Twenty seven banks haven't paid any profit tax in the last 6 years, which has shaken Minister of Public Finances Ionuț Mișa, as well as some MPs, bankers and even the Governor of the National Bank of Romania (NBR) Mugur Isărescu.
The head of the Central Bank recently told the management of the Ministry of Public Finances that what the Tax Administration should investigate is why banks haven't made any profit for years on end. More than that, Mugur Isărescu stressed that the authorities of the state will have all the support of the NBR in that action.
The statements of the head of the NBR come as a response to the statements made by the Finance minister about one week ago, in which he said that 70% of the banks operating in Romania haven't paid any profit taxes in the last five years.
The annual balance sheets of banks are public and known, and the finding that in the last few years, banks haven't made a profit is correct, Mugur Isărescu said. "I think that the minister conveyed a correct message, meaning that he made a statement, but there is no need to look further, we don't need lists (ed. note: liberal Daniel Cătălin Zamfir, the president of the Economic Commission of the Senate, asked the minister the list of banks that haven't paid any taxes in the last five years). The annual balance sheets of banks are public, so there is no need for someone to draw up lists or to ask for lists, they are very well known. The finding that in the last few years, many banks haven't made a profit is a correct one. That is a finding of our own and we have repeatedly stated it. The fact that they haven't paid taxes is a turn of phrase that should be used carefully, because the overall public would understand something else, namely that banks refused to pay those taxes. They paid no taxes because they made no profit. Banks pay significant taxes on wages, on social security contributions etc.
Now, why they actually didn't make a profit is a different question. This is what should be investigated, and the National Bank supports, through the methods it has available, the efforts to ensure that the taxation bases recorded by banks in their accounting systems are correct. As I have repeatedly said, it is our legal obligation that, during our oversight, when we find that something is wrong, to report it to the competent entities, not just to the Ministry of Finance, and that is what we do every time. The National Bank of Romania doesn't have any kind of mandate, or roles, to actually perform tax audits of taxpayers.
It is one thing to find that a company doesn't make a profit, and consequently doesn't pay profit tax, and another to look at their accounting and to find that they didn't make a profit because some of its operations were barely legal or actually illegal.
To the extent where such findings are made and proven, the Finance Ministry needs to act appropriately and we will grant it all the necessary support".
Mugur Isărescu also said that the Tax Administration should also investigate the sale of non-performing loans, "sometimes at prices that raise questions".
Romanian banks only pay taxes if they want, as they have a very complicated profit reporting system, as shown on March 7th, 2017, in the article "Romanian banks - a vehicle for multinationals to take money out of the country", which quotes official, reliable sources. Banks use the special legislative provisions and those dedicated to the banking sector to avoid paying profit tax, the quoted sources say, who explain that this is due to the unlimited deductibility of expenses with the sale of non-performing loans (NPL). Our sources gave us an example: "Let's say that a bank has made a profit of 100 million Euros and has sold a package of 200 million Euros worth of NPLs. In general, a bank will sell the non-performing loan portfolios at 5-7% of their face value, but according to a study, the median in the system is 11%. Thus, on 200 million Euros worth of NPLs, the bank makes 22 million, posting a loss of 178 million Euros. That loss is fully deductible, according to the legislation in effect. Thus, the institution in question ends the financial year with a loss of 78 million Euros, after the expense with the sale of the NPL portfolio is subtracted from the profit. The problem is that losses are carried over into the next fiscal years, from one year to the next, until the bank breaks even, which is a cyclical phenomenon.
Thus, a bank that posts a profit in a year, in reality doesn't pay any taxes at all, because the posted profit is offset by the losses from the previous years. This is a trick used by banks to avoid paying taxes to the state".
The Finance Minister said, a few days ago that out of 46 banks (which were taken into account over the last five years), 31 were seeing losses. That loss amounted to 9.8 billion lei, he said. "There are 15 banks that have paid a profit tax in the last five years, which also includes those that only paid taxes in one year. The total taxes paid by these banks in those five years amount to 1.7 billion lei. The imbalance is already obvious. We are dealing with all kinds so-called «fiscal optimization» operations. We have initiated new audits at banks and we will expand those audits, because there is a lot of money to be brought in to the state budget. We have completed the audits at two banks, of which one is a major, major player in the system".
