The Romanian Ministry of Finance received the agreement of the European Commission to modify the split VAT system and to make it completely optional, following that of the 19,000 companies that applied the mechanism at the end of last year to remain around 140-150.
Unofficial translation:
Currently, the companies with debt to the state apply VAT (under certain conditions), those who are insolvent, but also those who have chosen to voluntarily enter this system, in order to benefit from a series of facilities. It is very important that the Finance will eliminate the facilities granted to the companies that opted for the VAT split. The request sent by Finance to the Commission was announced by Profit.ro at the beginning of April . It should be noted that the facilities attracted quite a few companies, but among those who took advantage of these are, for example, some banks. They have benefited from such a reduction in corporate income tax in a period of high profits in the banking sector, although the VAT operations of a credit institution represent an extremely small part of the total activity. Split TVA was strongly challenged by the business environment in the context in which the authorities tried to introduce it from January 1, 2018, mandatory for all companies, but also for the current Minister of Finance, Eugen Teodorovici, before taking over the position of minister, from the position of chairman of the Senate Budget Committee.
Why it is important: Of the nearly 19,000 companies in this mechanism, only 300 have entered optionally, according to the latest data available. Since the beginning of November, the European Commission has rejected Romania’s request for a derogation from the VAT directive for the split system. Romania has received a deadline to submit until January 9 what it will do, following which if it does not give up the split the infringement procedure will be initiated. The deadline was subsequently extended until March 9. The VAT split mechanism was optionally introduced from the autumn of 2017 and mandatory from January 1, 2018 for insolvency companies and those with VAT debt. The business environment vehemently challenged the original project, which provided that the VAT split should apply to all companies, so that from January 1, 2018, it was only obligatory for insolvency companies and those with VAT debts. Romania introduced the VAT breakdown from 1 January 2018 without having previously discussed with the EU executive, although the Commission had informed the Ministry of Finance that it would be much better to consult. Split VAT is currently mandatory for insolvency companies and those with VAT liabilities, but it can also be applied optionally, in which case the company that voluntarily enters the system receives a 5% reduction in the corporate income tax.
If the mechanism becomes optional, in principle it should be possible for companies introduced compulsorily to exit this system. According to Profit.ro data, near the end of last year, 18,700 companies applied VAT split, out of which companies with outstanding VAT on December 31, 2017 – 8,333 companies with outstanding VAT from January 1, 2018 – 3,247 companies subject to the legislation on insolvency prevention and insolvency procedures – 6,783 companies applying the option payment – 329 It is important to highlight that out of the total companies that applied the VAT split, less than 2% entered by their own decision. Those over 98% forced to enter into this mechanism, we can assume that they will largely want to give up the VAT split. The transition to an optional VAT split system, as a solution to the European Commission’s objections, was submitted as a potential solution by the Minister of Finance, Eugen Teodorovici, since December.
Source Profit.ro (in Romanian)
