both the taxpayer and the state, because in the case of their orientation towards the development of the productive sector, they contribute to the increase of the enterprise’s income and, consequently, to the increase of the budgets in the future.
It is worth noting that fiscal credit is easier to predict when planning the budget. Secondly, when granting this credit, increased attention is drawn to the patrimonial situation of the taxpayer as compared to other types of incentives. But it is characteristic that tax credit can be granted to subjects who ugently need resources.
At the same time, the entrepreneurial structures may opt to obtain the special purpose tax credit, a fiscal incentive that involves replacing the payment of taxes with the execution by the taxpayer of some services or works on the order of the public authorities. In order to be able to obtain the incentive, the firm must conclude a contract with the authorized public administration body. It may be granted to the taxpayer in connection with his economic activity or depending on the type of activity, in order to promote modern technologies or social support. The amount of credit is determined either as a share of the price of the purchased equipment or depending on the negotiations with the territorial tax authorities.
Tax incentives, including those related to State aid granted to taxpayers in connection with different taxes, depend on their specificity. For fiscal purposes, tax incentives can be grouped into incentives to stimulate entrepreneurial activity, they mostly relate to income taxation and the second is to solve social problems, they are largely related to indirect taxes, which are ultimately paid by consumers.
It is characteristic that the Republic of Moldova, through a series of political initiatives, has adhered to several international agreements and adopted laws, normative acts aimed at accelerating the transformation of the economic system into a functioning market economy. Here it can be mentioned especially Law no. 166/2012 on the approval of the „Moldova 2020″ National Development Strategy and the Association Agreement between the Republic of Moldova, on the one hand, and the European Union and the European Atomic Energy Community and their Member States on the other, approved by the Parliament of the Republic of Moldova by Law no. 112/2014. [14, 11]
Consequently, in order to implement the competition provisions of the National Development Strategy „Moldova 2020″, the National Competition and State Aid Program for the years 2017-2020 was elaborated. The elaboration of this Program aims at ensuring the more coherent application of the Competition Law no. 183/2012 and Law no. 139/2012 on State aid in accordance with the provisions of Chapter 10 „Competition” in Title V of the Association Agreement. [13]
From an economic point of view, the development and implementation of this document stems from the need to open up the economic sectors to competition, to increase the level of transparency and market accessibility, to make efficient use of public resources to increase consumer welfare. The overall objective of the Program is to develop a loyal competitive environment by opening up the economic sectors to competition and effective monitoring of State aid.
Conceptually, State aid is an important instrument of state competition policy, significantly determining the behavior of economic agents, contributing to creating the premises for a balance between compliance with competition rules and the exercise of its functions by the state. The constant control and monitoring of State aid helps to eliminate unjustified distortion of competition, targeting support measures more effectively, thus contributing to the development of the whole economy.
The notion of State aid “comprises not only positive benefits but also measures which, in various forms, diminish the charges which are normally included in the budget of an undertaking and measures which, without being subsidies in the strict sense of the word, are similar in character”. A typical example of a measure that is not a subsidy in the strict sense, but which gives an advantage to an enterprise would be tax-related measures that reduce taxes for certain businesses.
The analysis of the legislation of the Republic of Moldova denotes the fact that the regulation of the fiscal incentives is of a fragmentary nature, in particular, the procedure for the granting of tax incentives by the local public authorities is not regulated, being necessary to reform the system of granting the tax incentives by increasing transparency, minimizing the negative impact on competition and trade.
The facilities provided by the state through fiscal policy are an incentive for investment, as it is given the chance to obtain additional sources for expanding business. Incentives can be effective in the case of a rational and regulated taxation mechanism with a limited number of facilities [4].
At the current stage very acutely it is a question of streamlining the use of state resources granted in the form of tax incentives, including State aid fiscal incentives, which have a significant impact on the national economy.
