By taxation we can improve the economic progress as a gross stone can be smoothed into a cube ?

Application of transfer pricing, improvements of the rule of losing the tax loss from mergers and the role of deferred tax regarding this issues.

If the financial statements are deformed in order to attract resources the taxation policy will lead to no results.
Without audit the fiscal policy can not reach his aim. Therefore the need of audit increased and new acts like Sarbanes Oxley appeared.
Fiscal policy is a lever which has to be subject of changes depending on the state of the development of the economy.
The good(sincere) accounting is an instrument which leads the capital toward the profitable affairs but it’s subject of bad intentioned accountants who use creativity to deform the true and fair view.
They try to smooth the profits, and to gain more appreciation or to maintain an ascending upward trend by provisioning techniques to give impression of future profits. This can lead to stock exchange crashes, losing working places, confidentiality and coordinating the finance in the wrong way to cover crises situation of some company.
A true and fair view can not lead to a moral and equitable development of the society without a fiscal legislation adopted accordingly.
The many types of the affairs has a more or less importance in the development of a healthy, moral, less stressfully civilization inclined towards the appreciation of scientific efforts.
Thus the accounting moves the capitals where are more money to be earned, but the fiscal policy redirect them towards the volition of the population.
Of course that this volition expressed by voting a political party, is not always in the benefit of the people.
A sound development require sound fiscal rules which has to match the state of a country development, in order to improve it.
As the external trade has a significant impact on economy tax rules are included in double tax avoidance treaty in order to facilitate the trade from some country and other not.
The question which has to be risen in a state of a development of a country is :

What are the needs of the population at that moment. Therefore the fiscal rules has to change accordingly to facilitate the development of the affairs that covers that needs.

After passing a stage in development, the fiscal rules has to change again as new needs appears and taking in consideration the limits of the state budget.
So there have to be a policy which has to set priorities in granting fiscal incentives to some industry against others and not overcoming the state budget in the same time.
So the changes in the fiscal rules has to be welcome, but have to produce beneficial effects for the economy.
And so on the level will decrease in some affairs and will increase in other depending on the existing state of the economy.
As the flat rate on salaries and profits is not a sound judgement to remain definitively the same. They have to change depending on the course of development of a country.
The fiscal legal avoidance scheme has been developed in the last years and they are done often to hide the true state of the affair not to take advantage of a lower payment to state budget.
Some of this schemes has been discovered and are not considered legal any more because does not respect the intention of the parliament.

Transfer pricing
In case of adjusting the interest and the selling price how will apply the accounting conceptual framework ?

The transfer pricing rules has not state the computation rules for prices but to take in consideration the economical environment from the area where originate the products as well as the profit margin which is able to be produced by the factory at a given productivity rate per employee before the selling and not an average of the industry’s prices.
The application of IAS 12
If the price is increased from tax point of view a bigger tax on profits will be paid, but what it’s happening if the policy of the group regarding transfer of merchandise is reversible ?

If the group use to transfer some goods under the market price and other goods over the market price for their use in the group as raw materials. What if the factory from Romania produce raw materials for a factory from Netherlands with some fixed assets moral overcame spending more money than competitors and decide to change the fixed assets into better ones next year ?

In that case a deferred tax will appear being necessary the following recordings :

1. 691 = 4411 tax liability ( when the price is over the market price)
- with the entire tax
2. 4412 ( deferred tax) = 791 (revenues) - with the exceeding reversible tax

3. 691 = 4412 – when the price come below the market price –
with the exceeding reversible tax

Transfer pricing has to take into consideration the level of interest – at least the BNR rate.
If a company lend an affiliated company with 3 % interest in a fiscal paradise and afterwards the affiliated lends again to a tertiary party with 10 % => transfer of profits towards fiscal paradises.

Double tax avoidance
The implication of the government in actualization the double tax avoidance treaties as the needs of foreign commercial trade changes, and by this policies to maintain the foreign commercial balance at a favorable level.
Question ! The differences between treaties can be considered gaps which give birth to the legal avoidance of the law or represent the fiscal policy of the state ?
For example in the treaty with Israel are considered dividends also the revenues from mining parts or the parts of the first investors.
In the treaty with Turkey are considered dividends : revenues from titles, parts of the first investors, right of use or other rights which are not the effect of selling.
Question ! Can we include here and the revenues from mining parts ?

It’s a fiscal policy or a gap ?

