Opinion Noerr: Focus on taxing online content creators in Romania
In this opinion piece, Noerr tax advisors Simona Bica and Carmen Mazilu address the hot topic of taxing online content creators in Romania.
A hot topic in today's Romanian tax world is the activity of online “opinion makers”, i.e. influencers, bloggers and vloggers, and not only, related to the well-known online and social media platforms, according to an investigation carried out by the Romanian tax authorities. “Why?” one may ask. It all comes down to money.
According to the latest news, Romanian tax authorities have discovered undeclared millions in income earned by members of a such media platform, translating into significant taxes that should have been paid to the Romanian state.
The problem comes from the fact that Romanian tax law does not contain straightforward provisions on taxation of income earned by online content creators, which presumably makes it difficult for such persons to know how to report their income in some instances. Unfortunately, lack of knowledge is not an excuse for not reporting income at all.
The reason why the tax authorities are targeting all individuals who earn income from digital content is simple. Everyone is aware of the extent of this phenomenon, but the actual income they earn is very difficult to reliably estimate, especially when there is no paper trail of the income or when the income is in the form of receiving free products or services for promoting them via social media.
The relevant question in this situation is how to report income and avoid disputes with the Romanian tax authorities. What aspects should be taken into account when earning and reporting these types of income?
One important aspect is how an individual is registered legally and for tax purposes. According to Romanian tax law, exercising an independent activity involves carrying it out regularly, continuously, on one's own account and aiming to obtain income. A prudent way for individuals to deal with possible audits by tax officers would be to take the necessary steps to register for tax purposes using the correct/appropriate tax regime (e.g. freelancer, micro-company or profit taxpayer) and then to report their income in cash or in kind received on a continuous basis from promoting products or services on social media, depending on the tax regime they choose.
The second (more difficult) topic is the actual assessment of the value of their taxable base for the income they receive in kind (goods and services), especially when there is no agreement between the parties involved and thus no traceability between the goods or services received and the consideration offered. For example, for income in cash, the taxable base is the amount received, which must be reported accordingly. For goods and services, the taxable base is determined based on the market value of those goods and services (i.e. as if anyone had acquired those goods and services from the merchants in question).
Thirdly, one must then identify how tax should be levied in accordance with the law i.e. via withholding on the part of the payer (as is the case for certain types of income) or via self-assessment by the recipient (i.e. the influencer).
Lastly, other aspects should be analyzed, such as the obligation to pay social security contributions or VAT if certain thresholds are exceeded.
The tax footprint of a successful digital content creator is therefore a problem with many variables, i.e. legal form, tax status, client profile, legal instruments, values, tax residency, etc., and there is no one-fits-all solution that can apply to everybody. Any analysis must be fact-driven and specific. The most important thing to remember, however, is that the tax authorities are increasingly focusing on this area; they even have a special department for the online environment as well as software that provides them with information from social media platforms.
Therefore, given the ever-increasing presence of digital-content creators, especially in the context of the pandemic, we believe that the topic of how to correctly report taxes deserves more attention from such content creators in order to avoid unnecessary disputes with the tax authorities.
This is partner content provided by Noerr.