According to the Court of Accounts’ Report on the audit of conformity to the performance audit of the fiscal and customs facility system adopted by the Decision no. 34 of 29 July 2016, based on the significance of the value and impact of the tax and customs incentives on the national public budget revenues, 50 types of tax incentives, including customs, are constantly applied for more than 19 years, without any changes, revisions or adjustments being made. At the same time, as a share in gross domestic product, fiscal and customs incentives constitute 12.1% and 37.1%, respectively, in the national public budget, and in the state budget and the budgets of the territorial administrative units – about 50.9%. [15]
The constant increase in the volume of fiscal and customs incentives in the last 5 years is due to the extension of the range of granted incentives, which at the end of 2015 constituted 105 types of duties and tax exemptions. At the same time, the number of tax and customs facilities provided for in the national legislation of 2018 is about 110. Thus, the number of facilities has increased in recent years, with the trend of increasing their total volume.
Also, as a key issue, it is highlighted that the institutions with the right to administer the tax and customs incentives do not monitor according to the process of execution of the respective facilities, and the functionality of their controls is limited by the lack of full application of all legal instruments available to them. The lack of tools for the full, correct and operative identification of the beneficiaries of the fiscal incentives, as well as of their volume, did provide non-submission by the State Tax Service. The tools available to the Customs Service and the State Tax Service do not provide a guarantee that the beneficiaries will comply with the necessary conditions for obtaining tax and customs facilities.
Starting from the fact that the fiscal and customs facilities have a significant impact on state revenues, there are still no plans to monitor and meet the objectives of the proper facilities established at the time of their legal approval. No central authority has an exhaustively determined task to assess the economic and social impact of tax and customs facilities. At the same time, the Ministry of Finance, being responsible for elaborating and ensuring the implementation of fiscal-fiscal policy, does not have a methodological framework (including an institutional one) that would establish the way of planning and approving the fiscal and customs facilities in line with good practices. At the same time, being responsible for the monitoring of tax and customs facilities, it did not analyze the impact or outcome of the granting of those facilities, but only limited to generalizing and systematizing information at the cost level. [21]
Regarding the justification or substantiation of the necessities of granting the tax and customs facilities, we mention that in the elaboration of the fiscal and customs policy measures, as part of the Medium-Term Budgetary Framework, in most cases, no expertise, justification or economic analysis regarding the opportunity of including new facilities or the maintaining of existing tax and customs facilities. From this point of view, in order to ensure the efficiency of the management of the fiscal, customs, and especially fiscal facilities in the form of State aid, must be laid down the principles that should regulate:
Ă’ justification and motivation of the request for the granting of tax incentives;
Ă’ the basis for calculating the tax allowances, including those related to state and customs aid;
Ă’ the quantification of the cost of granting tax benefits and the expected result of their application;
Ă’ determining the extent of the loss of public financial resources, from taxes and duties, as a result of granting tax benefits in the current and future periods.
As regards State aid granted as fiscal incentives, it is mentioned that in 2016 in the Republic of Moldova the amount of State aid reported in the form of waivers to the budget revenues constituted 87.91% of the total amount of the State aid reported. The amount of State aid reported as budgetary expenditure was lower than in the case of budget revenue waivers. In the reported 2016 year, the value of the nominated indicator was 12.09% of the total value of the State aid reported, maintaining the trend of the previous years. The amount of State aid reported as budgetary expenditure declined significantly in 2016 compared to 2015 and 2014.
It is noted that the value of the indicator mentioned in 2016 decreased by 43.26% compared to 2015 and by 61.74% as compared to 2014. This decrease was also influenced by the decrease in 2016 of the State aid granted in the form of subsidies and / or subsidies.
Although the share of State aid in GDP in the period 2014-2016 registered an oscillating trend, the level reached is still high. In order to take best practice in the field of state aid, the value of the indicator should be reduced to 1% of GDP without compromising the purpose of the support measures, namely the correction of market failures [16].
In the Republic of Moldova, in the structure of the distribution of State aid, according to the forms of granting, the largest share was held by the fiscal facilities, these being about 75-80% of the total amount of the State aid reported.
The amount of State aid in terms of budgeted expenditures and waivers in the period 2014-2016 is presented in table no.1.
