No more life insurance for employees

The insurance law will soon be modified to increase the maturity (the period of time that has to pass before the underwritten amount can be withdrawn) of the life insurance premiums included in salary packages. The law will also aim to dissuade the companies from giving their employees cash perks in form of insurance once and for all, Maria Manolescu, state secretary in charge of taxation says.
The high salary taxes, prompted by the social security contributions (52%), last year made increasingly more companies pay their employees with insurance premiums maturing in a matter of days, which eluded salary taxation according to the legislation in force at that time.
The Finance Ministry says the Insurance Supervision Commission (CSA) did nothing to stop the tendency to turn life insurance premiums into salary supplements dodging salary tax.
The Exchequer claims it was forced to discourage this process by the income tax norms that impose double taxation of the insurance premiums included in salary packages. The tax has to be paid both by the employer under the profit tax law and by the employee, by adding the premiums-derived income to the salary.
CSA sources say the problem cannot be solved unless Law 136/1995 on insurance contracts is modified instead of a mere norm issued by the Commission.
Nicolae Crisan, CSA chairman, meet with Maria Manolescu at the Finance Ministry on Friday to try and find the best solution to this problem.
“We were forced to take fiscal steps because the CSA did not act to discourage the phenomenon by imposing an increase in the insurance premiums maturity to at least two years, as other countries do,” Maria Manolescu says.
The market has already found solutions to avoid globalising perks in form of insurance premiums. The companies planning to continue paying more money to the employees conclude a policy for one of the employee’s relatives, unbound by contractual relations with the company in question.
“We will discourage this practice, as well, although it is much less frequently used than the other one. We will eliminate this loophole from the enforcement guidelines of the income tax law,” Manolescu explains.
The new provisions, however, risk blocking the group insurance not used for salary payment, too, because of the double taxation.
To prevent this from happening, the CSA says it will propose the Finance Ministry to modify the income tax law so as to include a deductibility cap for insurance premiums the companies pay for their employees.
“The EU legislation stipulates certain deductibility caps. There is no tax evasion problem with the low-income employees. The insurance contracts were used to pay the high salaries,” Crisan explained.
The Finance Ministry says it is the insurance law and not the income tax law that has to be modified to prevent tax evasion by payment of insurance premiums for employees.
“It is surprising to see Mr. Nicolae Crisan, CSA chairman, interested in preventing and reducing tax evasion resulted from this system now that the norms have been published. Therefore, CSA is the one that must find solutions to modify the Insurance Law to avoid such situations in the future,” the Finance Ministry says.