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Romania: Discounted sales. Loss sales. Legal implications.

This memorandum aims to provide a brief analysis of the legal implications of discounted sales and loss sales.

 
1. Main applicable legal framework
  • Government Ordinance 99/2000 on trading of products and market services (“GO 99/2000”);

  • Methodological Norms from 2003 for the application of Government Ordinance 99/2000 on trading of products and market services  (“Application norms of GO 99/2000”);

2. Discounted sales
According to GO 99/2000, the category of sales at a reduced price limitatively includes the following types of sales:
  • liquidation sales;

  • clearance sales;

  • sales made in sales structures called factory store or factory warehouse;

  • promotional sales;

  • sales of products that meet occasional needs of consumers, after the event has passed and it is obvious that the products can no longer be sold under normal commercial conditions;

  • sales of stock unsold for 3 months from supply;

  • accelerated sales of products that are susceptible to rapid deterioration or whose preservation can no longer be ensured until the expiry date;

  • sales of products at a price aligned with the legal price practised by the other traders from the same commercial area, for the same product, determined by the competitive environment;

  • sales of products with identical characteristics, whose replenishment prices have decreased.

3. Loss sales
According to settled case-law and doctrine, the selling price must at least cover the purchase price of the goods, the purpose of any economic activity being to make a profit by applying a commercial mark-up to the purchase price, thus exclusively in certain situations expressly provided for by law, a sale at a loss is possible.
In accordance with the law, loss sale is defined as any sale at a price equal to or less than the acquisition cost, where the acquisition cost of a product is equal to the purchase price, non-refundable taxes, transport costs and other ancillary costs expressly provided by law.
With regard to the possibility of loss selling, we stipulate that under GO 99/2000, any dealer is prohibited from offering or selling products at a loss in the case of promotional sales and in the case of products in service packages. In other words, selling at a loss is permitted for all types of low-cost sales, as mentioned above, except promotional sales and products in service packages.
 
4. Clearance sales and promotional sales – Features
The following covers specific features of (i) clearance sales, where the trader may sell at a loss, and (ii) promotional sales. In these cases, sale at a loss is prohibited.
  • Clearance sales are any sales accompanied or preceded by advertising and announced as "clearance" and which, through a price reduction, have the effect of accelerating sale of the stock of seasonal goods in a retail sales structure. Please note that clearance sales can only include the stock of new or used / seasonal goods from a retail structure that is preceded or accompanied by advertising. Examples of seasonal stocks are product groups such as, but not limited to: clothing, including fur, leather, haberdashery, knitwear, fabrics, footwear, sporting goods, cosmetics and other similar products.

As a specific feature, clearance sales may be made exclusively during two periods per year, with a maximum duration of 45 days each, provided that the products proposed for clearance sales are paid to the supplier by the trader within at least 30 days prior to the start date of the clearance sale period and offered for sale normally before that date.
The stock proposed for clearance sales must be established in advance in the sales structure concerned, in the sales premises and warehouses of the sales structure and, where applicable, in one or more warehouses of the trader at least 15 days before the starting date of the clearance sale and will not be renewed after the establishment of, or during, clearance sales.
In addition, clearance sales must be made within the sales structures where these products were normally sold.
Please note that it is important to keep all supporting legal documents attesting that the stock of products proposed for clearance sales has been established at least 15 days before the start of clearance sales and paid at least 30 days before that date so that these documents can be submitted to the competent control authorities if necessary. Proof of payment of the amount of the products subject to clearance sales is obtained by checking accounting records.
Timing of clearance sales should be determined by traders between the following periods:
   (i) January 15 – April 15 inclusive, for autumn-winter products;
   (ii) August 1 – October 31 inclusive, for spring-summer products.
For this type of discounted sales, it is necessary to notify the town hall in whose territory the trader operates of the period during which the clearance sales will operate at least 15 days before the trader starts the clearance sales.
The notification form for a clearance sale is submitted to the mayor. The form may be filled in and submitted to the office of the mayor of the place in whose territory the sales structure is located and, for Bucharest, to the office of the District Mayor. The form may also be submitted via registered letter with acknowledgement of receipt. The inventory list for goods to be cleared is filled in and kept at the headquarters of the sales structure in question, to be presented at the request of the competent control authorities.
The trader or the person authorised by him fills in two notification forms each. One copy of the notification is submitted / sent to the Mayor's office and the second copy is kept at the headquarters of the sales structure together with proof / acknowledgement of receipt.
Any notice or other form of advertising on clearance sales must indicate the start of the clearance sale, its duration and the range of products to be cleared if the clearance process does not cover all products in the sales structure.
  • Promotional sales are retail sales / cash & carry sales / market services that can take place at any time of year and can be freely performed by traders without any prior notice being required.

