TX ROM. Taxation Romania (TX ROM) Applied Skills. Tuesday 4 December The Association of Chartered Certified Accountants TX ROM ACCA

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1 pplied Skills Taxation Romania (TX ROM) Tuesday 4 ecember 2018 TX ROM Time allowed: 3 hours 15 minutes This question paper is divided into two sections: Section LL 15 questions are compulsory and MUST be attempted Section LL SIX questions are compulsory and MUST be attempted Tax rates and allowances are on pages 2 5. o NOT open this question paper until instructed by the supervisor. o NOT record any of your answers on the question paper. This question paper must not be removed from the examination hall. TX ROM The ssociation of hartered ertified ccountants

2 SUPPLEMENTRY INSTRUTIONS 1. alculations and workings should be made to the nearest lei, unless instructed otherwise. 2. ll apportionments should be made to the nearest month, unless the law requires otherwise. 3. ll workings should be shown in Section. TX RTES N LLOWNES The following tax rates and allowances are to be used in answering the questions. Personal income tax General tax rate 16% Income from employment enefits Limit for non-taxable gifts Limit for non-taxable voluntary pension contributions paid by the employer Limit for non-taxable voluntary health insurance and medical subscriptions paid by the employer Limit for non-taxable per diem allowance The per diem allowance accepted for public institutions employees for business trips within Romania eductions eduction allowed for voluntary pension contributions paid by the employee eduction allowed for voluntary health insurance and medical subscriptions paid by the employee 150 lei/person/occasion 400/year 400/year 2 5 x public institutions threshold 17 lei/day/person 400/year 400/year Personal deduction Number of dependent Monthly gross income (MI) lei persons for the taxpayer elow 1,500 etween 1,500 and 3,000 bove 3,000 0 persons x (1 (MI 1,500)/1,500) 0 1 person x (1 (MI 1,500)/1,500) 0 2 persons x (1 (MI 1,500)/1,500) 0 3 persons x (1 (MI 1,500)/1,500) 0 4 persons and more x (1 (MI 1,500)/1,500) 0 Note: The value of the personal deduction resulting from the calculation should be rounded up to the nearest 10 (e.g. both 212 and 217 should be rounded to 220). Income from the sale of immovable property owned by an individual Income Tax rate Up to 450,000 lei 0% bove 450,000 lei 3% of the amount exceeding 450,000 lei 2

3 Income from renting Lump-sum deductible expenses quota 40% opyright income Lump-sum deductible expenses quota 40% Self-employed income The limit of deductibility for protocol expenses 2% The limit of deductibility for compulsory subscription expenses paid to professional associations 5% The limit of deductibility for subscription expenses paid to professional associations other than compulsory ones 4,000/year The limit of deductibility for social expenses 5% The limit of deductibility for sponsorship expenses 5% The limit of deductibility of voluntary pension contributions paid for the self-employed person 400/year The limit of deductibility of voluntary health insurance paid for the self-employed person 400/year Reference interest rate set by the Romanian National ank for loans denominated in lei 1 75% p.a. Investment income Tax rate for capital gains from the sale of shares 16% Tax rate for interest received by individuals 16% Tax rate for dividends received by individuals 5% Prize income Tax rate for prize income 16% Non-taxable threshold 600 lei/day/prize Pension income Non-taxable threshold for pension income 2,000 lei 3 [P.T.O.

