Romania | Asked to Drop Split Payment Method by European Commission

The European Commission has initiated infringement proceedings against Romania, sending it a letter of formal notice, in relation to its VAT split payment mechanism.

This is because the system has been found to be in breach of EU VAT law and the principle of freedom to provide services.

Under the split payment mechanism (which has been in effect since 1st January 2018) certain businesses are required to open a dedicated VAT bank account, into which their customers must pay the VAT amount applicable to the bought goods and services.  The money in this VAT account can only be used to pay VAT to the Treasury and to suppliers. The Commission holds the view that the system overburdens the customer with weighty administrative obligations.

This letter of notice follows a communication issued by the Commission on the same day, refusing Romania’s request (dated 28th November 2017) to implement the split payment mechanism. It did so on the grounds of incompatibility with both EU tax legislation and the principle of proportionality.

Romania now has two months in which to respond to the Commission’s arguments. If it fails to act within the allotted time-period, the Commission may send a reasoned opinion to the Romanian tax authorities, formally requesting them to comply with EU law.