Table 1 Value and structure of the State aid reported (including SGEI) in terms of budgeted expenditure / waivers in 2014-2016
|
No. |
Category |
2014 |
2015 |
2016 |
|||
|
Thousand Euro |
% |
Thousand Euro |
% |
Thousand Euro |
% |
||
|
1. |
Waiver of budget revenue |
191 880 |
79.71 |
251 668 |
88.78 |
105 709 |
87.27 |
|
2. |
Budgetary expenditure |
48 856 |
20.29 |
631799 |
11.22 |
15 414 |
12.73 |
|
Total |
240 736 |
100 |
553 467 |
100 |
121 123 |
100 |
|
Source: Report on State aid granted in the Republic of Moldova for 2016.
The largest share of State aid reported for the period 2014-2016 was granted in the form of exemptions, reductions, delays or tax breaks, accounting for 75.65% of the total amount of State aid reported. Although in 2016 there were changes in the amount of State aid reported in various forms, its structure continued to remain the same as in the previous years.
Figure 1 shows the structure of State aid reported in the period 2014-2016, depending on the granting form.
Figure 1 The structure of State aid reported in the period 2014-2016, depending on the form of granting
Source: Report on State aid granted in the Republic of Moldova for 2016.
In 2016, the amount of State aid reported in the form of exemptions, reductions, delays or tax breaks decreased by 38.50% compared to 2015 and increased by 4.85% compared to 2014. These support measures represent existing aid and therefore have not been notified to the Competition Council and have not been examined under the provisions of the Law on State Aid no. 139 of 15 June 2012.
The significant share of State aid as waiver of budget revenue recorded in 2016 was due in particular to the high level of State aid reported as exemptions, reductions, deferrals or lay-offs in state taxes and duties.
In the context of the above and according to the Government Action Plan for 2016-2018, it is planned that tax and customs legislation will be harmonized untill quarter III 2018, by developing and adopting new legislation (Fiscal Code and Customs Code) to ensure the predictability, transparency, security, fairness and clarity of fiscal and customs policies. [19]
3. The problems of alignment of the fiscal facilities with the provisions of the European Union acquis in the field of State aid, the Republic of Moldova and the pre-adhesion countries
At present, it can not be overlooked that the lack of fiscal discipline is a phenomenon that is specific to a relatively large number of countries of the world. Budget surpluses have come to represent rather a singular phenomenon, while budget deficits seem to be commonplace. Recently, the sovereign debt crisis in the Member States of the European Union suggests that things should not be developed in this way. The lesson learned from the crisis is that in all states it is necessary to implement the long-term sustainability of public finances.
It is noted that the experience of EU Member States shows that State aid such as the waiving of budgetary revenues (exemptions and reductions from taxes and duties, cancellation of penalties and late payment of state obligations, etc.) as a rule are more damaging to the market economy than those in the form of budget expenditures (subsidies, etc.). State aid in the categories of budgetary expenditure is considered less damaging to competition, more transparent and easier to quantify in the case of State aid schemes or individual aid.
The main aspects regarding the tax criteria were formulated by the Treaty of Maastricht, also known as the Treaty on European Union, which created a new stage in the formation of the European Union, based on the economic community and complemented by new forms of cooperation.
Among the main measures that are stipulated in this Treaty are:
Ă’ promoting balanced and sustainable economic and social progress by creating an area without internal frontiers, by establishing an Economic and Monetary Union that has a single currency;
Ă’ fully maintain and develop European Community legislation to examine the extent to which the policy and forms of cooperation established by the Treaty will need to be reviewed to ensure the effectiveness of Community mechanisms and institutions, etc.
At the same time, the Treaty sets out the actions in the economic field, the main ones being:
Ă’ the elimination of customs duties and quantitative restrictions between Member States on entry and exit of goods;
Ă’ an internal operation characterized by the abolition between Member States of an obstacle to the free movement of goods, persons, services and capital;
Ă’ approximation of national laws to an extent necessary for the functioning of the Common Market, etc. [9].
