This is the second favourable court ruling issued to a leasing company represented by D&B David si Baias SCA, whereby a tax assessment has been suspended, following a similar judgment in mid-2012 pronounced by the Bucharest Court of Appeal in the case of another leasing company. Both these decisions have allowed the leasing companies concerned to carry on business operations as usual until the resolution of the litigation cases seeking the annulment of the issued assessments.
In 2011, under Government Resolution 150/2011, the Methodology instructing on the implementation of the Fiscal Code was amended to include not repossessed goods – that had formed the object of lease agreements terminated early by the lessor (i.e. the leasing company) – in the category of missing inventory. Thus, in accordance with these legal provisions, even though it had not recovered and repossessed the leased goods, the lessor was required to pay VAT on the amount of unbilled capital.
In fact, based on these law amendments, the tax authorities commenced chain inspections on leasing companies which in most cases resulted in millions of Euros of additional tax liabilities assessed.
The latest such tax assessment form was issued in December 2012 to a leasing company that requested in court – at the Bucharest Court of Appeal – that the document be suspended until the legal action on the annulment of the administrative fiscal document had been resolved. The request was accepted under the court ruling pronounced on 17January 2013.
PwC and D&B David si Baias SCA had represented these leasing companies from their early actions against the illegitimate amendments brought under Governmental Resolution (HG) 150/2011 and provided tax and legal assistance to the Association of Financial Companies in Romania in relation to its notifying the European Commission of the breach of the VAT Directive by Romania through adoption of HG 150/2011. The approach resulted in Romania receiving a formal notification, which marks the commencement of the infringement proceedings, which led to the recent repeal by the Romanian Government of the provisions concerned, through Governmental Resolution 1071/2012.
As of 1 January 2013, therefore, VAT legislation no longer includes in the category of missing inventory goods not recovered from lessees in relation to early terminated lease agreements, so self-collection of VAT is no longer mandatory for this type of goods.
Although Romania had to remove from its national law the provision which was non-compliant with the European VAT Directive, as it required leasing companies to pay substantial VAT amounts, recent changes to the Fiscal code in force as of 1 January 2013 generate a new obligation regarding the VAT deduction right adjustment in relation to missing inventory, but no specific provisions are included regarding goods not repossessed following early termination of lease agreements. Adjustment exceptions cover only force majeure events.
“The new provisions in the Fiscal Code on the VAT deduction right adjustment do not transpose correctly the EU VAT Directive. The European VAT Directive does not require VAT deduction right adjustments for missing or destroyed inventory providing that such loss or destruction is adequately proved or confirmed. Although the step taken by the Romanian authorities may be regarded as aimed at curbing fraud and tax evasion, where the financial lease industry is concerned, the lessor initiating formal repossession proceedings clearly shows the intention of the leasing companies to carry on economic operations by entering into new financial lease agreements or selling the repossessed goods”, stated Daniel Anghel, Indirect Tax Partner with PwC Romania.
The team behind the successful legal approaches included Emanuel Bancila – Managing Associate with D&B, Alex Slujitoru – Associate with D&B, Diana Coroaba – Indirect Tax Director with PwC, Valentina Radu – Indirect Tax Manager with PwC, and was coordinated by Dan Dascalu – Partner with D&B David si Baias SCA and Daniel Anghel – Indirect Tax Partner with PwC Romania.
The PwC Romania and D&B David si Baias team continue to assist and represent other companies operating in the financial lease sector in a number of litigation cases seeking both the annulment of tax assessment forms issued by the tax authorities for not repossessed goods and formal confirmation of the nullity of Government Resolution 150/2011, given the recent practice of the tax authorities of still enforcing retroactively Governmental Resolution 150/2011.
Moreover, PwC Romania si D&B David si Baias will assist leasing companies in furthering their actions with the European Commission aimed at completing the infringement proceedings against Romania through correct transposition of European VAT deduction right adjustment provisions into national law.