ROMANIAN FISCAL CODE RULES REGARDING THE PERMANENT ESTABLISHMENT OF FOREIGN ENTITIES
Article 8 – Definition of permanent establishment
(1) For the purposes of this Code, a permanent establishment is a place where wholly or partly the activity of a non-resident is carried out, either directly or through a dependent agent. When defining the permanent headquarters, the comments from Art. 5 “Permanent Headquarters” of the Organization for Economic Co-operation and Economic Development’s model of the double taxation convention are applying.
(2) A permanent establishment shall include a place of management, a branch office, a workshop, a shop, as well as a mine, an oil or gas well, a quarry or other places for the extraction of natural resources, as well as the place where an activity continues to be carried out with the assets and liabilities of a Romanian legal person undergoing a reorganization process provided by art. 33.
(3) A permanent establishment requires a building site, construction project, assembly or assembly or related oversight activities only if the site, project or activities last longer than 6 months.
(4) By way of exception to the provisions of paragraph (1) – (3), a permanent establishment does not imply the following:
a) the use of an installation solely for the purpose of storing or displaying the products belonging to the non-resident;
b) the maintenance of a stock of products belonging to a non-resident only for the purpose of being stored or exhibited;
c) maintaining a stock of products belonging to a non-resident only for the purpose of being processed by another person;
(d) the sale of products belonging to a non-resident who have been exhibited at non-permanent or occasional exhibitions or fairs, if the goods or the goods are sold no later than one month after the end of the fair or exhibition;
e) keeping a fixed place of business only for the purpose of acquiring products or collecting information for a non-resident;
f) keeping a fixed place of business only for the purpose of carrying out preparatory or ancillary activities by a non-resident;
g) keeping a fixed place of business only for a combination of the activities referred to in (a) to (f), provided that the entire activity carried out in the fixed place is of a preparatory or ancillary nature.
(5) By way of exception from the provisions of paragraph (1) and (2), a non-resident is deemed to have a permanent establishment in Romania in respect of activities which a person, other than an agent of an independent status, undertakes on behalf of the non-resident if the person is acting in Romania in the name of the non-resident and if one of the following conditions is met:
a) the person is authorized and exercises in Romania the authority to conclude contracts on behalf of the non-resident, except where the activities are limited to those provided in paragraph (4) lit. a) – f);
b) the person maintains in Romania a stock of products from which he supplies products on behalf of the non-resident.
(6) A non-resident is not considered to have a permanent establishment in Romania if he only carries on business in Romania through a broker, agent, general commission agent or an intermediary agent having an independent status, if this activity is the ordinary activity of agent as described in the constituent documents. If the activities of such an agent are wholly or almost entirely carried out on behalf of the non-resident, and in commercial and financial relations between a non-resident and an agent there are conditions different from those which would exist between independent persons, the agent is not considered to be an agent of an independent status.
(7) A non-resident shall not be deemed to have a permanent establishment in Romania unless he is controlled or controlled by a resident or by a person who carries on business in Romania through a permanent establishment or otherwise.
(8) The Romanian legal persons, the resident natural persons, as well as the foreign legal persons who carry out activity in Romania through a permanent establishment, which are beneficiaries of services such as construction works, assembly, supervision, consultancy, technical assistance and any other activities performed by non-resident foreign or physical persons on the territory of Romania are obliged to register the contracts concluded with these partners at the competent tax authorities according to the procedure established by an ANAF President’s Order Contracts concluded for activities outside the territory of Romania are not subject to registration under these provisions. For the permanent establishment of a construction site or construction, assembly or assembly project or related surveillance activities and other similar activities, consideration will be given to the commencement date of the activity in the contracts concluded or any other information which proves the beginning of the activity. Periods consumed for making related contracts that are directly related to the first contract that has been executed are added to the period spent on the execution of the basic contract.
APPLICATION RULES OF THE FISCAL CODE
3. (1) In application of the provisions of art. 8 of the Fiscal Code, the place where all or part of the activity is carried out, covers any kind of buildings, equipment or installations used for the activity of the non-resident, whether or not used exclusively for this purpose. A place of activity exists also if the non-resident has only one space, no buildings being necessary for carrying out his activity. It is not important whether buildings, equipment or installations are owned, leased or otherwise available to the non-resident. A place of business may consist of a market stall or may be located in the building of another company when a non-resident has permanently at the disposal of the building or parts thereof.