To achieve this goal, EU Member States have recently undertaken reforms to move from short-term national fiscal policy to long-term sustainable objectives. The most important fiscal rules applied in the EU Member States are the Maastricht fiscal criteria, as they are formulated in the Maastricht Treaty. It specifies the following rules:
1. The debt rule limiting the government debt to GDP to 60%;
2. Budget deficit rule to GDP at 3%.
Although these budget rules have been established more than two decades ago, compliance has proven to be a challenge for many European countries. However, studies show that the rules were too lenient and that fiscal policy responses to economic fluctuations proved pro-cyclical rather than countercyclical (with budget surpluses in times of expansion and budget deficits during recessions), which led inevitably to excessive deficits during the global economic crisis. An expansionary fiscal policy stimulates aggregate demand and therefore leads to growth, but excessive use in periods of economic expansion may reduce the fiscal space so necessary to boost the economy when the recession hits. [3]
The common market “can only be maintained by preventing occlusive business agreements, dominant position abuses, by ensuring competitive market structures, by merger control and by eliminating unjustified State aid that distorts competition, artificially maintaining non-viable businesses on the market”. [5]
Taking into account the political vector adopted by the Republic of Moldova on the country’s accession to the European Union, on 27 June 2014 the Association Agreement between the Republic of Moldova, on the one hand, and the European Union and the European Atomic Energy Community and the Member States of the European Union on the other hand, was signed. The Moldova-European Union Association Agreement establishes a new legal framework for the advancement of relations between the Republic of Moldova and the European Union to a higher level, the political association and the economic integration with the European Union. The Association Agreement contains binding provisions, regulatory rules and wider cooperation arrangements in all sectors of interest. Increased attention is paid to implementing and applying the provisions of the Association Agreement, by stipulating clear deadlines and establishing an appropriate institutional and administrative framework, thus creating the necessary premises for effective implementation.
Some of the fundamental objectives of the European Union, as set out in art. 3 of the Treaty on European Union, are economic growth, prosperity, competitiveness, social protection, full employment, social progress and cohesion between Member States. In order to carry out these tasks, the same article provides for the establishment of the common market, the monetary union and the implementation of common policies, one of which is competition policy. [10]
The process of harmonizing the tax laws and policies of non-EU countries is to be guided by key legal and institutional requirements with regard to candidate countries to EU Member State as they set benchmarks for the more advanced stage of the process integration into the EU.
In the context of the harmonization of Moldovan tax legislation and policy, it is important to underline that this is a complex and medium-term process involving policy harmonization, correct transposition of relevant laws, if their updating is appropriate, creating and providing resources, through new organizations or other methods of the necessary institutional structures and pursuing credible and verifiable implementation and execution in terms of objectives [20].
On the eve of the 2003 accession, only Cyprus was assessed as a state fulfilling the criteria for the commitments assumed and meeting the taxation requirements established during the negotiations. In the other countries, commitments were assessed to have been met “essentially” or “for the most part”. There were also some exceptions. For example, the Czech Republic has been assessed to meet the requirements as “in essence”, with the exception of duty-free shops at land borders.It should be noted that Malta fully complied with the requirements for direct taxation but only partially for indirect taxation, this is when Poland meets “essentially” the requirements of direct taxation, but only partially in terms of VAT and excise duties. Slovenia has been assessed as fulfilling “essentially” the VAT and excise requirements but only partially in terms of direct taxation.
From this point of view, all new candidates have obtained different transition periods for alignment and some derogations from the acquis. All countries were granted exemptions from VAT and the registration threshold for small and medium-sized enterprises and exemptions for international passenger transport. Most countries have achieved different transition periods, largely by the end of 2007, but by 2011 in terms of VAT rates and procedures, as well as exemptions and excise rates.The capabilities of the new Member States to implement the acquis at the time of accession were assessed as being “should be able to implement” the qualification, for such countries as Cyprus, Estonia, Latvia, the rating of “should be in measure to apply” for Lithuania, “expected to be able to implement” the Czech Republic, Hungary, Malta, Poland, Slovakia and “is expected to be in a position to implement” Slovenia.These countries have been allowed to join the European Union, although most of them have not fully met their membership requirements. In addition, even after accession, they were not fully in a position to implement the acquis [7].