4 orporate income tax General tax rate 16% Reference interest rate set by the Romanian National ank for loans denominated in lei 1 75% p.a. Maximum accepted interest rate set by the Tax ode for loans denominated in foreign currency 4% p.a. Inflation rate for prepayments of corporate income tax 1 4% p.a. Maximum value of deductible expenses for subscriptions to non-profit organisations other than those which are compulsory or due to the chambers of commerce and to employers organisations 4,000/year The limit of deductibility for protocol expenses 2% The limit of deductibility for social expenses 5% Maximum value of tax credit for sponsorship expenses 20% of the corporate income tax but no more than 0 5% of sales revenue dditional deduction for research and development (R&) expenses 50% orporate income tax for very small companies Turnover threshold 500,000 Tax rate no employees 3% 1 or more employees 1% Straight-line depreciation periods (for tax and accounting purposes) lass of asset Period in years uildings 50 Machines and equipment 10 omputers 3 ars* 5 * Limited to a maximum 1,500 lei/month Note: The straight-line depreciation method for the above periods should be used in all cases, except where a question specifically indicates another method and/or period is to be used. The minimum value of an asset for tax depreciation purposes is 2,500 lei. Tax on dividends paid to legal persons For dividends paid to legal persons resident in Romania, EU or EFT countries 5% or 0% For dividends paid to other non-residents 5% 4

5 Social security and other insurance contributions Employed persons Employee Employer Social security fund 10 5% 15 8% Health care insurance fund 5 5% 5 2% Unemployment fund 0 5% 0 5% Work accident fund 0 15% 0 85% (1) Health insurance indemnities fund 0 85% (2) Fund for guaranteeing salary payments 0 25% Self-employed persons Social security fund 10 5% or 26 3% (3)(4) Health care insurance fund 5 5% (4) Unemployment fund 1% Work accident fund 0 15% 0 85% (1) Health insurance indemnities fund 0 85% Persons obtaining rent income Health care insurance fund 5 5% (4) Persons obtaining intellectual property revenues Social security fund 10 5% (4) Health care insurance fund 5 5% (4) verage monthly earnings Minimum monthly salary 3,131 lei 1,450 lei Notes: (1) The exact value of the taxable base will be specified in the question, where necessary (2) Maximum monthly taxable base = 12 x minimum monthly salary x number of employees (3) Minimum monthly taxable base applying for the social security contribution = 35% x average monthly earnings (4) Maximum monthly taxable base = 5 x average monthly earnings Note: These rates should be used in answering the questions, irrespective of the time period the question refers to. Value added tax (VT) Standard rate 19% Reduced rates 9% and 5% nnual threshold for VT registration 220,000 lei nnual threshold for a monthly tax period 100,000 nnual threshold for applying the cash accounting scheme 2,250,000 lei Limit of non-taxable protocol gifts in goods 100 lei/gift Limit of non-taxable goods and services offered as sponsorships 3 x turnover/year Exchange rate Euro/lei 1 = 4 50 lei Note: This rate should be used in all cases except where a question specifically indicates another rate is to be used. Interest and penalties Interest rate for late tax payments Penalty level for late tax payments Penalty for not declaring taxes 0 02%/day 0 01%/day 0 08%/day or 0 02%/day 5 [P.T.O.

6 Section LL 15 questions are compulsory and MUST be attempted Please use the grid provided on page two of the andidate nswer ooklet to record your answers to each multiple choice question. o not write out the answers to the MQs on the lined pages of the answer booklet. Each question is worth 2 marks. 1 lue S is a company applying the cash accounting scheme for value added tax (VT). In March 2018, lue S: imported goods from Turkey at a cost of 20,000 lei, which were cleared for customs purposes on 5 March 2018 and subsequently transported to lue S s depot in ucharest sold these goods in Romania to end consumers for 30,000 lei but only half of the sales were paid for in March The other half were paid for in pril 2018 and lue S paid its Turkish supplier for the goods in May 2018 ll values are stated exclusive of VT and the standard VT rate applies to all transactions. What is the net amount of VT to be paid to/reimbursed from the State budget by lue S for March 2018, according to the VT return? 1,900 lei to be paid 950 lei to be reimbursed 2,850 lei to be paid 3,800 lei to be paid 2 Matei has a self-employed activity as a lawyer. He is registered for value added tax (VT) and has a monthly tax period. For the month of March 2018, Matei declared and paid VT of 52,000 lei. However, in June 2018, a tax audit found that the correct amount of VT which should have been paid for March 2018 was 128,000 lei. ccordingly, on 19 June 2018, the tax audit issued a decision for the additional VT to be paid. Matei did not agree and appealed against the decision but lost the appeal. Matei paid the required amount on 28 November What is the total value of interest and penalties due by Matei? 16,492 lei 27,776 lei 4,947 lei 18,141 lei 3 Roxana is resident in Romania and obtains revenues from: (1) Renting an apartment in rasov (2) n employment contract with a Romanian company (3) publishing house for writing a children s book and (4) Selling shares on the ucharest stock exchange Which of Roxana s revenues are subject to healthcare insurance contributions? 1 and 4 only 1, 2 and 4 1, 2 and 3 2 and 3 only 6