(2) It is sufficient for a non-resident to have at his disposal a space used for economic activities in order for it to be a place of business, and there is no need for a document stating the right to use that space.
(3) Although no document is required to refer to the right to use the space in question in order for that place to be a permanent establishment, the mere presence of a non-resident in a given location does not mean that the location is at disposition of that non-resident. This principle is illustrated by the following situations where representatives of a non-resident are present in the premises of another company:
a) A seller who regularly visits a principal customer to receive orders and meets with the purchasing director or the person in a similar position in his office. In this case, the client’s building is not at the disposal of the company for which the seller is working and is not a fixed place of business in which the non-resident’s activities are carried out. However, depending on the existing situation, Art. 8 par. (5) of the Fiscal Code can be applied to consider that there is a permanent establishment.
(b) An employee of a company which, for a long period of time, is permitted to use an office at another company to ensure that the latter complies with its obligations under the contract concluded with the first company. In this case, the employee carries out activities related to the subject of the first company and the office at his disposal at the head office of the other company will be the permanent establishment of his employer if the office is at his disposal for a sufficiently long period of time to be a place of business and if the activities performed there do not fall into the categories of activities specified in art. 8 par. (4) of the Fiscal Code.
c) A road transport company that uses, on a daily basis, a delivery platform from its customer’s warehouse to deliver goods purchased by that customer. In this case, it is not considered that the road transport company has that place at its disposal in order to be considered a permanent establishment.
d) A painter who, for 2 years, spends 3 days a week in an office building belonging to his main client. In this case, the presence of the painter in that office building in which he performs his work or painting, is a permanent establishment of the painter.
(4) The words by which it must apply in all situations where economic activities are carried out at a particular location at the disposal of the company for that purpose. Thus, it will be considered that a company engaged in paving a road carries out its activity through the location where the activity takes place.
(5) The place of activity must be fixed so that there is a link between the place of activity and a particular geographical point. It is not important that a company of a Contracting State operates in the other Contracting State if it does not do so in a distinct place, but does not mean that the equipment constituting the place of activity must be effectively fixed to the ground. It is enough for the equipment to remain in a certain place. If there are more places of work and if the other conditions of the permanent establishment are met, in each of these places, the company will have more permanent establishments. It is considered that there is only one place of activity when a specific location within which the activities are moved can be identified as forming a whole commercially and geographically unitary in respect of that activity. This principle can be illustrated by examples:
a) A mine constitutes a single site of activity, even if the activities can be moved from one location to another within that mine, since the mine constitutes a single geographical and commercial unit from the point of view of the mining activity. An office hotel where a consultancy firm regularly rents various offices is considered as one place of business for that firm because in this case the building is a totally unitary geographic location and the hotel is the only one place of activity of that consulting firm. A pedestrian street, an open market or a fair where a trader stays on the stand is the sole trader’s place of business.
b) The fact that activities can be carried out in a limited geographic area does not result in that geographic area being considered as a unique place of activity. Thus, when a painter works successively in a series of unrelated contracts for several different clients in an office building without a contract for painting the whole building, the building is not considered as the only place of business. If, however, a painter carries out works in one building for one client only, this contract is a single project and the building as a whole is a single activity site for the painting work, since it constitutes a unitary one commercially and geographically.
c) An area in which activities are carried out as part of a single project that is a commercially whole unit and which does not meet the same geographic conditions does not constitute a single site of activity. Thus, when a consultant works in different branches of different locations within a single training project of a bank’s employees, each branch is considered separately. However, if the consultant moves from one office to another within the same branch, he will be deemed to remain in the same workplace. The unique location of the branch falls into the totally unitary condition from a geographic point of view, a situation which is missing if the consultant moves between branches located in different locations.
(6) As the place of business must be fixed, it is considered a permanent establishment if that place of business is permanent. It is considered that there is a permanent establishment where the place of activity has been maintained for a period longer than 6 months. Thus, in the case of repetitive activities, each period in which the site of activity is used must be analyzed in combination with the number of occasions in which the site was used, which may extend over a number of years.
