Romania may be the second country in the European Union (EU) to apply the generalized reverse charge mechanism for local operations (transferring the liability to pay VAT from suppliers to clients), after Czech Republic, according to financial consultancy firm PwC.

Romania has the highest VAT gap in the EU, which would allow it to qualify for adopting such a measure.

The European Union’s Economic and Financial Affairs Council – ECOFIN has recently decided that EU member states most affected by VAT fraud will be able to apply the generalized reverse charge mechanism for local operations. This will be possible until June 2022 under very strict technical conditions. States will be able to use the reverse charge mechanism exclusively for local supplies exceeding the EUR 17,500 / transaction threshold.

EU Member States wishing to apply this measure must have VAT gaps out of which 25% is due to carrousel fraud. They will also have to set up appropriate and effective electronic reporting obligations on all taxable persons, in particular those to which the mechanism would apply.

In order to be able to use the reverse charge mechanism, states must meet certain eligibility criteria and the Council must authorize requests.

The mechanism is to be applied as a pilot in the Czech Republic, which has shown interest for many years in using this simplified procedure. Depending on the results of the pilot, Member States, including Romania, will be able to request the Council to approve their application of the mechanism, if they meet eligibility criteria.

European Commission data shows that Romania lost about EUR 6.1 billion in 2016 due to the VAT gap.

editor@romania-insider.com

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