7 4 ogdan, who has a self-employed activity as a taxi driver, applies the real system for calculating his net income. He also invests on the stock market. His results for the last two years have been as follows: Profit/(loss) Profit/(loss) lei lei Self-employed activity (12,000) 138,000 Stock exchange transactions (3,000) (10,000) What is the income tax due by ogdan in respect of his revenues at the end-of-year settlement for 2018? 18,080 lei 20,160 lei 22,080 lei 19,680 lei 5 In relation to the rules on the determination of competent authority, which of the following statements is/are TRUE? (1) The competent authority for the secondary offices of large taxpayers is the tax administration in whose territorial jurisdiction these secondary offices are located (2) The competent authority for taxpayers who are neither large nor medium taxpayers is the tax administration in whose territorial jurisdiction the tax domicile of the taxpayer is located (3) The competent authority for large taxpayers is the tax administration in the county municipality where the tax domicile of the taxpayer is located (4) The competent authority for non-resident taxpayers is the tax authority for the administration of large taxpayers 1 and 3 3 and 4 1, 2 and 4 2 only 6 Yellow S, a company resident in Romania, applies standard corporate income tax. It receives dividends from shares it has held since In 2018, Yellow S registered dividends of: 10,000 lei from a Romanian company in which Yellow S owns 1% of the ordinary share capital 15,000 lei from a company resident in Hungary in which Yellow S owns 15% of the ordinary share capital In addition, in 2018, Yellow S recorded revenue from: cancelling bad debt impairments of 25,000 lei; only 30% of the bad debt impairment was deductible writing off a debt to a supplier of 18,000 lei; the expense invoiced by the supplier was considered deductible by Yellow S What is the amount of Yellow S s non-taxable revenues for corporate income tax purposes in 2018? 42,500 lei 32,500 lei 60,500 lei 27,500 lei 7 [P.T.O.

8 7 White SRL, a company resident in Romania, started applying the special scheme of corporate income tax for very small companies in White SRL has two full-time employees. In 2018, it recorded sales revenues of 120,000 lei, revenues from cancelling bad debt impairments of 40,000 lei, subsidy revenues of 95,000 lei and interest revenues of 3,000 lei. Of the bad debt impairments of 40,000 lei, 30,000 lei was created in 2017, when White SRL paid standard corporate income tax and deducted 30% of the impairment. The remaining 10,000 lei of the bad debt impairments was created in What is the corporate tax due by White SRL for 2018? 2,580 lei 3,960 lei 1,320 lei 2,180 lei 8 na-maria earns revenues from renting three apartments. The monthly gross rent for each apartment is 2,000 lei. In 2018, na-maria rented all three apartments throughout the entire year. However, she received the payment of rent for only two apartments, as the tenant of the third apartment had financial difficulties and could not pay the rent. What is the prepayment of personal income tax due by na-maria for 2018? Note: Ignore social contributions. 11,520 lei 4,608 lei 7,680 lei 6,912 lei 9 Red SRL, a Romanian advertising company, is registered for value added tax (VT). It owns two buildings which are leased to tenants, applying the standard VT treatment for rental services. In 2018, Red SRL invoiced advertising services of 280,000 lei and rent services of 450,000 lei. To provide these services, Red SRL bought five laptops from a VT registered person. Three of the laptops are used for advertising services and two are used for rent services. ll laptops were recorded on the same invoice and the value of each laptop is 10,000 lei. The standard rate of VT is applicable to all transactions subject to VT and the cash accounting scheme is not applicable. What is the net amount of VT to be paid to the State budget for 2018? 129,200 lei 57,000 lei 43,700 lei 53,200 lei 10 Which of the following items received by an employee from their employer are included in the taxable base for social security contributions? (1) daily hot meal of 30 lei given under the terms of the collective labour contract (2) Meal vouchers (rom: tichete de masa) of 10 lei/voucher given within the limits set by the law (3) voluntary health insurance policy of 300 euro/year (4) life insurance policy of 100 euro/year 1 and 2 2 and 3 1 and 4 3 and 4 8