The intention to impose vices, risky activities, gambling, immorality to a higher rate exist in many countries but the question to be putted is the way these activities has a bigger amplitude against other activities.
The answer has to be find out in the primarily education the people receive and depending on this if they are able to choose the carrier most suitable for them.
Being out of resources there is the need for foreign investments, and therefore a country will set fiscal incentives for this foreign investors based on the accounting figures so the accounting and fiscal rules are interrelated.
Taxation system is a lever which has to be subject of changes depending on the state of the development of the country.
Accounting is an instrument which leads the capitals toward the profitable affairs but it’s subject of bad intentioned accountants who use creativity to deform the true and fair view in order to smooth the profits and to gain more appreciation or to maintain an ascending upward by provisions practice in order to give impression of future profits.
Therefore the need of audit increased and new acts like Sarbanes Oxley Act appeared. Without audit the taxation system can not reach his aim.

Integration into European Union

Application of accounting European directives does not require also adopting of one harmonized international taxation system.
The integration into European Union has to follow the same rule as any merger of two companies where the profits of companies has to be bigger than the sum of the previous profits before the merger. In the same manner after integration the European Union has to prosper more then before and the added value obtained from integration has to be distributed depending on the increased productivity of Romania and the rest of the member states.

Inflation

The malpractice in accounting can lead to an inefficient taxation system which has to lead to good results for the next year. What it’s happening if the attracted sources are used inefficiently, and more over the budget is overcame. Inefficient use leads to requirement of other founds to cover the gap in the budget and if the needed fund are obtained from BNR credits inflation will increase if is not expected an increase in production.

If is not stopped in time inflation leads to hyperinflation following the scheme :

-a trader buy a product at a price X and put his commercial profitability of 1.1 per cent and sell it.
From the revenues obtained he will have to buy again the products at a price of (X + INFLATION RATE )
In order to maintain his rate of profitability will sell the products at the price
(X+INFLATION RATE) X 1.10 and so on at the third cycle the price will be :
(X+ I)*I)*1.10 = X*I2 *1.10 and so on the retail price will increase if the offer will not reach or overcome the demand.

A new system of imposing the profits
Tax on profits depending on the profitability and the type of the activity

I propose the following system :



Gross profit ratio The tax I propose Net profit ratio
14 % 16 % 11.76 %
19 % 17 % 15,77 %
20 % 18 % 16.4 %
21 % 19 % 17 %
29 % 20 % 23.2%
>=30 % 21 % 23.7 %


Computation : Pn (net profit ratio) = (Profit - 0.16*Profit ) / Capital =
(14 - 0.16*14)/100 = 11,76
The system allows that when you pass from a percent to another the net ratio to be higher than the previous.

Effects :
Bearing in mind the fact that the a fix rate offer equal chance for companies and conduct the capitals towards the most profitable business we have to admit that this practice it’s against the specialisation of the industries respectively the production of a variety of products.
In the same manner where the productivity of work is bigger it’s advisable to be applied bigger tax rates to maintain the international division of work because the owner of capitals will tend to invest only where employees give them more profits resulting in a higher rate of unemployment.
Performing the taxation scheme there is the risk that at a higher level of profits the tax rate applied to lead to a net profit ratio lower then if the profit would have been smaller.
This lead to a limitation of that business or worse to tax avoidance schemes by forming in the same country another firms where will be transferred the exceeding profits .


What about the taxation of services against the taxation of production. ?
It’s in the benefit of the economy to impose them different ?
The stage of development of an economy is just the stage of service industry development because the primary needs for products for day to day activities has been satisfied.
Where the economy is less in resources and the offer does not meet the demand the taxation of the production has to be smaller than the one applied to services which obvious will don’t even have demand.
Later on when economy will develop and services will be more and more required and will be the bigger part of the gross domestic product. At this stage rendering of knowledge services as : tax or management consulting, accounting, advocacy and financial analyses, will be more necessary for an economy with complex processes which need to be solved much more faster and a lower tax will be absolutely necessary.

Tax on buildings
The need of a house it’s primordial for the development of a country. The main reason to impose flats and houses has to be gathering funds in order to build social homes for those homeless with small revenues.
The second shall be to pay the public clerks which are involved in the evidence of the owners and their properties.
The progressive taxation on each purchased home or for each 100 hundred meters bought by a single person can stop decreasing the offer and thus can stop increasing the price of flats in the benefit of the population when there is a deficit in the offer against the demand regarding houses.
But when the prosperity of a country increase by production of other existential products the offer of houses will increase to meet the demand and the progressive system will be no longer necessary.

