Nestor Nestor Diculescu Kingston Petersen (NNDKP) successfully represented ENEL (E-Distributie Banat) in a complex tax dispute relating to the possibility of taxpayers deducting the value of tax depreciation for tangible assets (electricity grid connectors) acquired from the company’s clients through transfer, for the calculation of corporate income tax. Initially, tax authorities rejected this possibility based on the way in which the company acquired the connectors (free of charge) and considering the existence of accounting depreciation rules different from the tax depreciation rules that were used.
“We are glad that this dispute, which raised complex tax law issues, was resolved in favor of our client. The ruling reflects the efforts, integrated approach, and cooperation of our multidisciplinary team combining the experience, technical skills, and perspective of both our tax advisors and lawyers specialized in tax litigation”, declared Daniela Gramaticescu, Partner, Dispute Resolution practice.
This dispute shed light on significant tax law matters, including on the taxpayer’s right to opt for an accounting depreciation period different from the periods provided by the law for tax depreciation. Furthermore, the court also considered the effect that the different accounting and fiscal depreciation rules would have over time on the tax base for corporate tax, from a fiscal perspective.
The rationale for this, confirmed also by the court, relies on the different purpose of the two types of depreciation. The accounting depreciation aims to accurately reflect a company’s financial value and allow the exercise of professional judgment in determining the period over which the asset will bring economic benefits to the taxpayer. The purpose of tax depreciation is to ensure the recovery/fiscal admission of the acquisition cost, based on the criteria provided by the fiscal law and, implicitly, the accurate determination of the tax base for corporate income tax, including when the fixed asset is donated to the company.
The High Court of Cassation and Justice rendered a final decision confirming the ruling obtained by the NNDKP team before the Timisoara Court of Appeals.
The NNDKP team representing Enel in this dispute included Daniela Gramaticescu, Partner, and Alexandru Lăcureanu, Senior Associate, in the Dispute Resolution practice, and Silviu Bădescu, Partner, Tax Advisory Services.