9 11 Green SRL pays standard corporate income tax. In 2017 and 2018 it recorded the following: lei lei Sales revenues 2,000,000 3,000,000 Sponsorship expense 22,000 9,000 orporate income tax before sponsorship tax credit 130,000 65,000 What is the total amount of cumulated tax credit available to Green SRL in respect of sponsorship expenses in 2017 and 2018? 23,000 lei 19,000 lei 31,000 lei 39,000 lei 12 The economic purpose of taxation is the use of tax policy to obtain economic leverage. It includes the granting of tax incentives in order to develop certain sectors of the economy and encourage certain types of behaviour by taxpayers. Taxation might also have a social purpose, which includes reducing the tax burden for certain categories of taxpayers considered socially vulnerable or for large categories of taxpayers. Which of the following measures are used to meet the economic purpose of taxation? (1) Personal income tax exemption for employees in the IT sector (2) Value added tax (VT) exemption for health care services (3) Reinvested profit exemption for corporate income tax (4) Reduced VT rate for selling buildings as part of the social policy of the government 1 and 2 1 and 3 2 and 4 3 and 4 13 osmin is employed by a furniture manufacturing company which is not registered for value added tax (VT) and applies standard corporate income tax. In 2018, he made use of a company car and according to the log book, he used the car 70% for business journeys, 10% for travelling from his home to his office and back and 20% for personal journeys. osmin s employer bought the car on 20 ecember 2017 for 60,000 lei and osmin immediately started using it. The tax and accounting depreciation period for the car is five years. The total fuel and repair expenses incurred by osmin s employer with respect to the car in 2018 totalled 18,000 lei. osmin s employer deducted 100% of these expenses. What is osmin s taxable benefit in kind in connection with the company car usage in 2018? 3,600 lei 9,072 lei 2,448 lei 6,048 lei 9 [P.T.O.

10 14 Which of the following statements is/are true in relation to the tax return filing procedures for companies? (1) The amount of corporate income tax due is established by the decision issued by the tax administration, after the company files its tax return (2) The amount of corporate income tax due is established by the tax return filed by the company (3) The company may rectify the corporate income tax return if mistakes are found (4) The corporate income tax return must be certified by an authorised tax adviser in order to be filed with the tax authorities 1, 3 and 4 2 only 1 and 4 only 2 and 3 15 Pink SRL is a company in the field of aerospace research. It is currently working on a research project to build a new spaceship for exploring outer space. Pink SRL also provides training and consultancy services to individuals and companies interested in space science. Pink SRL applies standard corporate income tax and in 2018 recorded the following expenses: salaries of research team: 1,200,000 lei depreciation of equipment used for research purposes: 280,000 lei services performed by lack SRL, a company to which Pink SRL subcontracted a part of the research activities: 850,000 lei. lack SRL applied the additional deduction for research and development expenses for corporate income tax. What is the value of the additional deduction available to Pink SRL for research and development expenses for corporate income tax? 740,000 lei 1,165,000 lei 140,000 lei 1,025,000 lei (30 marks) 10

