The VAT Directive provides that in case the amount of deduction exceeds the amount of payable VAT, the member states may either make a refund or carry forward the excess to the following period. Romania opted for a refund of the excess input VAT. Moreover, the member states have the freedom to set out the conditions based on which the refund procedure is performed, however with the observance of the applicable VAT European principles.
As such, the Romanian Tax Procedure Code provides that claims for VAT refund shall be settled by the tax authorities within 45 days from the date of submitting the VAT return showing a negative balance with refund option, irrespective of performing a tax audit or a simple documentary analysis on the taxpayer, or whether such tax audit is to be performed before or after the effective refund of VAT. The 45-day statutory time frame provided for reaching a determination on VAT returns is in line with the general statutory deadline for any request a taxpayer is entitled to lodge with the tax authorities.
In addition, the domestic legislation stipulates that the taxpayers have a right to be granted interest on refundable amounts that apply starting with the day following the expiry of the previously mentioned statutory period and is computed until the day of actual payment of the excess amounts (that is, the day of the effective refund).
In the past three years there has been a major increase of the taxpayers' disputes with the Romanian tax authorities concerning the default interest due for the delayed refund of excess VAT. At the same time, the tax authorities have continually tried to neutralise such claims by reducing to minimum the period for which the default interest was to be applied.
In practice, the Romanian tax authorities are in fact prolonging the statutory 45-day deadline by suspending the tax audit or the documentary analysis based on various administrative measures that are to be considered essential for the determination of excess VAT amount to be refunded such as:
- Asking for additional information or documents that are considered to be necessary,
- Performing cross-checks on the taxpayer's suppliers or business partners,
- Requesting information from tax authorities in other member states,
- Changing the proceeding for reaching the determination VAT returns (for example, from documentary analysis to tax audit).
Nevertheless, following the resounding ECJ case Enel Maritsa (C-107/10) and the most recent Rafinaria Steaua Romana (C-431/12) the Romanian Supreme Court shifted its jurisprudence and started to grant default interest for the delays in the refund of excess VAT process, the period considered for computing interest being set at the expiry of the 45-day statutory deadline until the effective payment of the excess VAT. More importantly, the said period is thus computed irrespective of the delays provoked by the administrative measures taken by the tax authorities. In other words, no matter how many times or for how long the tax authorities suspend their analysis on the taxpayer's claim for VAT refund, the taxpayer is entitled to obtain interest for the entire period starting from the day after the expiry of the legal deadline until the actual refund.
The ECJ reasoned that the taxpayer cannot bear the burden of not being refunded the excess VAT within a reasonable period of time and therefore the financial losses incurred by the latter due to the unavailability of the amounts to be reimbursed have to be compensated by payment of default interest.
Given the above, it is expected that the disputes against the tax authorities concerning default interest to increase significantly in the following period. At the same time, however, the reaction of the tax authorities will be to mitigate the effects thus created, meaning that the high amounts to be borne by the state budget in a short period of time will most probably lead to the extension of the 45-day statutory timeframe. Nevertheless, such potential measure that will imply a change in the domestic legislation will, in our view, contradict the ECJ jurisprudence which stated that the refund has to be made within a reasonable period of time.
Therefore, it may prove useful to check if you have previously experienced such delays in the reimbursement of VAT and correspondingly ask to be granted interest for such. Please note that the above is also applicable to foreign taxpayers entitled to VAT refund under Council Directive 2008/9/EC.
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