A place of business may nevertheless constitute a permanent establishment, even if only for a short period of time. So:
a) Temporary interruptions do not cause the permanent establishment to cease. When a certain place of activity is used only in short intervals, but these uses take place regularly over long periods of time, the place of activity should not be considered to be of a strictly temporary nature.
b) Situations in which a place of business is used for very short periods of time by several companies led by the same person or associated persons.
c) When a place of activity that was initially designed to be used for a short period of time, that it was not a permanent establishment but was maintained more, it becomes a fixed place of business and turns retroactively permanent. A place of business may also be a permanent establishment since its establishment, even if it has only existed for a short period of time if it has been liquidated ahead of time due to particular circumstances such as the failure of the investment.
(7) For a place of business to be a permanent establishment, the company that uses it must carry out all or part of its activities through that place of business. The activity must not be permanent in the sense that there are no interruptions to operations, but operations must be carried out regularly.
(8) Where tangible assets such as machinery, industrial, commercial or scientific equipment, buildings or intangible assets, such as patents, procedures and other similar property, are leased or leased to third parties through a fixed place of business maintained by a foreign legal person in Romania, this activity will give the place of activity the character of permanent residence. The same is true when capital is provided through a fixed place of activity. If a foreign legal entity rents or leases equipment, buildings, or intangible assets to a Romanian company without the maintenance of a fixed place of business for that rental, the leased machinery, equipment, building or leased property does not constitute a permanent establishment of the lessor, provided that the subject of the contract is limited to the mere rental of the machinery or equipment. This is the case when the locator provides staff after installation to operate the equipment, provided that its responsibility is limited to the operation and maintenance of the equipment under the control, responsibility and control of the lessee. If staff have wider responsibilities such as participation in decisions on the works where the equipment will be used, or operate, service, inspect and maintain the equipment under the responsibility and control of the lessor, then the lessor’s work may exceed the mere hiring of the equipment and may constitute an entrepreneurial activity. In this case, it is considered that there is a permanent establishment if the criterion of permanence is met.
(9) The activity of a company is mainly carried out by the contractor or by staff in paid employment relationship with the company. This staff includes employees and other people who receive instructions from the company as addictive agents. The prerogatives of these staff in their relations with third parties are irrelevant. It does not matter whether the dependent agent is authorized or not to conclude contracts if he works at the fixed place of business. A permanent establishment is also considered if the activity of the company is mainly carried out with the help of automated equipment, the personnel activities being limited to the installation, operation, control and maintenance of this equipment. Therefore, winning machines, vending machines and other similar equipment installed by a company of one State in the other State constitute a permanent establishment depending on the company’s performance and other activities other than the initial installation of the machinery. There is no permanent headquarters when the company just installs the cars and then leases them to other companies. A permanent headquarters exists when the company that installs the cars deals on their own and their operation and maintenance. The same is true when machines are operated and maintained by a dependent agent of the company.
(10) A permanent establishment exists as soon as the company begins to operate through a fixed place of business. This is the case when the company prepares the activity for which you will permanently serve the activity. The period of time during which the fixed place of business is set up by the company shall not be taken into account, provided that this activity differs substantially from the activity for which it will permanently serve its place of business. Permanent headquarters will cease to exist once the fixed place of business is discontinued or when any activity is terminated, i.e. when all the acts and measures related to the previous activities of the permanent establishment are concluded, such as the completion of current transactions, maintenance and repair of machinery. A temporary interruption of operations can not, however, be regarded as a cessation of activity. If the fixed place of business is leased to another company, it will only serve the activities of that company, not the lessor’s activities. The permanent establishment of the lessor ceases to exist, unless it continues to carry out its business on its own site through its fixed place of business.
(11) Although a location where automatic equipment is operated by a company may constitute a permanent establishment in the country in which it is located, a distinction must be made between a computer which can be installed in a location so that under certain conditions a permanent establishment, and the data and software used by that equipment or stored on it. Thus, an internet site, which is a combination of software and electronic data, is not a corporeal asset, it does not have a location that can be a place of business and there is no site such as buildings or, in some cases , equipment or machines in respect of the software and data constituting the website. The server on which that website is stored and through which it is accessible is a piece of equipment that has a physical location, and the physical location may be a fixed location of the company operating the server.
