With the publication in the Official Gazette No. 706 of 8/31/2017 of Executive Decree No. 23/2017, the obligation to make payments to economic operators by distinguishing on separate accounts the taxable amount from the VAT tax (so-called “split payment”) came into force effective as of 1/1/2018 (but optional as early as 10/1/2017). In fact, payments of invoices to suppliers will follow two separate bank flows: one to the iban normally used for payment to the supplier and one to the iban specifically dedicated (and set up by the supplier) for collection of the tax. This newsletter has been written to provide customers with a reference “compass” for applying the new regulations.
Subject of obligation: separate payment of the taxable amount and tax covers all economic transactions involving the purchase and sale of goods and services subject to value-added tax in the territory of Romania.
Subjects of the obligation: the obligation can be distinguished into two different types of obligation:
– active obligation: all taxpayers (natural or legal persons) registered for VAT purposes are obliged to activate a “dedicated” bank account (or alternatively at the state treasury) into which the value-added tax will be paid by the beneficiary of the goods and/or services supplied (preliminarily there is an obligation on the part of the supplier to communicate the bank details of the dedicated account); we specify that the current account opened for the collection of the tax is bound to this function and can be used in the outgoing only for the payment of the tax due on other dedicated accounts of its suppliers.
-Passive obligation: all legal persons, public institutions, whether registered or unregistered for VAT purposes, and individuals registered for VAT purposes, are obliged to pay the taxable amount into the ordinary bank account of the supplier and separately into the dedicated account of the supplier the value added tax pertaining to the goods and/or services purchased.
Exceptions: excluded from the application of the mechanism are special regimes (e.g., tourist agencies, second hand etc.) and the case where the obligation to pay VAT is directly attributed to the recipient of the purchased goods and services (reverse charge).
Effective date of obligation: The mechanism applies optionally from October 1, 2017 and mandatorily from January 1, 2018 for invoices issued/receipts collected from that date.
Mode of operation: de facto:
– as of January 1, 2018, each economic operator subject to the obligation must have already activated a bank account dedicated to the collection of value-added tax and communicated the bank details of this account to all customers subject to the obligation;
– each customer subject to the obligation should take care to generate two separate financial flows for payment of invoices issued by the supplier;
– in the event of an error by the customer in the payment of tax to the supplier’s dedicated account, the customer has 7 working days to be able to regularize the incorrect/incomplete/missing payment of tax related to the payment made to the supplier (it is forbidden for the supplier who has received payment for his invoice to operate from the ordinary bank account to the dedicated account).
– traders subject to the obligation also have 7 working days from the payment made by cash or credit card by their customers to pay into the dedicated bank account the tax collected.
Penalties: If not regularized within the period of 7 working days, the incorrect payment of value-added tax results in the application of a penalty of 0.06% per day from the date of violation until the 30th day; failure to regularize within the 30th day after the violation results in the application of the maximum penalty of 50% of the tax not paid into the dedicated account.
Optional regime as of October 1, 2017: as of October 1, there is an option for economic operators to apply the split payment regime by notifying the relevant NAF of this choice; during this transitional period, suppliers who have adhered to the system will be able in case of incorrect payment of the tax by customers, to regularize the payment into the dedicated tax account independently. Voluntary adherence to the mechanism entails a 5 percent reduction in the tax (ordinary or micro) related to the fourth quarter of 2017 and the cancellation of any penalty referring to VAT.
Latest updates on the subject: a draft law recently appeared that would apply the “split payment” mechanism only to transactions with public entities (as in Italy).
The entry into force of the new legislation as it has been described so far will certainly be a source of many critical issues and higher costs both in financial terms (bank charges) and in administrative-accounting terms (greater attention to transfers collected and made in order not to incur penalties). In addition, while recognizing the (laudable) purpose of combating and preventing evasion in our opinion the penalties provided for and the general management charges (borne by businesses) are disproportionate (50 percent of the tax not regularized in the payments made).
CM