11 Section LL SIX questions are compulsory and MUST be attempted Please write your answers to all parts of these questions on the lined pages within the andidate nswer ooklet. 1 Purple SRL, a company which specialises in IT equipment and services, is established and registered for value added tax (VT) in Romania. uring the third quarter of 2018, the following transactions were recorded: (i) Purple SRL bought laptops and cables from lfa SRL, a company established and registered for VT in Romania. The laptops were bought for 78,000 lei and the cables for 17,000 lei. oth the laptops and the cables were made available to Purple SRL at lfa SRL s premises in rasov and transported by Purple SRL to its depot in ucharest. lfa SRL issued one invoice for all goods sold to Purple SRL. (ii) eta o, a company established in the United States of merica, bought laptops for 18,000 lei from Purple SRL. These laptops were sent by Purple SRL to etaro SRL s premises in ucharest, where they shall be used by etaro SRL for its business activity. etaro SRL is a company 100% owned by eta o. (iii) Gama GmbH, a company established in Germany, bought laptops for 20,000 lei from Purple SRL. These laptops were sent by Purple SRL from Romania to Hungary, as requested by Gama GmbH. Transport documents are available. Gama GmbH is registered for VT in Germany and is not registered for VT in Hungary. oth Germany and Hungary are EU member states. (iv) ue to a mishandling of laptops during transportation, both eta o and Gama GmbH experienced some malfunctioning of the laptops they purchased from Purple SRL. Thus, both companies decided to return some laptops to Purple SRL for repair. Purple SRL repaired all of the returned laptops, sent eta o s laptops back to etaro SRL s premises in ucharest and as instructed by Gama GmbH sent its laptops to a depot in Oradea. For repair services, Purple SRL issued an invoice of 5,000 lei to eta o and an invoice of 7,000 lei to Gama GmbH. (v) elta SRL, a company established and registered for VT in France (an EU member state) asked Purple SRL to develop a study on the electrical and IT infrastructure of a building located in ucharest and subsequently to draft a report on the capability of this building to be transformed into a data centre. Purple SRL prepared the report and invoiced 30,000 lei to elta SRL. ll values are stated exclusive of VT, where applicable. For all transactions where VT applies, the standard VT rate is applicable. The cash accounting scheme for VT is not applicable. Required: (a) alculate the output value added tax (VT), input VT and VT due to/recoverable from the State budget for the third quarter of Note: List all of the items referred to in the question, indicating by the use of zero (0) any item which has no impact on the VT computation. (7 marks) (b) For each of the transactions with eta o, Gama GmbH and elta SRL, state whether or not the transaction must be declared in the EU VT information exchange system (VIES) recapitulative statement (form #390), clearly stating the type of transaction to be declared. (3 marks) (10 marks) 11 [P.T.O.

12 2 Liliana is the chief financial officer (FO) of Rio SRL, a company in the retail sector, where she is employed full time at a gross salary of 4,800 lei/month. Liliana has three children: Eva, aged 20, Maria, aged 15 and Tudor, aged nine. ll three children are studying full time and they all receive scholarships. Eva receives 800 lei/month, Maria receives 500 lei/month and Tudor receives 200 lei/month. Liliana s husband, George, is also employed by Rio SRL, as a part time employee in the administrative department. His gross monthly salary is 1,800 lei for two hours per day. George has no other employment contract. oth Liliana and George are members of the union organised by Rio SRL and each pays a monthly contribution of 400 lei to the union. In July 2018, Rio SRL gave the following benefits to Liliana and George, in addition to their basic salary: Liliana George enefit mount enefit mount in lei in lei Participation in a stock-option plan 2,000 irthday present 500 Per diem allowance for a six-day business Per diem allowance for a three-day business trip in Romania 1,200 trip in ustria (note 1) 1,000 Life insurance premium (note 2) 500 Voluntary health insurance premium (note 2) 2,000 Notes: 1. The per diem allowance accepted for employees of public institutions for business trips to ustria is 35 euro/day. 2. No other payment of insurance premiums shall be made in The value of social contributions due by Liliana and George (and withheld from their salary by Rio SRL) in July 2018 is 800 lei and 300 lei respectively. ll benefits are presented at gross value. Required: alculate the employment income tax payable by Liliana and George for July Note: List all of the items referred to in the question, indicating by the use of zero (0) any item which has no impact on the tax computation. (10 marks) 12