According to the Report on State aid granted in Romania during 2006-2008, the total national State aid (excluding agriculture, fisheries, transport, SGEI and de minimis aid, i.e. aid not exceeding a threshold estimated to be unfavorable to the competitive environment) expressed in current prices shows a general downward trend, from 1,749 billion lei in 2006 to 0,947 billion lei in 2008, registering a sharp fall of 0.845 billion lei in 2007.The share of GDP had a steady downward trend, from 0.51% in 2006 to 0.20% in 2007 and 0.19% in 2008.
The decrease of the national State aid between 2006 and 2008 is mainly due to the considerable reduction of aid granted for rescuing and restructuring firms in difficulty. Regarding the analysis based on the state aid targets granted in Romania between 2006 and 2008, it can be noticed that in 2008 the largest share in the total national state aid (excluding agriculture, fisheries, transport, SGEI and de minimis aid) was held by State aid with horizontal objectives of 44.82%, this figure being also close to that recorded in 2007. [15]
With regard to the distribution of national State aid between the financial instruments used, its structure is the following:
Ă’ 96.60% “Budgetary expenditure” in 2008, consisting of subsidies, allowances, bonuses, subsidized interest, as well as equity and debt conversions; the share of budget expenditures in national State aid (excluding agriculture, fisheries, transport, SGEI and de minimis aid) recorded an upward trend over the period under review (from 68.03% in 2006 to 85.61% in 2007).
Ă’ 3.40% “Waiver of budget revenue” in 2008, which consists of exemptions and indemnities for the payment of tax liabilities to the State, exemptions and allowances from the payment of additional expenses for late payment, state guarantees; (with the exception of agriculture, fisheries, transport, SGEI and de minimis aid) recorded a decreasing trend over the period 2006-2008 (from 31.97% in 2006 to 14.39% in 2007).
This situation is in line with the requirements of the European Commission to reduce State aid, as these aid could affect trade within the community. The downward trend in tax aid reflects at the same time the correct application of the acquis communautaire, and Romania is fully complemented with Community state aid policies. [16]
Romania’s alignment with Community policies and practices in the field of State aid was made possible by elaborating policies targeting less distortive State aid and better-targeted, effective and efficient control of State aid and the implementation of Community State aid law in the field of State aid pre-accession period. The implementation of the acquis communautaire in competition and State aid prior to accession was necessary for Romanian companies to adapt to the new rules and be prepared to cope with the competitive forces of the European single market.
Adaptation to the single European market has been stepped up since 1 January 2007, with Romania’s accession to the European Union, when Community rules began to apply directly to State aid. The results of this intense process of adapting to the single market have not failed. Thus, the years 2006, 2007 and 2008 are characterized by two features:
Ă’ reducing the share of national State aid as a share of GDP;
Ă’ diminishing State aid in the form of tax incentives that could distort competition and affect trade between Romania and the Member States.
Non-compliance with Moldovan State aid law may lead to the initiation of the return process of illegally granted or abusive State aid. According to art. 3 par. (1) of the Law no. 139 of 15 June 2012 on State aid, illegal aid is any State aid other than the existing or exempted aid from the notification obligation, which was granted without authorization by the Competition Council or was granted in the conditions when the Competition Council has been notified but has not taken a decision on this in the legal term. Also, according to Law no. 139 of 15 June 2012 on State aid, the abusive aid is the State aid used by the beneficiary in violation of the Competition Council decision. [12]
According to art. 13 par. (3) of the Law on State aid, if the Competition Council issues a negative decision, the supplier and / or the initiator of the State aid must take the necessary measures for the modification or cancellation of the act under which the State aid was granted, respectively for the recovery or the reimbursement of the aid already granted, including the interest on its amount.
The failure to properly apply European Union law on State aid is often accompanied by sanctions. In this respect, it is worth to mention the European Commission which sanctioned the beneficiaries of State aid which was granted in violation of the provisions of the Community legislation, in the following cases:
Ă’ Belgium. The European Commission has concluded that the Belgian tax system applicable to “surplus profits” is illegal so that approximately EUR 700 million must be recovered from 35 multinational companies;
Ă’ Ireland. The European Commission has come to the conclusion that Ireland has granted Apple undue tax benefits of up to EUR 13 billion, which has to be recovered. This is illegal from the perspective of EU State aid rules as it allows Apple to pay substantially lower taxes than other businesses;
Ă’ Luxembourg and the Netherlands. The European Commission has decided that the selective tax advantages granted to Fiat in Luxembourg and to Starbucks in the Netherlands are illegal under EU State aid rules. The amount of State aid is estimated at around EUR 20-30 million for both Fiat and Starbucks.
