October 3, 2017
The following article is part of a series of articles that in partnership with Avocatnet.ro we offer for better understanding of taxation and for the healthy evolution of business in Romania:

Split VAT, analysed by EU tax payers: We will have the only general system of its kind applicable. What’s it like in other states?
Romania will have the only split VAT system of general application, according to a Nexia CRG Romania analysis, since the few EU Member States that flirt with the broken down VAT payment concern only certain categories of taxpayers. Apart from Romania, only four states will split VAT, and the other EU member does not take into account the system or have never heard of it.

According to an analysis of the tax and accounting specialists from Nexia CRG Romania, recently submitted to our newsroom, the split VAT system in Romania will be the only one in the EU with mandatory general applicability. Specifically, the cited source contacted its EU representatives to see which countries are currently applying or are to apply a broken down VAT payment system in the near future

Thus, apart from Romania, only four other EU members flirt with the split VAT system, while the other states either do not take it into account or have not heard of it. These are Italy, Hungary, Poland and the United Kingdom.

“If we compare it with the other four countries above, we find that we are either seeking to apply other ways of tracking VAT collection (e.g. Hungary, by generalising the computerisation of the reporting system), whether the split VAT system or in stages (Poland), or after consulting the business environment (UK) and only for certain categories of taxpayers (in all countries) or at a certain amount of VAT) is applied” , is shown in the analysis.

For each state applying or is going to apply split VAT, Nexia CRG specialists have also done an X-ray of the individual systems, in order to conclude that in Romania there will be the most extensive split VAT system. Let’s take them one at a time.

1. Italy. Split VAT applies from 1 January 2015, but only to certain categories of taxpayers: state-owned companies, companies listed on stock exchanges (FTSI and MIB) and public entities (universities, hospitals, social assistance units).

“Implementation has not been easy for taxpayers, especially due to increased problems with the liquidity of firms. Following the implementation of the VAT split, the increase in VAT revenues to the state budget in Italy was 5%”, the analysis highlights.

“Implementation has not been easy for taxpayers, especially due to increased problems with the liquidity of firms. Following the implementation of the VAT split, the increase in VAT revenues to the state budget in Italy was 5%”, the analysis highlights.

2. Poland. This country is preparing to apply the VAT split from 1 April 2018, but the mechanism is not fully implemented. Unlike Romania, in Poland the system will be voluntary and will apply only to transactions between VAT payers (“business to business”).

Basically, each company will decide from transaction to transaction whether or not to apply split VAT, the system can only be applied to certain invoices or only to part of the transaction value of an invoice.

“Payment will be made in a special VAT account and the flexibility to use the money in this account will be limited. Amounts from this account can only be paid to other destinations after a request is made to the National Tax Agency and it verifies and approves the request,” explains Nexia CRG specialists. In addition, companies applying split VAT will enjoy tax incentives such as faster VAT refunds than normal or failure to apply certain additional penalties.

3. Hungary. Regarding our neighbouring state, it will implement, from 1 July 2018, a new system for real-time electronic reporting of information to the National Tax Agency, nexia CRG Romania representatives say. It will only apply in cases where the invoiced VAT exceeds 100,000 Hungarian forints. The system will be applied according to the following calendar:

phase 1 July to 31 December 2017. Specialized software firms test the computer system by pre-registering it;
phase: 1 January to 31 July 2018. Specialized software firms will test the computer system by taking information from the taxpayer’s computer system;
phase three: from 1 July 2018. The system becomes mandatory for businesses if the amount of VAT invoiced exceeds 100,000 Hungarian forints.

4. United Kingdom. Here, the tax authorities have currently initiated an advisory document on combating tax evasion by using the split VAT system. However, it would only apply to foreign online traders who avoid registering as VAT payers in the UK. Specifically, the National Tax Agency would use split VAT to collect the tax directly from the point of sale.

Finally, Nexia specialists warn that the experiments attempted by the Romanian Government, including the split VAT system, only put additional pressure on bona fide taxpayers and discourage investors through fiscal unpredictability.

The split VAT system, which involves the use of a special VAT account for transactions with this tax, will become mandatory for all VAT payers from 1 January 2018, according to Government Ordinance No. 23/2017 on the disaggregated payment of VAT. Following the vehement opposition of the business environment to this system, parliamentarians are already considering limiting the applicability of split VAT, so that only state-owned firms and those working with the state adopt it.

The source of the article is avocatnet.ro

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