Ionuț Mișa did not disclose the names of the banks audited by the ANAF, nor those of the financial institutions that did not pay taxes over the last few years.
BURSA came in possession of a document that illustrates the fiscal status of 46 banks, between 2011-2016.
Because the chart, (which is almost five page long, of which three are already with the number zero in the column which reflects the annual profit tax), contains a series of confusing data, showing that certain banks posted fiscal losses in the years where they actually announced a profit, we have tried to compare that information to the one available on the website of the Ministry of Public Finances.
The numbers are different!
We have asked for experts in the field for help, who have explained to us that what the banks, the NBR and the Ministry of Public Finances report are the accounting results, and what appears in the document that we have, which we are publishing "as-is", represent the fiscal results, obtained after the carry-over and deduction of the losses from the previous years.
While some banks boast of an accounting profit, they post fiscal losses
The chart shows the discrepancy, which is sometimes amazing, between the accounting profit reported by banks and the fiscal result of the financial year.
For instance, the Romanian Commercial Bank (BCR) - which, is besides, one of the two financial institutions that minister Mișa is referring to when he says that the ANAF has completed the audits in two banks, according to the recent statements by Andreas Treichl, the CEO of Erste Bank, which is a majority shareholder of BCR - has reported, according to the press releases posted on its own website, a net profit in three of the six years (in 2011 - 70.9 million lei, in 2013 - 591.2 million lei, in 2015 - 918.9 million lei and in 2016 - 1,045 billion lei), but the fiscal situation suggests significant losses (that go as high as 3 billion lei in 2014) in all the six years that we are referring to.
The representatives of Erste Bank sent us, on Monday a statement that "in the ten years since the privatization, BCR has posted a combined profit of 3.9 billion lei and has paid 4 billion lei to the Romanian state in taxes".
When answering a question asked during a teleconference with journalists, Erste CEO Andreas Treichl said that he couldn't speak about the taxation of Romania without getting angry, which seems paradoxical.
Another bank which appears in our chart with zero taxes paid between 2011-2016 is Bancpost, even though it had an accounting profit in the last two years (26 million lei in 2016 and 35.24 million lei in 2015), according to data from the Ministry of Public Finance.
Banca Transilvania, a company listed on the Bucharest Stock Exchange, boasted a profit of 1.22 billion lei last year, and 2.41 billion lei respectively in 2015, but posted fiscal losses of -2.3 billion lei in 2016 and -3 billion lei in the previous year.
The banks that have paid profit tax in all of those six years that we studied, include Raiffeisen Bank, ING Bank and BCR Banca pentru Locuințe.
Under these circumstances, as the Finance minister says, 31 banks did not pay profit tax in 2011-2016, even though apparently they didn't engage in tax evasion.
(Translated by Cosmin Ghidoveanu)
The Ministry of Public Finance wants to limit the deductibility ratio for expenses with the sale of non-performing loans, from 100% to 30%
The Ministry of Finance wants to limit the degree of deduction of the expenses with the sale of non-performing loans, according to an ordinance draft posted on the website of the Ministry of Public Finances.
The justification note of that draft states: "There is a proposal to cap the deduction of expenses representing the amount of the sold receivables, to a limit of 30% of the amount of the receivables sold, plus the amount of the revenue made from their sale.
Thus, as an example, in the calculation of the fiscal outcome for a receivable that was sold for a price of 1,500 lei compared to the face value of 10,000 lei, the deductible expenses for that receivable will not exceed 4,500 lei".
According to the legislation in effect, currently, the expenses representing the value of the sold receivables are fully deductible when calculating the fiscal result, regardless of the level of the revenues resulting from the sale of the receivables in question.
The aforementioned document further states: "Given the scale of the receivable sale phenomenon, especially those in the banking sector, as well as the fact that they are sold for amounts that are minuscule compared to the amount of the receivables/loans, amounts which are then treated as deductible expenses when determining the profit tax, in order to reduce the fiscal impact over the taxation base, there is a need for the capping of these expenses at 30% of the total value of the sold receivables plus the amount of the revenue made from their sale".
According to Gernot Mittendorfer, the CFO of Erste Bank, who said on Monday, that the Austrian bank has received a letter from the ANAF concerning the results of the audit made at BCR, and that ANAF "disputes the fiscal deductibility of the provisions, which have caused losses to the bank".
