On 8 November 2018 the European Commission sent a formal notice to Romania expressing the view that the VAT split payment mechanism applicable in Romania from 1 January 2018 is not compatible with the EU VAT Directive 2006/112 and is not compatible with the EU freedom of provision of services.
Romania’s split payment mechanism was introduced by Ordinance no. 23/2017 and effective from 1 January 2018. The split payment mechanism requires taxable persons registered for VAT to open a separate bank account for VAT amounts. Suppliers are required to open VAT accounts with the State Treasury or certain credit institutions .
When a payment is made the net amount on the invoice is paid into the supplier’s regular bank account and the amount relating to VAT is paid directly into the supplier’s VAT account. Where payments made in cash or with cards the recipient must transfer the VAT amount to the VAT account within seven working days. The amounts in the VAT account are used to pay the VAT invoiced by suppliers and to pay VAT to the government.
The formal notice requests that Romania should take action to remedy the position within two months. If it does not do so the European Commission will move to the next stage of the process and send a reasoned opinion to the Romanian government.
