7 December 2018
The European Commission (EC) recently sent a letter of formal notice to Romania requesting that they withdraw the new value added tax (VAT) split payment regime introduced in January 2018.
Currently, the split payment procedure requires Romanian VAT registered businesses with an overdue VAT debt to open special, secure bank accounts which are specifically used for receiving and making VAT payments. The vendor’s customers then pay the VAT amounts charged by the vendor directly into this special secure bank account. At the same time, they will have to make a separate payment of the net amount to the vendor’s regular bank account. The Romanian tax authorities can then monitor the special VAT bank account and reconcile this with the vendors’ VAT reporting.
The EC described the split payments regime in Romania as a burden to honest businesses who may be in debt for honest reasons and also stated that the regime itself was against both EU VAT rules and the freedom to provide services.
Romania now has two months to act before the EC send a reasoned opinion. If no action is taken following this, a referral to the European Court of Justice may be made.
Find out more about VAT in Romania