The Romanian Banking Association (ARB) and the Council of Banking Professional Associations in Romania (CPBR): "Banks comply with the law in Romania"
Banks comply with the legislation in effect in Romania, it is stated in a joint press release sent by the Romanian Banking Association (ARB) and the Council of the Professional Banking Unions of Romania (CPBR): "The ARB and the CPBR want to inform the public that its lender members comply with the legislation and regulations applicable in Romania. In doing their job, the lending institutions have acted in compliance with the laws in effect and with the requirements imposed by the national and international oversight, regulatory and taxation authorities. Banks operate in a strictly regulated environment, and the accounting records are validated by reputable independent auditors, whose professionalism is internationally acknowledged. The Romanian Banking Association and the Council of Romanian Banking Professional Unions are taking an active role in promoting an open and constructive dialogue with the authorities and will request the organizing of new working sessions with the Ministry of Public Finances to present the position and the arguments of the banking community and to understand the priorities and challenges of the public institutions".
The financial results of the banking system in the last few years have been influenced by the effects of the economic crisis, by the measures imposed to increase the resiliency of the sector, by the reduction of the credit risk by covering non-performing loans with provisions, by the cut of the interest rates and the change in the calculation method through the switch to the international financial reporting standards (IFRS) starting with 2012, the signatories of the press release further said. They also stated that the mentioned measures concerned the regulations of the National Bank of Romania and of the European Banking Authority concerning the banking activity and the international financial reporting standards. Provisions are recorded according to the international accounting standards, the quoted sources further said. "The Romanian banking system has demonstrated its structural stability throughout the crisis and in the post-crisis period, by keeping its solvency and liquidity indicators at an adequate level. The immediate liquidity level was 40% at the end of 2016. The solvency ratio of the banking system was 19.80%, at the end of March 2017. The keeping of the solvency ratio twice as high as the minimum level required by the European regulatory framework CRD IV/CRR, of 8%, was achieved first of all through additional capital contributions by shareholders. Between 2008 and 2016, banks increased their share capital by 3.5 billion Euros. During the economic-financial crisis, Romania wasn't forced to support the banking sector with public money. The contribution of the banking sector to the financial stability of Romania was substantial and effective when it comes to maintaining the financial exposures to Romania, especially during the periods of severe financial crisis when the financing options had completely disappeared. The banking sector has provided liquidity to the private as well as public sector (government bonds, loans granted to the projects and programs conducted out of public funds, loans granted to municipalities), which supported the government's ability to operate within normal parameters, including when it comes to the compliance with social obligations (salaries, pensions, social allowances, etc.) and of the public investment programs".
"Some of the banks' losses come from the fact that they didn't grant loans"
Some of the banks' losses over the last few years come from the fact that they have been unable to grant more loans, as the commissions do not generate high enough profits, and the almost 40 banks are fighting to grant loans to the approximately 12,000 companies that have a high lending potential, NBR governor Mugur Isărescu said yesterday, in a press conference.
The degree of capitalization of companies is extremely low, and their ability to reimburse loans is also very low, Mugur Isărescu further said, quoted by news.ro.
The head of the NBR said that he wishes he could see an increase in the borrowing by companies, but that isn't something that depends exclusively on the banking system. The NBR can't force the bankers to lend money "regardless of the risk", as the safety of the depositors' money comes first, the NBR governor further said.
Mugur Isărescu: "The finding that in the last few years, many banks haven't made a profit is a correct one. That is a finding of our own and we have repeatedly stated it. The fact that they haven't paid taxes is a turn of phrase that should be used carefully, because the overall public would understand something else, namely that banks refused to pay those taxes. They paid no taxes because they made no profit. Banks pay significant taxes on wages, on social security contribution etc. Now, why they actually didn't make a profit is a different question".
Ionuț Mișa: "There are 15 banks that have paid a profit tax in the last five years, which also includes those that only paid taxes in only one year. The total taxes paid by these banks in those five years are 1.7 billion lei. The imbalance is already obvious. We are dealing with all kinds so-called «fiscal optimization» operations. We have initiated new audits at banks and we will expand those audits, because there is a lot of money to bee brought in to the state budget. We have completed the audits at two banks, of which one is a major, major player in the system".
Any street corner kiosk that has paid profit taxes has paid more than the 27 banks combined, in the six years period.