13 3 Luca is a certified auditor and in 2016 he started his own self-employed business as a certified free-lancer. For 2017, he estimated that his prepayments of income tax would be 2,000 lei per quarter. ue to lack of funds, Luca made only two prepayments of income tax, one of 3,000 lei on 10 ugust 2017 and one of 1,800 lei on 28 September ccording to the actual values recorded by Luca, in 2017 he recorded a loss. Luca filed his income tax return on 16 March 2018 and received the decision for the settlement of the final tax against prepayments for 2017 on 5 June Required: (a) riefly explain the tax registration procedure in respect of Luca s new business, clearly stating where Luca is required to register, the registration deadline and TWO items which must be included in his tax registration declaration. (2 marks) (b) ompute the late payment interest and penalties payable by Luca for the prepayments of tax not paid on time, clearly stating the due dates for each tax prepayment. (8 marks) (10 marks) 13 [P.T.O.

14 4 Gray SRL was established in 2013 and applies the system of prepayments for corporate income tax. In June 2015, the company bought a building for 336,000 lei and brought it immediately into use, depreciating it over a 40-year useful life for both accounting and tax purposes. In ecember 2016, Gray SRL revalued the building at its market value and booked into accounting records a revaluation reserve of 92,400 lei. The tax value of the building for corporate income tax purposes was increased accordingly. On 31 May 2018, the company sold the building for 200,000 lei and deducted the remaining non-depreciated tax value. In ecember 2017, Gray SRL bought two pieces of equipment for 80,000 lei each, and it applied the tax exemption on reinvested profit which was available. In 2017, the accounting profit of Gray SRL was 200,000 lei and the taxable profit was 320,000 lei. In June 2018, Gray SRL sold one of the two pieces of equipment for 40,000 lei. fter the sale, in September 2018, Gray SRL decided to convert the entire value of its reserves created by applying the reinvested profit exemption in 2017 into share capital. Required: (a) Explain, with supporting calculations, the corporate income tax implications of the sale of the piece of equipment in June (3 marks) (b) alculate the value of reserves which are subject to corporate income tax in Note: You should ignore any VT or legal reserve implications, and any late payment interest and penalties implications. (7 marks) (10 marks) 14

15 5 Ioana, a Romanian resident, started a self-employed activity as a show organiser in She applies income quotas for determining her net income from her business activity and her income quota for 2018 is 90,000 lei. In 2018, Ioana issued invoices/fiscal receipts for her activity with a total value of 210,000 lei. Of those invoices, 170,000 lei were paid in 2018 and the remaining invoices will be paid in In 2018, Ioana obtained the following additional revenues: Revenues from intellectual property of 40,000 lei. Ioana opted to apply the final income tax mechanism for this revenue; Revenues from selling shares on the ucharest stock exchange. Ioana bought 1,000 shares in S in June 2017 for 7 lei/share. She sold 400 of these shares in ecember 2017 for 4 lei/share and a further 500 shares in pril 2018 for 11 lei/share. Ioana plans not to invest on the stock exchange anymore, as she finds it too risky; Revenues of 17,000 lei from a service contract with a store for which Ioana prepared a business plan. In preparing the business plan, Ioana used her own computer and worked from her home. This was the first and only time Ioana has ever performed work of this nature and she does not plan to do it again. Ioana s boyfriend, Stefan, is an IT programmer and works for a large IT company which develops and sells software programs. The company was established in January 2018 and Stefan was hired in ugust 2018, based on his relevant college degree. His gross monthly salary is 15,000 lei, and in October 2018 Stefan received a present of 2,000 lei for his birthday from his employer. Ioana s best friend, Judith, is resident in ustria. Judith is a financial consultant and works for an ustrian company. Judith visits Ioana in ucharest regularly and so decided to start a self-employed activity in Romania. From 1 March 2018, Judith rented an office in ucharest for which she paid rent of 3,000 lei/month. She provided advice for her first client in pril 2018, for which the client paid 20,000 lei. From June 2018 onwards, Judith had monthly revenues of 15,000 lei from other clients. ll issued invoices are paid in the same month the invoice was issued. Judith also has some deposits at a bank in ustria, concluded in 2015, for which she receives interest of 5,000 euro per year. Required: (a) alculate the total value of supplies made by Ioana for the purposes of determining whether she must register for value added tax (VT). Note: List all of Ioana s revenue items referred to in the question, indicating by the use of zero (0) any items which should not be taken into account. (2 marks) (b) riefly explain whether or not Ioana should have registered for VT in (1 mark) (c) alculate the income tax liability in respect of each category of income earned by Ioana in (6 marks) (d) alculate Stefan s income tax liability for October (1 mark) (e) Explain, giving reasons, whether or not Judith has to tax any income in Romania and, if so, calculate the income tax payable. (5 marks) Note: You should ignore any social contribution implications and any double taxation treaty which might apply. (15 marks) 15 [P.T.O.

