Avoidance of international double taxation. Taxation of business profits in Romania

• Author: Florin Dumiter/Stefania Jimon
• Position: Professor/Assistant professor
• Pages: 237-250

Avoidance of international double taxation.

Taxation of business profits in Romania

Professor Florin DUMITER1

Assistant professor Ștefania JIMON2

Abstract

In this article we wanted to achieve a comprehensive analysis of corporate profit tax

for non-residents, from the standpoint of the issues that it creates on the double taxation of

income and capital. Taxing the corporate profits of non-residents is a particularly

important aspect in terms of revenue growth, encouraging foreign investment, and

strengthening cross-border trade. The “source” state will decide the legitimate right to tax

the profits of businesses that operate within its jurisdiction. Tax treaties do not impose

limits on these types of taxing rights, other than those stemming from the obligation to

impose profits, since the issue of taxation is “satisfied”. Moreover, the source of tax

revenue belongs to the source state. Thus, we can see that it is unlikely that the state of

residence of a non-resident taxpayer should want to “share” such tax revenue. It can be

observed that the state of residence also has the right to tax the profits, but in general it

gives credit in respect of taxes of the source state or deducts them for the purpose of

preventing the occurrence of double taxation. If the state of residence provides a credit for

taxes paid within the source state, taxes which have not been collected and owed to the

source state will constitute a tax transfer to the state of residence, from which the taxpayer

will not have any benefit. As regards Romania, in terms of the treatment of enterprises, this

article represents a real quid pro quo, as it tackles both the international and national

taxation of corporate profits, through the provisions found in the new Fiscal Code and the

Code of Fiscal Procedure, as well as the new proposals on the taxation of turnover

in companies, all of this extrapolated with the new proposals for turnover tax from IT

giants. The article ends with the presentation, comment and analysis of a case of

international double taxation, more specifically the taxation of corporate profits, a topic of

great importance and current interest regarding jurisprudence in Romania, having the aim

to observe, mutadis mutandis, the way in which business profits are taxed in practice. The

conclusion of this article is intended as a genuine caveat to meet the needs of taxpayers and

tax authorities on the need for such measures, both nationally and internationally,

in terms of corporate profits, measures that have to take into account the international

framework of the contemporary business environment, which is constantly changing and

evolving.

Keywords: international double taxation, double non – taxation, permanent

establishment, corporate profits, OECD Model Convention, state of residence, source

state, tax treaty.

JEL Classification: H25, H32, K34, K40.

1 Florin Dumiter – “Vasile Goldiș” Western University of Arad, Romania, fdumiter@yahoo.com.

2 Ștefania Jimon – “Vasile Goldiș” Western University of Arad, Romania, jimonstefania@yahoo.com.