Advertising Tax – Legislation and practice
This article reffers to the tax owed by a Romanian company for advertising and publicity services run in Romania.
Art. 270 Tax for advertising and publicity services
(1) Any person receiving services of advertising and publicity in Romania, under the terms of a contract or another kind of understanding concluded with another person, owes the tax mentioned in this article, except for the advertising and publicity services carried out by the printed and broadcasted mass media.
(1”1) Advertising done by means of mass print and broadcast, in the purpose of this present article, corresponds to advertising services carried out by advertising agencies, according to the activities classification of the national economy – CAEN, as amended, and advertising carried by newspapers and other printed matter, radio, television and Internet.
(2) The tax provided for in this Article, the tax for advertising and publicity services, is paid to the local budget of the administrative-territorial unit where the services of advertising and publicity are provided.
(3) The tax for advertising and publicity services is calculated by adding that tax to the value of advertising and publicity services.
(4) The tax rate is determined by the local council, ranging between 1% and 3%.
(5) The amount of advertising and publicity services include any payment obtained or to be obtained for advertising and publicity services, excluding value added tax.
(6) Service fee for advertising and publicity shall be transferred to the local budget, monthly, until the 10th of the month following the month in which the agreement has entered into force for the provision of advertising and publicity services.
162. Beneficiaries of advertising and publicity services performed under contract or otherwise by arrangements with any other person are liable for the tax mentioned at art. 270 of the Tax Code, at the local budget of the administrative-territorial unit where the services of advertising and publicity are provided.
163. (1) The tax for advertising and publicity, is calculated by applying a rate between 1% and 3% to the value of advertising and publicity services contracted, excluding value added tax.
(1 1) Are not to be included in the value of advertising and publicity services the decoration services, neutralization and maintenance of advertising.
(2) The rate level is determined by local councils in May of each year for the next fiscal year, according to art. 288 para. (1) of the Tax Code.
164. (1) The fee is payable monthly by the service provider of advertising and publicity, during the whole period of the contract until the 10th of next month of the eligibility of the tax.
(2) The fee is payable from the date of entry into force of the contract.
Cont Consulting interpretation:
We have received a request from a client, advertising agency, to interpret several cases related to the advertising tax:
1. An advertising agency, holding advertising panels in a city, invoices advertising services directly to the end customer. Who owes and pay advertising fee?
Answer: According to Article 270 paragraph 1 of the Tax Code and section 162 of the Methodological Norms the beneficiary of advertising services owes the tax. BUT
According to paragraph 164 (1) of the Methodological Norms, the tax is retained and paid by the provider of advertising and publicity services (on behalf of the end customer), being legally responsible for it.
The interpretation “no invoices this month, no tax due” is not valid, the paragraph 164 (2) of the Methodological Norms specifies that fees are due from the date of entry into force of the contract, so must be transferred even if the service provider has not issued an invoice to his client.
2. The advertising agency sells advertising space to another advertising agency, that in the end sells the end customer. Who owes and pays the advertising tax?
Answer: According to Article 270 paragraph 1 of the Tax Code and section 162 of the Methodological Norms, the beneficiary of advertising services owes the advertising tax. BUT
According to paragraph 164 (1) of the Methodological Norms, the tax is retained and paid by the provider of advertising and publicity services (on behalf of the end customer), so the second advertising agency, being legally responsible for it.
Thus, advertising agencies shall cooperate with each other, so that the first agency will know that the second agency resells advertising services and will not mention / collect tax on the invoice. Responsibility for registration / collection and payment of tax goes the end agency that have direct relationship with the customer.
We recommend that this logic is applied to as many companies in any chain, the one that collects and pays the tax is the one that has a direct relationship with the end customer.
Pay attention to the approach of advertising agencies working with the end customer on commission and not invoicing to the end customer services as a rightfully provider but only re-invoicing the cost of the original supplier of advertising services, plus a service fee, thus refusing to charge / collect / pay advertising tax. Our approach is that they should distinguish in accounting and in invoices the tax for advertising services, which they should pay to the corresponding local budgets.
However, we believe that this is legally questionable, considering that there may exist a contract of mandate / representation between the end customer and the advertising intermediary agency through which it would outsource the entire activity of advertising.