OECD has recently published a material recommending the governments and tax administrations a set of measures to limit the negative impact of COVID-19, some of which are listed below:
• postponing the deadlines for submission of statements and deferral of the tax obligations;
• suspending penalties/ delay interest;
• suspension of fiscal inspections;
• acceleration of the process of VAT refund.
In this context, most of the State Members have implemented certain measures ensuring the unblocking of liquidities for companies in this period - Belgium, France, Greece, Latvia, Luxembourg, or Poland already announced the implementation of quick fixes for the VAT refund.
Just before the Easter holiday, the Government of Romania adopted a new set of fiscal measures, in the context of the COVID-19 evolution. Among these, the authorities also regulated one of the measures which were long expected and requested by the business environment – the extension of the VAT refund with the subsequent inspection. Moreover, this measure was found as early as the beginning of the state of emergency on the National Agency for Fiscal Administration’s website and it is certainly welcome by the business environment which faces liquidity difficulties, as a result of the slow-down of the economic activity.
Unblocking some amounts may help the companies continue their activity and pay their employees’ salaries, thus reducing some of the effects of the pandemic.
In the immediately following period, an acceleration of the process of the VAT refund is expected - a chapter that Romania still has to improve. Until recently, most of the requests for refund exceeding the threshold of RON 45,000 were classified as high fiscal risk (with certain exceptions in the case of large and medium-sized taxpayers and exporters) and were settled only after the performance of a tax inspection.
“Starting with the 16th of April 2020, the new provisions established that, for all the requests submitted by any category of taxpayers, the VAT shall be refunded more quickly, but with the reserve of a subsequent tax inspection. Thus, this is a cash-flow advantage for the companies and a more realistic forecast - the taxpayer shall no longer have to wait for the completion of the tax inspection to receive the money. In practice, most of the inspections are initiated even after the expiry of the maximum term of 90 days, provided by the Fiscal Procedural Code for the resolution of the requests for a refund. There are cases in which the VAT refund may last even one year, as it happens in the case of non-residents.”, mentioned Alexandru Stanciu, Tax Manager, Mazars Romania.
The new procedure may be applied to all the taxpayers’ categories, including those which have submitted requests for a refund before 16th April 2020, as long as the tax inspection had not been initiated until this date.
Concerning the application field, tax authorities have not imposed particularly restrictive conditions for companies, but there are, however, certain limitations. Examples in this respect are as follows:
- specific situations with offenses registered in the fiscal record of the taxpayers;
- companies in liquidation or insolvency procedure;
- or cases in which the tax authorities hold information regarding the risk of an undue refund, a term which is very tough, but was not explained by the legislation.
Also, in the case of the companies not included in the category of large or medium-size taxpayers, the refund shall not be granted with subsequent inspection, if it is requested through the first settlement submitted after the registration for VAT purposes or if the refundable amount results from more than 12 monthly reporting period or 4 quarterly reporting period.
Tax inspections may occur at any time, after those 30 days from the cessation of the state of emergency.
Considering the budget deficit, it is natural to expect a wave of tax inspections, so the companies should:
- make sure that they hold in due time the documents justifying the benefit of the procurements made;
- review the VAT treatment applicable to the operations conducted.
They should focus on the main areas of risk:
- review policies for granting discounts and organization of the promotional campaigns in which goods are granted free of charge;
- documentation of technological/ inventory losses;
- justification of application of VAT exemptions;
- documenting the services purchased (in particular intangible services such as consultancy or management services, costs generally cascaded by the group/ headquarter and always controversial within the tax inspections).
“We recommend the companies which shall receive the VAT without an initial inspection not to leave behind the review of the documents supporting the deductibility of the VAT, whose refund is requested. The taxpayers should take into account that this is not a refund without an inspection, but a postponement of the tax inspection, which shall take place in the same conditions as in the case of anticipated inspections. Consequently, the companies should be prepared anytime for the initiation of an inspection, after the expiry of those 30 days from the cessation of the state of emergency.”, mentioned Alexandru Stanciu, Tax Manager, Mazars Romania.
“Quick Fixes” package and the importance of the documents necessary for justifying the exemption of the intra-Community supplies of goods, in particular for the transactions conducted starting with the 1st of January 2020
There is a tendency of the companies to postpone the collection of the documents until the moment the tax inspection is announced. But, the more this process of reviewing the documentation is postponed, the more difficult it is to collect the documents afterward (there may be changes of staff in the company, within the suppliers or some business partners may even be liquidated etc.).
Failure to document the VAT exemption in time, in conjunction with a subsequent deferred tax inspection may generate delay interest and penalties, which shall be calculated for a longer period. The new measure is included in the form of a derogation from the general conditions regarding the VAT refund and shall be applied in a limited manner, ceasing after those 30 days from the termination of the state of emergency.
“In the short term, this measure shall certainly represent a “breath of fresh air” for the business environment in an extremely difficult period. However, a review of the refund procedure is necessary to adapt it to the current conditions, stressing the extension of the techniques of electronic inspections (a method which is moreover provided by the Fiscal Procedural Code and promoted by the National Agency for Fiscal Administration within the plan of increasing the efficiency of the income collection process to the budget, published in 2019). In this period, the interaction through electronic platforms saved many procedures and the implementation of technology in due time was essential. A tax inspection based on electronic verification, eliminating the trip of the inspection teams to the company headquarter or the preparation and presentation of the documentation on hard copy would simplify a lot the relationship between authorities and taxpayers.”, mentioned Bianca Vlad, Partner, Tax Advisory, Mazars Romania.
Emilia Popa, Head of Marketing and Communication, Mazars Romania
Emilia.Popa@mazars.ro | +40741.111.042
Mazars is an internationally integrated partnership, specializing in audit, accountancy, advisory, tax and legal services. Operating in 91 countries and territories around the world, we draw on the expertise of 40,400 professionals – 24,400 in the Mazars integrated partnership and 16,000 via the Mazars North America Alliance – to assist clients of all sizes at every stage in their development.
In Romania, Mazars has 25 years of experience in audit, tax advisory, financial advisory services, HR Advisory and accounting & payroll services. The local team has 230 professionals.
www.mazars.ro | https://www.linkedin.com/MazarsRomania/