Granting of fiscal incentives in general and fiscal incentives in the form of State aid is an instrument for stimulating the economic activity of economic agents, which contributes to the economic and financial objectives of the enterprise. However, due to the lack of transparency it is created an environment favored for the economic activity of some entities, which reduces motivation for others.
For these reasons, when granting tax incentives it is necessary to respect the principles of fiscal equity and the transparency mechanism, as their non-compliance adversely influences the decision-making process, the functioning of the market mechanism. At the same time, distortion of competition and trade conflicts arise, which entails the inefficient use of resources and the reduction of social welfare.
4.Conclusions
With reference to the presented and in order to take into account the best international practices in the field of granting the fiscal facilities, especially the fiscal facilities in the form of State aid, it is proposed to carry out the following:
1. the facilities provided by the state through the fiscal policy are an incentive for investment, as it is given the chance to obtain additional sources for the expansion of the activity;
2. tax incentives can be effective if there is a well-thought-out and regulated taxation mechanism with a limited number of facilities, as these are, on the one hand, an element of fiscal policy and, on the other hand, a fiscal policy instrument;
3. the redistribution of State aid, namely the gradual decrease of the value of State aid granted in the form of waiving of budget revenues and the increase of those granted in the form of budgetary expenditures, considered more transparent, easier to quantify and less harmful for the competitive environment;
4. in the Republic of Moldova it is welcome to organize an optimal system for functioning of the fiscal facilities in order to achieve stability, in the development of the national economy, stimulation of the investment and technical-scientific activities, offering the possibility of influencing some spheres of the economy;
5. the analysis of the legislation of the Republic of Moldova denotes the fact that the regulation of the fiscal facilities has a fragmentary character and the legal norms necessary for solving the marked problems are missing. In particular, the procedure for granting tax incentives by local public authorities is not regulated. To this end, it is necessary to reform the system of granting tax incentives by increasing transparency, minimizing their negative impact on competition.
6. Examination of the fiscal facilities included in the State aid Register granted during the years 2011-2013, a period under which the inventory of State aid were granted until the entry into force of Law no. 139 of 15 June 2012 on State aid, in order to identify support measures that are not State aid;
7. Make efforts to bring State aid schemes put in place before 16 August 2013 to the EU State aid acquis within 8 years of the entry into force of the Association Agreement. An exception is the State aid schemes established under the Law no. 440 of 27 July 2001 on free economic zones for which the period was extended to 10 years from the date of entry into force of the Association Agreement (limitation of State aid schemes over time, reduction in the volume of State aid as a percentage of value of eligible costs);
8. targeting State aid to horizontal objectives (i.e. granting aid for research, development, innovation, support for small and medium-sized enterprises, granting State aid to the environment, etc.);
9. the granting of State aid in the form of State aid schemes and less the allocation of state resources to the individual support of enterprises;
10. performing the impact / benefit analysis of the fiscal facilities;
11. implementation of a company-record mechanism regarding the beneficiaries of State aid in the form of tax incentives;
12. monitoring the process of the implementation of fiscal facilities;
13. the exclusion of State aid measures incompatible with the acquis communautaire.
REFERENCES
[1] The Constitution of the Republic of Moldova from 29 July 1994 // Official Gazette of the R.Moldova no. 1 from 12 August 1994.
[2] Fiscal Code no. 1163 from 24.04.1997 // Official Gazette of the R.Moldova no. 62/522 from 18 September 1997 with subsequent modifications.
[3] Covalschi T., Lazar S., (2016), The sustainability of public finances in Republic of Moldova under EU fiscal rules, from https://www.degruyter.com/downloadpdf/j/saeb.2016.63.issue-2/saeb-2016-0112/saeb-2016-0112.pdf
[4] Fuior E., Maxim I. (2013) Fiscal facilities: issue, opportunities. International Scientific and Practical Conference VIII – th edition “Economic growth in conditions of global Lotion”, Chisinau: INCE, p. 63-69, ISBN 978-9975-4185-0-8.