However, the following conditions must be met:
  • sales are to be made at a reduced price, but not at a loss;

  • sales should refer to available or interchangeable products and services sold or, if applicable,  performed on a permanent basis.

  • advertised products and services must be offered for sale throughout the advertised sales period or the trader must inform consumers that the offer is valid only within the limits of available stock.

In particular, a trader who wishes to resume sales in a given department or advertise a category of products during a given period must renew and reschedule their stock to meet consumer requirements during the announced period or inform consumers that the offer is valid only within the limits of available stock.
From a practical point of view, we would like to draw attention to the fact that in a case decision issued by Bucharest District Court 3 at First instance, a  trader was sanctioned for non-compliance with the rules of art. 27 paragraph (2) of Government Ordinance 99/2000 regarding lack of notification of the Mayor's Office with respect to clearance sales. The Court stated that the activity carried out by the trader may be qualified at clearance sale, having considered the specific situation, respectively the sale of products below the purchase price.[i] 
 
5. Conditions regarding price reduction notices
Reduced sales are subject to price and advertising rules.
Thus, any announcement regarding price reduction, regardless of:
form – posters on showcases, brochures, advertisements in the press, on the radio, on television or in any other form;
type of advertising – written, oral or any other form;
the motivation for the price reduction – clearance sales, liquidations or any other motivation addressed to consumers and involving a comparison in figures, whether outside or inside the sales structure, must indicate:
  • the actual reduction in relation to the reference price, which is the lowest price charged in the same sales territory for identical products or services during the 30 calendar days preceding the date of application of the reduced price.[ii]

  • the products or services or categories of products or services to which the advertising relates

  • the period for which these products or services are offered at a reduced price; in the case of liquidations and clearance sales, this condition may be replaced by the words "while stocks last". This declaration may also be used for advertising sales.

Furthermore, we emphasize that any announcement regarding the price reductions, irrespective of the form, advertising and motivation of/for the discount, must be addressed to all consumers and indicate in figures a reduction in relation to reference prices, except for comparative price advertising, exclusively literary advertising which does not contain figures, price announcements for the launch of a new product, and oral advertising which is made exclusively inside the shop for price reductions in a particular department for a very short period of a one-day sale.
In addition, catalogue advertising and price reduction offers launched by traders who sell by mail order, may only be valid until stocks are exhausted, provided this statement is visible and legible in the catalogue.
Bear in mind that any price reduction announcement expressed in absolute or percentage value must be made visible, legible and unambiguous for each identical product or group of products:
  • either by mentioning the new price next to the previous one, crossed out;

  • or by the words “new price”, “old price” next to the corresponding amounts;

  • or by specifying the discount percentage and the new price that appears next to the previous one, crossed out.

Note: it is forbidden for a price reduction for a product and / or service to be presented to consumers as a free offer of part of the product and / or service.
In order to confirm the accuracy of the reference price, all legal documents must be kept so that they can be presented to the competent control authorities when required.
If a price reduction declaration does not correspond to the reduction actually applied to the reference price, it will be considered a misleading form of advertising and sanctioned in accordance with the applicable legal provisions.
It is essential to note that the rules on fixing and advertising prices do not apply where price reductions per product are due to an increase in the quantity of product in the packaging normally used for its marketing or to an increase in the number of identical products offered for sale in a collective packaging.
 
