by Dan Schwartz, Managing Partner of RSM Romania
Under the Presidential Decree no. 195 of March 2020, the state of emergency was declared in Romania further to the Covid-19 pandemic spreading in our country, too.
The measures intended to fight against the pandemic, which were introduced under the Military Ordinance no. 1 issued based on the Presidential Decree no. 195/2020 and published in the Official Gazette no. 219 of 18 March 2020, featured, among others, the prohibition for land-based gambling companies to pursue the business they were authorized/licensed for. This end put to the pursuit of land based gambling had adverse consequences for the gambling industry, both on companies and their employees.
Due to the complete stoppage of their activities, land–based gambling companies were left with no sources for revenue and no cashflow to run their businesses and to pay either their suppliers or their employees. Under such circumstances, the only solution was to lay off or furlough thousands of employees, with the possibility of recovering up to 75% of the gross average salary income per employee, through unemployment allowances.
Besides this minimal aid granted by the State to companies in distress following the forced stoppage of their business, land-based gambling companies as well as other businesses put on hold, could also benefit of other support granted by the Government. For instance, they could delay the payment of their tax liabilities accrued during the state of emergency with no interest and penalties for late payment, if the payment is made no later than the 30th day of the next month after the state of emergency ends.
This tax incentive was instituted under the provisions of paragraph 1 of Article VII of the Government Emergency Ordinance no. 29/18.03.2020, which came into force on 21.03.2020. Under paragraph 2, this article further provides that these delayed tax liabilities are not to be qualified as overdue; under paragraph 3, it expressly stipulates that any procedure of forced payment initiated by the Government must be suspended, and no new such procedures are to be commenced, except for those aimed at recovering the tax liabilities established under legal courts decisions issued in criminal trials.
Due to the steps taken by the professional and business associations of gambling companies, and being aware of the struggles faced by the industry following the prohibition of running land based gambling business, under Article VIII of the Government Emergency Ordinance no. 48/09.04.2020 entered into effect on 16.03.2020, the Government of Romania featured a number of measures intended to regulate the legal status of licensing and authorization fees due according to the Government Emergency Ordinance no. 77/2009, for the duration of the state of emergency and afterward.
While incomplete and not straightforward, these provisions were welcomed with reasonable satisfaction, but at the same time they stirred contradictory comments and views. One of these views concerns the constitutionality of this article, and builds on the fact that while Emergency Ordinance no. 48/2020 came into effect on April 16, 2020, Article VIII has introduced provisions regarding the period before the effective date of the ordinance, whereas the state of emergency and some due dates of the authorization fees occurred before this date (the non-retroactivity of the law principle).
This diversity of opinions is the outcome of the increasingly democratized Romanian society and must be taken for granted.
Nevertheless, when it comes to the constitutionality of one or another piece of legislation, one should not set aside the fact that, in Romania, as our Constitution expressly sets out, the only institution empowered to determine the constitutionality of a piece of legal regulation or legislation is the Constitutional Court of Romania. The Court can review a piece of legal regulation or legislation only when it is being challenged according to the law, and its opinions, contained in duly rendered Decisions, are only effective for the future.
Any other views as to the constitutionality of a piece of regulation/legislation are just personal opinions of their respective issuers, which can be either confirmed or invalidated by the Constitutional Court, should a plea of unconstitutionality be raised (according to Article 146(d) and Article 147(1) and (4) of the Constitution of Romania.
In the absence of such a Decision, the provisions of Article VIII of the Government Emergency Ordinance no. 48/2020 are enforceable as of the effective date of the Government Emergency Ordinance no. 48/2020. In other words, the tax incentives related to the authorization fees, introduced by Article VIII, are applicable for the whole duration of the state of emergency, whenever it started and whenever it will end. Thus, a review of the manner in which these provisions were drawn up could prove to be a useful exercise.
For this reason, while wearing the hat of a tax adviser and without claiming that I have managed to exhaust them all, I have attempted to identify pluses and minuses brought by Article VIII of the Government Emergency Ordinance no. 48/2018.
Comments on paragraph (1)
Considering that the Government Emergency Ordinance no. 92/2014, which came into force on 30.12.2014, changed the term of validity of the license for organization from 5 years to 10 years, any 5-year term licenses issued before 30.12.2014 were due to expire at the latest at the end of 2019.
The first licenses for organization issued after the effective date of the Government Emergency Ordinance no. 92/2014 were to be valid for 10 years, and due to expire in early 2025. Consequently, there is no way the provisions of paragraph (1) of Article VIII of the Government Emergency Ordinance no. 48/2020 should have any effect whatsoever either during the state of emergency, or during the 90-day term set out for re-authorization. In other words, all organization licenses that were in effect before the declaration of the state of emergency would remain valid also after the end thereof and, as such, fall outside the scope of the Government Emergency Ordinance no. 1/1999. Additionally, the use of the term “re-authorization” (which, most likely, is a clerical error occurred when the text was taken over for printing in the Official Gazette) associated with the idea of renewal of organization licenses gives rise to confusions.
