Companies facing VAT refund positions are trapped between the need of cash, especially during this period, and the stress of having to go through a VAT audit. A selected few companies were eligible for a quick VAT refund (e.g. large and midsized taxpayers with a low tax risk), receiving their money back before a VAT audit was performed, thus granting them quick access to the much-needed cash.
The economic environment during the COVID-19 pandemic has determined the tax authorities to relax the conditions for granting the VAT refund, in an effort to secure liquidity on the market. Many of the companies who did not qualify for the simplified procedure, do qualify now. There are some simple criteria, such as companies who have a clean tax record, as well as small companies who are not at their first VAT refund request or did not carry forward the refundable VAT for more than 12 months. Such companies are eligible to get their refund with a subsequent VAT audit (not with a prior one, as the general rule was before the pandemic). The validity of this facility lasts during the state of emergency and 30 days after (up to June 13 2020). Companies facing a VAT refund position are in the best position to request their money back.
One of the most frequent excuses for not requesting the refund is that the tax authorities will perform a VAT audit. Under the current context, it is likely that most companies will not have to go through a VAT audit immediately, as they will first be approved the refund and afterwards the tax authorities will decide if an audit is necessary. It is not certain an audit will be performed at all, as this will depend on a risk analysis. If the high level explanations provided to the tax authorities during the risk analysis process are convincing enough, the refund may not trigger an audit at all.
What if a company expects that they will be assessed additional tax liabilities during a tax audit?
If companies are aware of potential additional tax liabilities to be assessed by the tax authorities, it is also a good time to make the necessary corrections. The taxpayer has the option to make any correction voluntarily in its tax statements until December 15 2020 without having to pay late payment charges (which can go up to 36.5% per year). This can be done thanks to the tax amnesty in force.
Thus, taxpayers can pay any tax liabilities which were due up to March 31 2020 without additional costs, such as late payment interest or late payment penalty. If these corrections are made voluntarily, the risks for the Romanian tax authorities to assess additional late payment charges during a future VAT audit significantly decrease.
Can we include the VAT related to bad debts in the VAT refund request?
Although the refund positions are usually triggered by large investments or applying the zero-rated VAT exemptions on the supplies, reversing the VAT incurred in relation to bad debts can also be a trigger for a refund position.
Thus, in the current context available only for a short period of time, it may be worthwhile to also include in the refund request the VAT related to bad debts, given the expected quick turnaround.
This window of opportunity closes within approximately three weeks, so it may be the time to act. By the time this opportunity closes, the April and May VAT returns could be submitted, asking the VAT refund.
Alex Milcev
Costin Manta