6. Sales with premiums
Sales with premiums represents the business practice whereby, when selling or offering to sell products/services, premiums in the form of products / services are offered free of charge to the consumer immediately or at a certain time.
According to the law, the sale or offer for sale of products or the provision or offer of services to the consumer is prohibited if as a consequence the consumer is entitled to a premium in the form of products / services immediately or at a certain time free of charge, unless they are identical in range with the products / services purchased. (For example, the following practices as well as similar cases are examples of sales with legal premiums: "For each set of socks purchased you get one pair for free"; "For every 5 chocolates purchased you get one chocolate", "for the development of two photo films we offer free development of a third film" )
However, the following are not considered premiums:  product packaging, products or services essential for the normal use of the product or service purchased, products or services whose value is up to 10% of the selling price / tariff of the products / services purchased by consumers, personalized articles or objects bearing advertising messages, visibly inscribed and not found as such in trade, after-sales services, parking facilities offered by traders to consumers.
Moreover, according to GO 99/2000, it is prohibited to condition the sale of a product to the consumer by the purchase of an imposed quantity or by the simultaneous purchase of another product or service.
In any case, according to the law, the following are not considered conditional sales:
  • sales at a global price for different products or services forming an assembly as well as for identical pre-packaged products offered in a collective package, provided that each product and service can be purchased separately at the same price in the same sales area and provided that the buyer is informed of this possibility and of the sales price of the product or service.

  • sales of products in batches or packaging consecrated by commercial customs and consumer needs.

7. Sanctions in the event of loss sales. Relevant aspects.
In accordance with Art. 73 of GO 99/2000, the offer for sale of products at a loss in other cases than those allowed by law is deemed as contravention and is sanctioned with a fine ranging from RON 2,000 to RON 10,000, insofar as the provisions of the Competition Law are not applicable.
We stress that the provisions of GO 99/2000 are to be combined with the provisions of Government Ordinance No. 2/2001 on contraventional sanctions ("GO 2/2001"), so that when offences are found, depending on their nature and seriousness, the competent authorities may apply sanctions supplementing the main sanction. Thus, according to GO 2/2001, complementary contraventional sanctions may be: seizure of goods which are intended to be used, are used or result from contraventions, suspension or cancellation of a licence, agreement or authorisation to carry on an activity, closure of a unit, freezing of a bank account, suspension of the activity of the economic agent, withdrawal of licence or authorisation for certain activities or for foreign trade activities, whether temporary or permanent.
It is also necessary to take into account other issues, such as the fiscal aspects of such commercial actions, given the declaration of taxes and the possible payment of lower taxes by the trader to the state budget.
In addition, it is relevant to note that loss sales may also have repercussions in competition law.
We hope the information presented was helpful. We remain at your disposal for any additional information that may be required. Thank you!
Team BNT Gilescu Văleanu & Partners
 

[i] We reproduce in the following the deliberations of the Court in decision no. 11761/2017 27-10-2017: "whereas on April 11, 2017 in Piata Unirii no. 1 floor 3 (the trader [...]) performed retail sales of clothing and footwear where clearance sales were carried out without notifying the town hall of District 3 Bucharest (sales are below the purchase price). [...] The Court finds that the petitioner (the trader) has not proved that she did not carry out a clearance sale in the sense of Art. 22 GO 99/2000. The advertising submitted in the file is unlikely to invalidate the presumption of the accuracy of those provided in the handover minute. The campaign ad poster states that one product can be bought and the second can be bought at half price, respectively that two products can be bought and the third product will be free. At the end of the advertisement it is stated that this discount applies to the product with the lowest value. Therefore, the petitioner has carried out a sale with advertising which, by reducing the price, accelerates the sale of the stock of seasonal goods in a retail structure. The fact that the campaign ad poster does not mention the term "clearance sale" does not allow the conclusion to be drawn that the petitioner did not in fact carry out this form of sale, but rather that the petitioner did not want to place them in this category in order to fulfil the formalities required by law, namely the notification of the town hall. Thus, in the meaning of art. 22 of GO 99/2000 - A clearance sale is any sale (...) and is announced under the name "clearance". However, if the activity carried out causes the effects of such a sale, but is not declared as such, it can not be considered that it no longer has this title and the procedures imposed by law do not have to be fulfilled.

[ii] With regard to the reference price, Brasov Tribunal by way of the Decision 2630/2018 stated that even in the case of successive price reductions, there is only one reference price, which is calculated and taken into account when applying the first reduction. Therefore, a second reduction cannot take into account the reduced price, but the same reference price, since a contrary interpretation would violate the provisions of the law, according to which advertising sales are not to be made at a loss.