Comments on paragraph (2)
Paragraph (2) of Article VIII of the Government Emergency Ordinance no. 48/2020 lists the re-authorization conditions for those gambling companies whos operation permits were to be renewed during the state of emergency, and acknowledges the treatment established under the Government Emergency Ordinance no. 1/1999 for the documents issued by public authorities before enforcement of the state of emergency. From the wording of this paragraph, read in connection with the provisions of Article 332 (1) of the Government Emergency Ordinance no. 1/1991, it can be concluded that, should an operation permit expire during the state of emergency, this shall remain valid throughout the entire length thereof, plus an additional 90 days after the coming to an end of the state of emergency. But this paragraph remains silent as to the regime applicable to, and determination of the authorization fee which would be due for the 90-day period after the end of the state of emergency (which would lapse until a new permit is obtained/re-authorization granted) during which the initial permit remains valid.
Comments on paragraph (3)
This third paragraph contains the wording “the payment of the tax liabilities related to operation permits”, but fails to explain what liabilities this refers to. We can assume that these are the authorization fixed fees payable in advance, and/or the authorization fees, expressed as a percentage, due for the current month and falling due on the 25th of the next month (specifically, the fees expressed as a percentage for February 2020 and falling due on 25 March 2020) stipulated by the Government Emergency Ordinance no. 77/2009, the due date of which falls within the state of emergency and which, if paid during a 30 working days term after the end of the state of emergency, as laid down under paragraph (4), render inapplicable the specific default penalties provided under the Government Emergency Ordinance no. 77/2009.
For a correct and meaningful application of this paragraph’s provisions, we believe that it should be approached in correlation with the provisions of Article VII of the Government Emergency Ordinance no. 29/2020, which provides that the tax liabilities falling due as of the effective date of the state of emergency are not qualified as overdue, and no late-payment interest or penalty is due for them, provided that these are paid off until the 30th calendar day of the month that immediately follows that when the state of emergency comes to an end.
Comments on paragraph (4)
Paragraph (4) seems intended to link non-application of the tax penalties that would be otherwise applied for the failure to make payment of the tax liabilities on the due dates thereof under the Code of Tax Procedure, but rendered inapplicable under Article VII of the Government Emergency Ordinance no. 29/2020, with the non-application of the specific penalties levied under the Government Emergency Ordinance no. 77/2009 for failure to make payment/late payment of the authorization fees. In this regard, it can be said that, should the payment of the liabilities suspended under paragraph (3) be made within no more than 30 business days from the end of the state of emergency, all specific penalties referenced under the Government Emergency Ordinance no. 77/2009 that would be otherwise applicable for payment default/late payment, are no longer applicable.
If we read the provisions of paragraph (4) in connection with those of Article VII of the Government Emergency Ordinance no. 29/2020, we can conclude that gambling companies have between 30 and 60 calendar days to pay off, without any penalties, their tax liabilities (tax, duties, authorization fees etc.) occurred and not paid during the state of emergency, given that the land-based gambling industry was brought to a complete standstill by the pandemic.
In practice, it is likely that many gambling companies will not manage to collect the amounts required to make the payment of significant tax liabilities, including the authorization fees, in due time, considering that they have been prohibited to pursue their business during the state of emergency.
Comments on paragraph (5)
Paragraph (5) adds that gambling companies owe no authorization fee during the state of emergency. This implies that the amounts that would have been otherwise due under normal conditions for this period are deducted from the authorization fee determined under the same normal conditions, once they are permitted to pursue their business again, and is due in advance. At the same time, I can state that the provisions of paragraph (5) do not refer to the tax liabilities, such as the authorization fee, the due date of which occurs during the state of emergency, and the regime of which is regulated under the provisions of paragraph (3).
In addition to the above, while the paragraph grants an exemption of payment for the authorization fees during the state of emergency, it fails to explain what would happen should the state of emergency be extended, and gambling companies allowed to resume their business, further to the relaxation measures to be adopted by the Government of Romania, before the end of the state of emergency. Would the exemption remain effective under such circumstances or, should the business be resumed during the state of emergency, would the tax liability related to the authorization fees be resumed, too?
Bearing in mind the impact of the provisions of Article VIII of the Government Emergency Ordinance no. 48/2020 on cashflow, particularly in times of liquidity crisis caused to gambling companies by the complete business standstill that followed the anti-Covid 19 measures taken, I do believe that it is critical that additional clarifications are provided under a separate piece of legislation, about the calculation of the authorization fees during the state of emergency and of the fees due for the second and following quarters of 2020.
Moreover, as the measures advanced by the Government under the pieces of legislation passed during the state of emergency have not, so far, proven sufficient to help the gambling industry survive the pandemic and resume the business under relatively normal conditions, to my mind, additional support measures are advisable.
Of the measures that could be adopted, the staging-out payment of the tax liabilities that can now be paid without default penalties and interests due to the legislation issued during the state of emergency, would be highly useful particularly for the medium-sized gambling companies, if exempted from the bureaucratic requirements enforced by Law no. 207/2015 on staging-out — as these companies don’t have any cash reserves, nor can they be extended any bank or intra-group financing to pay in due time the liabilities delayed until after the end of the state of emergency.