[5] Nicolaides, Kekelekis, Kleis, (2008) State Aid Policy in the European Community, Principles and Practice, Second Edition, Kluwer Law International, p. 2.
[6] Ogresta E. (2017) The notion of advantage in EU state aid law and its recent development, Faculty of Law Jean Monnet Chair of European Public Law, Zagreb din https://www.pravo.unizg.hr/_download/repository/DIPLOMSKI_Edita_Ogresta.pdf
[7] Ott K. The tax alignment process in the new European Union member states: how might Croatia fare? (2008) din https://bib.irb.hr/datoteka/364868.ott.pdf
[8] Stuart E. (2010) Tax Legislation and Policy, Harmonization of Moldovan Legislation with EU Standards, Publishing: IBF International Consulting in consortium with DMI, IRZ, Nomisma, INCOM and the Institute of Public Policies, Chisinau.
[9] The Treaty of Maastricht (1992) from https://www.scribd.com/doc/121770914/Tratatul-de-la-Maastricht
[10] Consolidated version of the Treaty on European Union (2012), OJ C 326, 26 October 2012, p. 13-390, Article 3 from http://eur-lex.europa.eu/resource.html?uri=cellar:2bf140bf-a3f8-4ab2-b506-fd71826e6da6.0001.02/DOC_1&format=PDF
[11] Law no. 112 of 02 July 2014 for the ratification of the Association Agreement between the Republic of Moldova on the one hand and the European Union and the European Atomic Energy Community and their Member States on the other part // Official Gazette of the R.Moldova no. 185-199 from 18 July 2014 from http://lex.justice.md/md/353829/
[12] Law no. 139 from 15 June 2012 on State aid // Official Gazette of the R.Moldova no. 166-169a from 16 August 2012 from
http://lex.justice.md/viewdoc.php?action=view&view=doc&id=344389&lang=1
[13] Law no.169 of 20 July 2017 approving the National Program for Competition and State Aid for the years 2017-2020 // Official Gazette of the R.Moldova no. 301-315 from 18 August 2017
from http://lex.justice.md/index.php?action=view&view=doc&lang=1&id=371237
[14] Law no. 166 of 11 July 2012 for the approval of the National Development Strategy “Moldova 2020”, // Official Gazette of the R.Moldova no. 245-247 from 30 November 2012 from http://lex.justice.md/index.php?action=view&view=doc&id=345635
[15] Competition Council of Romania, Summary report on state aids granted in Romania between 2006 and 2008, from http://www.renascc.eu/documente/Rezumat%20Raport%202006-2008%20Engleza_18757en_643en.pdf
[16] Competition Council of Moldova, Report on state aid granted in the Republic of Moldova for the year 2016, from https://competition.md//public/files/Raport-ajutorul-de-stat-acordat-in-anul-201641db4.pdf
[17] European Commission, Case C-143/99 Adria-Wien Pipeline, (2001) ECR I-08365, ECLI:EU:C:2001:598, par. 38.
[18] European Commission, Case C-173/73 Italy v Commission, (1974) ECR 00709, ECLI:EU:C:1974:71.
[19] Government Action Plan for 2016-2018, approved by Government Decision no. 890 of 20 July 2016 // Official Gazette of the R.Moldova no. 217-229 from 22 July 2016 from http://lex.justice.md/md/365929/
[20] Ministry of Finance of the Republic of Moldova, Concept of re-writing the Fiscal Code and Customs Code, Strategic document aimed at harmonizing the national legislative framework with the provisions of the EU directives and improving the existing legislative framework in the period 2017-2019
from http://mf.gov.md/sites/default/files/documente%20relevante/concept_fiscal_vamal_0.pdf
[21] Court of Accounts, Decision no. 34 of 29 July 2016 on the Audit Report on Audit of Performance of the Tax and Customs Facility // Official Gazette of the R.Moldova no. 379-386 din 04 November 2016, from http://lex.justice.md/index.php?action=view&view=doc&lang=1&id=367369
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