Insurance companies at a loss about deductible expenses

The insurance premiums paid by the companies have recently been declared as tax deductible by the Finance Ministry in a note to the insurance companies. Finance Ministry’s approval only comes to confirm an explicit stipulation, in the Law 32/2000, saying, “insurance premiums are tax deductible.”

“Under the circumstances and on the grounds that Law 32/2000 is the special law in the insurance field, its stipulations should take precedence, that is all the insurance expenses made by a company should be tax deductible,” says Luminita Manolache, PricewaterhouseCoopers tax manager.

Since Law 32/2000 still has an uncertain status, because it is supposed to come into effect only when the Insurance Supervision Committee is set up, and Parliament has not appointed its members yet, the insurers and their clients are puzzled: do we record insurance premiums as tax deductible or not?

Several bolder companies have already taken the chance. “If you want to be successful, you have to break the rules,” says an insurance broker.

The uncertainty in the air practically divides the market in two: on the one hand there are the bold ones, ready to face the possible challenge procedure started by the Finance Ministry, going as far as to court, and on the other hand, those which have yet to make up their mind, and the conservatives, waiting for things to settle, to avoid any emotional distress.

All the insurance companies can do is encourage the “bold ones.” They are, however, putting a lot of pressure on the Finance Ministry to clear things up about what is deductible and what not.

Furthermore, the legislation on profit tax, which regulates the fiscal deductibility of insurance expenses, was modified last month.

The new normative document expressly stipulates that all insurance expenses related to tangible or intangible assets of the taxpayer, as well as the expenses related to insurance against work accidents, are deductible when the profit tax is calculated.

“This shows that any other insurance expense a company may make and which is not related to the ones expressly stipulated in the law is not acceptable as fiscally deductible,” Luminita Manolache said.

On the other hand, Law 32/2000 on insurance companies and on insurance supervision stipulates that the insurance and reinsurance premiums are tax deductible expenses. The provision is rather general in nature, without distinguishing various types of insurance.

At the same time, it specifies that the Law on profit tax cannot be ignored, as it practically restricts the expense deductibility, meaning that any expense (insurance inclusive) may be considered tax deductible if it is directly connected to the activity of the company in question, and more precisely, if it actually plays a part in obtaining revenues.