Monday, November 13, 2006

GUILT and GOOD FAITH in Moldavian tax law

The Tax Code of Moldova has no definitions of guilt and good faith. "So what?"-you may say. OK, let me explain the reasons for my anxiety about it.

The conceptof guilt (or culpa, culpability) in our system of law reflects the relationship between one's person intention and a breach of law. That means that a person may be found guilty/culpable for a breach of law if he had an intention (direct or indirect) to violate any legal provisions. And the action of such a person must lead to a breach. That's actually a general and superficial definition of that concept (I'm not going deep into legal theory, there's no need for this here).

The concept of good faith is directly related to the previous one. It is "the mental and moral state of honest, conviction as to ... the rectitude or depravity of a line of conduct..." In the case of a breach of law we may say that a person act in good faith when he hadn't and couldn't objectively know that his actions may lead to a breach.

Now let's come closer to the tax legislation and see how these 2 definitions (or putting it more precisely, the lack of them) influence the way that Moldavian tax authorities operate.

One of the mostly widespread types of disputes between tax authorities and economic agents in Moldova relates to the false fiscal factures/invoices (facture fiscale). The problem is as follows: when a seller (registered as a VAT-payer) supplies any goods he must under the Tax Code to write out a fiscal facture (factura fiscala) for these goods and to present one original copy to buyer. Then, during the fiscal control the tax inspection finds out that a facture transmitted to buyer is false.

And try to guess what they do... They bring THE BUYERS (!!!) to account. Can you imagine it? They make them responsible for the actions committed by others, by those who write the documents out and hand them over to buyers. And buyers often haven't even known before the control takes place that the documents are false.

And that is why I started to talk about the necessity of the guilt and good faith concepts to be introduced into the Tax Code. Because when the buyer acquires goods he usually has no possibility to verify every document received from the sellers. He can't know whether a facture is valid or not. They are not culpable. They act in good faith. And bringing them to liability is not just unfair, it has no logic. But it is exactly what happens. The tax inspections impose immense sanctions to those who do not commit any breach of law. And in most cases the courts support position of tax authorities.

So, if the definitions of good faith, culpability, intention would be directly introduced to the Tax Code I think there would be much less such nonsense (cause I think it is) in such proportions. Maybe it would be easier for tax officials to understand that it's the supplier who should be brought to liability...

PS. I think I'll turn back more than once to the problems of taxation in Moldova because sometimes it reminds me the theatre of absurdity...

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At Tuesday, November 14, 2006 2:26:00 PM, Blogger Lucia said...

This is very interesting, and this practice really sounds absurd. What concerns me more is that the business community in Moldova tolerates this situation. In my view, the Chamber of Commerce & Trade and business associations should pressure the Ministry of Finance to make this change in the tax law.

At Tuesday, November 14, 2006 10:35:00 PM, Blogger Alexei Ghertescu said...

It's not so easy to oppose against the state machinery in Moldova, even for the hole business community.

However I'm pretty sure that the practice described in this post will fall into focus of attention of some international institutions, probably even judicial ones...

At Wednesday, November 15, 2006 12:10:00 AM, Blogger Peter Myers said...

Thanks for finding my blog. I'd like to meet up at some point in Chisinau. Send me an e-mail some time at
- Peter

At Wednesday, November 15, 2006 5:28:00 PM, Blogger Val said...

Salut Alex,

Iata un articol care ar putea sa te intereseze despre reforma in Moldova pentru atragerea investitiilor straine publicat de OECD.

Bun venit in blogosfera moldoveneasca :))

At Wednesday, November 15, 2006 10:44:00 PM, Blogger Alexei Ghertescu said...

Val, multumesc pentru link'ul.

"Bun venit in blogosfera moldoveneasca"


At Tuesday, July 03, 2007 11:07:00 PM, Blogger Aidan Joyce said...

Hi Alexi,

Firstly, congratulations on your Blog. Do keep up the writing as your articles are both very well written, Informative and Interesting in general.

In relation to this Absurd Law which can in fact punish the wrong party for accepting a false invoice etc, IT SCARES ME. Surely the business community and chamber of commerce has major issues with this, as would any foreign investor considering Moldova. If you have an update on this please let me know.

On a seperate matter I would personally, as I believe many others would be interested in an article or mini series relating to the law surrounding property acquisition/invetsment in Rep. Moldova. Specifically, and I appreciate you wish to appeal to all readers, would be very interested in such and article from perspective of a foreign investor stand point. Have a thought about this.

Additionally, imagine the service; and good you could do for so many Moldovans in "Exile" relating to acquiring Visas, Resident Permits or indeed advising on citizenship for Romania. I am living here now in Bucharest as an Irish Citizen and hear of so many genuine and harsh cases for Moldovans with problems in staying here or getting here in the first case. I have had an interesting scenario and with my lawyer resolved it, however there are many less fortunate Moldovans which are getting fined and having to leave Romania. I might add unnecessarily so.

Anyway, its two ideas for your wonderful blog and if you get time they may be worthwhile for both your business and many other peple.

Keep Up The GREAT work.


"Paddy in Exile"

Aidan Joyce


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