Since the beginning of 2015, a number of legislative changes were enforced regarding the VAT registration of Romanian companies established in accordance with Company Law no. 31/1990.
As recent practice has shown, these changes have the potential to cause serious issues for Romanian companies since they introduce the concept "of assessing one’s intention and capability to carry out a business activity” as an essential criterion for approving VAT registration applications or, as it will be shown in the following paragraphs, for maintaining existing VAT registration numbers.
Form 088 introduced by OPANAF 17/2015
Firstly, we believe that we are dealing with a procedure that has not been analysed rigorously enough by the Romanian tax authorities (hereinafter the "RTA") since, as of 1 February 2015, the assessment of the abovementioned intention and capability is made automatically via a special declaration - form 088, submitted together with the VAT registration application.
It should be noted that this form mainly requests information regarding the shareholders, administrators, and corporate seat, as well as regarding the manner in which the accounting function is organised or regarding the bank accounts of the applicant. The document makes no reference to the nature of the business activity of the respective company (or to the activity said company intends to start), to the manner in which this activity would be managed (contractual relationships with suppliers and with potential clients), to the sources of funding and so on. All this begs the following: How can the RTA assess the intention and capability of a taxpayer to carry out business activities based only on the information collected by means of form 088?
This question becomes even more pertinent since the Order of the President of ANAF (i.e. the RTA) 17/2015, establishing the criteria for the approval of VAT registration applications (OPANAF 17/2015), offers no information on how the RTA are supposed to assess the intention and the capability of a company to pursue an economic activity within the scope of VAT. More concretely, there are no criteria or elements which a taxpayer can consider when preparing its VAT registration application so as to reasonably expect said application to be approved.
Under these circumstances, the absence of any transparency facilitates arbitrary and abusive decisions issued by the RTA who, as we have seen in practice, have rejected VAT registration applications submitted after 1 February 2015 for reasons that remain utterly unknown.
In other words, a company established in Romania that wants to register for VAT purposes and is required to submit form 088 faces the risk of having that request rejected without being made aware of the reasons which lead to the rejection. That company will therefore be unable to formulate a proper defence with reasonable chances of success.
It goes without saying that a taxpayer who is required to apply for a VAT registration, but is unable to obtain it for reasons which are, at best, obscure, will face a significant administrative burden and that this whole process will likely become an unsavoury deterrent for foreign investors wishing to set up businesses in Romania.
Changes to OPANAF 3331/2013 regarding the ex officio cancellation of one’s VAT registration number
Secondly, we consider the issue of assessing the “intention and capability” has been approached with a rather “one size fits all” view. This is obvious from the wording of section 51 from Chapter III of the Procedure for the ex oficio amendment of the VAT status, approved by the Order of the President of ANAF no. 3331/2013, in force as of 1 February 2015. This section is suggestively entitled: "The ex officio cancelation of the VAT registration, if the respective taxpayer, who is a Romanian company, set up in accordance with the provisions of Company Law no. 31/1990 […] and registered with the trade registry, fails to prove its intention and capability to carry out a business activity, in accordance with the criteria set by means of an Order of the President of ANAF” (n.r. OPANAF 17/2015)
According to the aforementioned provisions, if a Romanian company decides, for various reasons, to change its shareholders, administrators or corporate seat, the RTA are entitled to request that company to provide information regarding its "intention and capability" to carry out its business activity. This is, of course, done by requesting form 088 which, as we have shown above, contains almost no information regarding these two elements.
If, further to the analysis of the information included in form 088, the RTA reach the conclusion that the respective taxpayer has failed to prove its intention and capability to carry out an economic activity, the RTA can have that taxpayer's VAT number cancelled ex oficio.
The conclusion that follows from the above is that, whenever a Romanian company changes its corporate seat, its shareholders or administrators, it risks losing its VAT registration number. It is difficult, in the absence of consistent case-law, to reliably estimate the probability of such an outcome, but as long as the assessment procedure applied by the RTA lacks any kind of transparency, one can reasonably expect anything.
Food for thought: just consider the sale of shares (of the kind that happens all the time in M&A transactions) held in a Romanian company. Based on the above, the target company, which most likely is an operational one, could lose its VAT registration number simply because it has new shareholders. It would be absurd and yet quite possible under these new regulations which are likely to lead to "casualties" firstly amongst upstanding taxpayers.