(12) The distinction between the website and the server on which it is stored and used is important because the company operating the server may be different from the company that operates through the website. It is common for a website where a company carries out activities to be hosted on the server of an Internet service provider. Although the fees paid to an Internet service provider under this arrangement may be based on the amount of disk space used to store the software and the data required for the website, the server and its location are not at the disposal of the company, even if that company was able to establish that its website would be hosted on a particular server in a particular location. In this case, the company has no physical presence in that location because the website is not corporeal. In these cases, it can not be considered that the company has acquired a site of activity through the hosting arrangement of the site. Where the company that operates through a website has the server at its disposal, it owns or leases the server on which the site is stored and used and operates the server, the site in which the server is located constitutes a seat permanent of the company, if the other conditions of art. 8 of the Fiscal Code.
(13) A computer at a particular location may be a permanent establishment only if it fulfills the condition of having a fixed place of business. A server must be located in a specific location for a certain period of time to be considered a fixed place of activity.
(14) In order to determine whether a company’s business is wholly or partly carried on through such equipment, it is necessary to consider on a case-by-case basis whether, as a result of this equipment, the company has facilities where the company’s business functions are fulfilled.
(15) When a company operates a computer at a given location, there may be a permanent establishment, even if no employee of the company is present at that location to operate the computer. The presence of staff is not necessary to consider that a company carries out its activities in whole or in part at a location where staff are not required to carry out activities in that location. This applies to e-commerce in the same way that it applies to other activities where the equipment operates automatically, such as automatic pumping equipment used in the exploitation of natural resources.
(16) Another aspect relates to the fact that a permanent establishment cannot be considered when the computer-based e-commerce operations at a given location in a country are limited to the preparatory or ancillary activities described in Art. 8 par. (4) of the Fiscal Code. In order to determine whether certain activities performed in such a location fall within the scope of Art. 8 par. (4) of the Fiscal Code, they must be analyzed on a case-by-case basis, taking into account the various functions performed by the company through the equipment. Preparatory or ancillary activities include in particular:
a) providing a communication link – very similar to a telephone line – between suppliers and customers;
b) advertising for goods or services;
c) transmitting information through a mirror server for security and efficiency purposes;
d) collecting market data for the company;
e) providing information.
(17) There is a permanent establishment where these functions constitute the essential and significant part of the business activity of the company or when other main activities of the company are carried out by computer, the equipment constituting a fixed place of business of the company, as these functions exceed the activities provided for in art. 8 par. (4) of the Fiscal Code.
(18) The main activities of a particular company depend on the nature of the business carried on by that company. Some ISPs have the purpose of operating their servers to host web sites or other applications for other companies. For these Internet service providers, the operation of servers providing customer service is a component of commercial activity that is not considered a preparatory or ancillary activity.
In the case of a company called an e-tailer or an e-merchant whose activity is to sell products over the Internet and does not have the purpose of operating servers, performing services through a location is not sufficient to conclude that the activities carried out on that site are more than preparatory and auxiliary activities. In such a situation, it is necessary to analyze the nature of the activities carried out from the point of view of the activity carried out by the society. If these activities are strictly preparatory or ancillary to the Internet product sales activity and the location is used to operate a server hosting a website that is exclusively used for promotion, product catalog presentation, or for providing information to prospective customers , art. 8 par. (4) of the Fiscal Code and the location shall not constitute a permanent establishment. If the typical sales functions are done at that location, such as by entering into a contract with the customer, processing the payment, and delivering products that are automatically made by equipment located in that place, these activities can not be considered as strictly preparatory or ancillary.
(19) An Internet Service Provider providing the service to host on the Web sites of other companies is not subject to the provisions of Art. 8 par. (5) of the Fiscal Code, since Internet Service Providers are not considered agents of the companies to which websites belong, they are not authorized to enter into contracts on behalf of these companies and do not usually conclude such contracts, they are considered agents with independent status acting according to their usual work, which is also evidenced by the fact that they host web sites for different companies. Since the website through which a company operates is not in itself a person, as defined in art. 7 of the Fiscal Code, art. 8 par. (5) of the Fiscal Code can not be applied to consider that a permanent establishment exists because the website is an agent of the company within the meaning of that paragraph.
(20) By any other activity in Art. 8 par. (8) of the Fiscal Code means services rendered in Romania, which generate taxable income. (21) Where a written contract is not concluded, the documents justifying the actual provision of services on the territory of Romania shall be recorded: work situations, reception reports, work reports, feasibility studies, market studies or any other appropriate documents.
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