20,000 VAT payers can breathe easy: European Commission urges Romania to end the VAT split payment mechanism

20,000 VAT payers can breathe easy: European Commission urges Romania to end the VAT split payment mechanism

The European Commission decided on 8 November 2018 to reject the request for derogation in order to apply the VAT split payment mechanism submitted by Romania.

The Commission is thus worried about non-compliance with the principle of proportionality and compatibility with the Accession Treaty, considering this mechanism as contrary to both the provisions of the European VAT Directive and the freedom to provide services.

Moreover, the Commission decided yesterday to send a letter of formal notification to Romania on the VAT split payment mechanism, making it the first step towards launching the infringement procedure.

The fact that the implementation of this system violates Community provisions has been underlined by EY since August 2017, before the entry into force of the specific legal provisions.

The VAT split payment mechanism was introduced in Romania as an option starting with October 1, 2017, and as of January 1, 2018, it is mandatory for certain categories of VAT payers - about 20,000 companies.

Taxable persons applying this mechanism must open a separate VAT bank account, where the amounts are blocked for the taxpayer.
Their customers must divide their bill by paying VAT separately in the supplier's VAT account.
The taxpayer may use the amount collected in the special VAT account exclusively for VAT purposes to the Treasury and its suppliers.

Since its implementation, the mechanism has been assessed as one that will bring major administrative burdens for taxable persons operating in Romania, as the European Commission has also supported by its decision and the arguments in support of this decision.

According to the European Commission, the measures contravene both the EU VAT rules (Council Directive 2006/112 / EC) and the freedom to provide services (Article 56 TFEU).

If Romania does not take action in the next two months (as a result of the formal notification), the European Commission may provide a reasoned opinion to the Romanian authorities for the infringement. procedure.