Since the beginning of 2015, a number of legislative changes
were enforced regarding the VAT registration of Romanian companies
established in accordance with Company Law no. 31/1990.
As recent practice has shown, these changes have the potential to
cause serious issues for Romanian companies since they introduce
the concept "of assessing one's intention and capability
to carry out a business activity" as an essential criterion
for approving VAT registration applications or, as it will be shown
in the following paragraphs, for maintaining existing VAT
registration numbers.
Form 088 introduced by OPANAF 17/2015
Firstly, we believe that we are dealing with a procedure that
has not been analysed rigorously enough by the Romanian tax
authorities (hereinafter the "RTA") since, as of 1
February 2015, the assessment of the abovementioned intention and
capability is made automatically via a special declaration - form
088, submitted together with the VAT registration
application.
It should be noted that this form mainly requests information
regarding the shareholders, administrators, and corporate seat, as
well as regarding the manner in which the accounting function is
organised or regarding the bank accounts of the applicant. The
document makes no reference to the nature of the business activity
of the respective company (or to the activity said company intends
to start), to the manner in which this activity would be managed
(contractual relationships with suppliers and with potential
clients), to the sources of funding and so on. All this begs
the following: How can the RTA assess the intention and
capability of a taxpayer to carry out business activities based
only on the information collected by means of form 088?
This question becomes even more pertinent since the Order of the
President of ANAF (i.e. the RTA) 17/2015, establishing the criteria
for the approval of VAT registration applications (OPANAF 17/2015),
offers no information on how the RTA are supposed to assess the
intention and the capability of a company to pursue an economic
activity within the scope of VAT. More concretely, there are no
criteria or elements which a taxpayer can consider when preparing
its VAT registration application so as to reasonably expect said
application to be approved.
Under these circumstances, the absence of any transparency
facilitates arbitrary and abusive decisions issued by the RTA who,
as we have seen in practice, have rejected VAT registration
applications submitted after 1 February 2015 for reasons that
remain utterly unknown.
In other words, a company established in Romania that wants to
register for VAT purposes and is required to submit form 088 faces
the risk of having that request rejected without being made aware
of the reasons which lead to the rejection. That company will
therefore be unable to formulate a proper defence with reasonable
chances of success.
It goes without saying that a taxpayer who is required to apply
for a VAT registration, but is unable to obtain it for reasons
which are, at best, obscure, will face a significant administrative
burden and that this whole process will likely become an unsavoury
deterrent for foreign investors wishing to set up businesses in
Romania.
Changes to OPANAF 3331/2013 regarding the ex officio cancellation of one's VAT registration number
Secondly, we consider the issue of assessing the "intention
and capability" has been approached with a rather "one
size fits all" view. This is obvious from the wording of
section 51 from Chapter III of the Procedure for the ex
oficio amendment of the VAT status, approved by the Order of
the President of ANAF no. 3331/2013, in force as of 1 February
2015. This section is suggestively entitled: "The ex
officio cancelation of the VAT registration, if the respective
taxpayer, who is a Romanian company, set up in accordance with the
provisions of Company Law no. 31/1990 [...] and registered with the
trade registry, fails to prove its intention and capability to
carry out a business activity, in accordance with the criteria set
by means of an Order of the President of ANAF" (n.r.
OPANAF 17/2015)
According to the aforementioned provisions, if a Romanian company
decides, for various reasons, to change its shareholders,
administrators or corporate seat, the RTA are entitled to request
that company to provide information regarding its "intention
and capability" to carry out its business activity. This is,
of course, done by requesting form 088 which, as we have shown
above, contains almost no information regarding these two
elements.
If, further to the analysis of the information included in form
088, the RTA reach the conclusion that the respective taxpayer has
failed to prove its intention and capability to carry out an
economic activity, the RTA can have that taxpayer's VAT number
cancelled ex oficio.
The conclusion that follows from the above is that, whenever a
Romanian company changes its corporate seat, its shareholders or
administrators, it risks losing its VAT registration number. It is
difficult, in the absence of consistent case-law, to reliably
estimate the probability of such an outcome, but as long as the
assessment procedure applied by the RTA lacks any kind of
transparency, one can reasonably expect anything.
Food for thought: just consider the sale of shares (of the kind
that happens all the time in M&A transactions) held in a
Romanian company. Based on the above, the target company, which
most likely is an operational one, could lose its VAT registration
number simply because it has new shareholders. It would be absurd
and yet quite possible under these new regulations which are likely
to lead to "casualties" firstly amongst upstanding
taxpayers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.