16 6 Orange S, a company established in 2015 with a share capital of 10,000,000 lei, is a producer of automotive spare parts based in Timisoara. In 2015 and 2016, Orange S applied standard corporate income tax, but in 2017 it applied the special scheme of corporate income tax for very small companies. In 2018, it started to apply standard corporate income tax again. In 2018 Orange S recorded an accounting profit for the first time. From 2015 to 2017, it recorded annual accounting losses of 100,000 lei each year. The tax loss was equal to the accounting loss for each of these years. For 2018, Orange S recorded the following revenues and expenses: Note lei Revenues 7,629,000 Sales revenue 6,230,000 Sale of shares (1) 389,000 Revenues from cancelling bad debt impairments (2) 230,000 Revenues from permanent establishment in the Republic of Moldova (3) 780,000 Expenses 7,126,680 Raw materials 2,345,000 Technological losses (4) 328,000 Gross salaries 2,244,000 Social security contributions 493,680 hristmas presents for employees and clients (5) 26,000 Kindergarten fees for employees children (6) 105,000 Own shares bought for employee share option plan (7) 40,000 ad debt impairments (2) 120,000 Expenses of permanent establishment in the Republic of Moldova (3) 845,000 Expenses in connection with sale of shares (1) 580,000 Notes: (1) In February 2016, Orange S bought a 20% participation in Water o, a company resident in Ireland, for 480,000 lei. In January 2018, it bought a 5% participation in Seed SRL, a Romanian resident company, for 100,000 lei. In November 2018, Orange S sold its participation in Water o for 249,000 lei and the participation in Seed SRL for 140,000 lei. (2) Orange S recorded bad debt impairments of 110,000 lei and 120,000 lei in 2017 and 2018 respectively. Orange S considers all bad debt impairments to be 100% deductible for corporate income tax. In ecember 2018, Orange S cancelled all impairments made in 2017 and (3) ccording to the double tax treaty between Romania and the Republic of Moldova, the method for mitigating double taxation is the exemption method. (4) Orange S s normal technological losses are approved at 5% of raw material costs. (5) For hristmas, Orange S gave a present of 500 lei to each of its 22 employees and each of its 30 major clients. (6) ccording to the terms of the collective employment contract, Orange S pays kindergarten expenses for the children of all employees. (7) Orange S has a stock option plan in place for its employees. Managers who subscribe to the plan are granted the right to receive a number of ordinary shares of Juice S, a company which holds a 10% shareholding in Orange S, free of charge two years after the date of subscription, subject to the employee s continued employment with Orange S. In 2018, Orange S recorded expenses of 40,000 lei representing the value of Juice S s shares which will be given free of charge to Orange S s employees in two years time. lso in 2018, Juice S shares which were recorded as expenses by Orange S in 2016 for 50,000 lei were given to employees who subscribed for them in Orange S charged employment tax and social contributions on the benefit of 50,000 lei in Required: alculate the corporate income tax liability of Orange S for End of Question Paper 16 (15 marks)