The taxation on buildings owned by juridical persons
There is no sound foundation in the fiscal code to impose them with a higher value respectively 0,2 % because the juridical person by doing business will include this charge in the price of their products so as the physical persons will bear the poverty of this tax.
Moreover decreasing this tax is very likely to result in a general downward trend of the rental prices which is beneficial for the population in the current state of the economy development for flats.
Bearing in mind that after the new approach of the international standard regarding buildings which states that is no longer use the method of linear depreciation but the building is adjusted each year depending on the market value and taking into account that a 0,2 % per year represent a significantly 20 % of the asset value during one hundred years a policy that will decrease this tax below the tax paid by physical person will stimulate investments in buildings and will decrease the prices of services if the buildings are used for offices.
The services rendered, rents or products produced by the owner of the building leading also to a decrease of inflation.

Tax on luxury

Activities which have negative effects for population has to be imposed more if the economic agents doesn’t take the necessary measures to reduce them. For example : environment fund.
Decreasing the tax for risky activities like motorcycle driving will lead obvious to decreasing of health funds because of potential accidents and as a result to a budget deficit.
On the other side decreasing the tax for merchandise transportation vehicle shall lead to decreasing the price of goods meeting the demand more easily.


Mergers

In the case of losing the fiscal loss from mergers how will apply the accounting conceptual frame work ?
It’s obvious that the rule is not beneficial for the economy taking into account that the reason of a merger is to obtain economies of scale.

The role of a merger when a company is in a financial difficulty it’s stopped by losing the fiscal loss of the company and it’s preferably to borrow the company instead of a merger which can lead to synergies and economies of scale.
The risk of the fiscal avoidance by a merger which would be able to absorb also the fiscal loss can be overcome by new accounting standards ?
In normal conditions the price per share of the absorbing company has to increase with the owners equity and legal reserves minus the fiscal loss.
Under this rule the price of the new shares will be smaller because of tax on profits which are not decreased by tax loss of absorbed company. The share holders will receive a fair value of the old shares in exchange of some shares of the absorbent entity.
Therefore the company can function accordingly with that rules and can achieve the results proposed and after a while to enter into dividing. In that case the owners of the absorbed company will not have tax loss but profits in their account and the loss has been included in the value of their shares in the old company.
So they will record a profit smaller resulted after the merger (if the tax loss have been have been lost).
In case of the absorbent company the shareholders will support firstly the plus of the tax on income.
If the profits obtained from merger will be bigger than the tax loss cumulated with the profit of absorbed company, it can be said that the merger created a synergy and this plus will cover the lost of the tax loss.
The tax difference because of the merger will be recorded as follows :

691(expense) = 441 (liability)

The lost is permanently in detriment of the economy of scale that could have been obtained.
So a sound rule in merger taxation should be :
The tax loss will be lost if there are no reasons to believe that an economy can be obtained through merger.
The tax rule should state : “ the tax loss will not be recovered if a synergy has not been obtained ”
If there are reason to believe that the merger will produce a profit bigger than the profit before merger and the tax loss can be recovered at the end of the year from synergy then a deferred tax have to be recorded.
Here occur the role of auditors who will audit if obtained synergies made annually are real.
Thus the new company will gain funds and the state will not lose tax as a result of the merger receiving at least the tax obtained by multiplying the new profit of the absorbent company with the tax rate.

Recordings shall be as follows :

1. 691 = 4411 (for the profit of the absorbent)

2. 4412 (asset of deferred tax) = 791 (Revenues)
(at the level of the tax loss multiplied with the percent of tax)

3. If the synergy decrease : 691(expense) = 4412 (liability with deferred tax)

4. If the synergy increase : 4412 = 791 until the tax loss is recovered totally.

Proposals :

1.Deductibility of promotion expenses to be limited to the added profits obtained from clients after the promotion.
2.On the foreign delegation order the obligation of the stamp from the company which has hosted the employees or the administrator and the proof that the company has business relations with the company which lead to revenues.
3.Fiscal incentives for building of flats and lower tax rates in the period of crisis.
4.Increasing the imposts for which the payer receive a service and decreasing
the taxes for which are not received services.
5.Signing beneficial treaty of double tax avoidance with country which can give as products that we don’t have and can not produce.
6.Including a smaller rate for V.A.T. beside the two of 9% and 19 % for facilities like water, electric energy, warm agent.
7.Receipts and invoices regarding protocol expenses to bear the signature and name of the clients.
8.Limitation of the amount granted as advance from the treasury and the number of the persons which receive that kind of advances (in order not to hide the lack of the money from the strong room).
9.Development of the capital market require a lower tax rate on gains against the tax on interest.
But why to develop more the capital market against banking fin ancing ?
Because own investments will be better controlled than controlling performed by banks and it’s in the interest of the entire world to diminish the loss of the savings.