The High Court of Cassation and Justice (ÎCCJ) decided that the right of the taxable person to carry forward the balance of the negative amount of VAT in the VAT return for subsequent fiscal periods is not time-barred.
Although this decision was intended to bring clarity to tax legislation and stop the non-uniform practice of national courts, it is more likely to create confusion in the market and leaves room for interpretation for the countless situations that taxpayers may have in practice.
“If, in theory, a taxpayer can carry forward his VAT balance indefinitely, since it is not prescriptive, in practice it is not clear how this decision will be applied, especially in situations where we are talking about a VAT balance with a provenance greater than the general prescription period of 5 years, and these can be many”, said Dragoș Bădescu, Senior Tax Manager, Crowe Romania.
For example, he says, how would the ÎCCJ decision be applied in the case of taxpayers who had a VAT balance older than 5 years included in the statement (let's say from 2019), which was not requested for reimbursement, and was later removed from the VAT statement on the grounds that it was time-barred?
Can those taxpayers re-enter that VAT balance in their VAT statements and continue to use it by offsetting with payment VAT, based on the reasoning of the ÎCCJ decision?
“In theory, this option seems possible, considering that by submitting the statement a refund right is not exercised, but the mechanism for determining the balance of VAT paid/reimbursed continues. In other words, by submitting each VAT statement, the taxpayer regularizes his fiscal situation regarding the VAT paid/reimbursed, thus neutralizing the effects of VAT. But if the period following that balance (2020-2025) was subject to inspection? Practically, that the balance was reset to 0 at the time of the requested VAT refund and the taxpayer would no longer have the right to include it in order to continue using it… or does he?”, says Bădescu.
Another situation that could raise questions is whether a VAT balance older than 5 years, which is used to offset current payment VAT, is wrong (for example, it also comes from purchases for which the taxpayer does not have the right to deduct).
In this case, can that prescribed balance still end up being verified (eg through an unannounced check or documentary check) even though it was not claimed for reimbursement?
But what if the taxpayer chooses to make corrections? Would it be possible to consider reopening the period after submitting the statement with the correct amounts and regularizing the VAT situation?
“If the answer to both cases is yes, then those taxpayers who have a VAT balance older than 5 years that they end up using for various reasons. now they will have to keep the documents for longer periods of time (more than the law provides) and ensure their legibility if the originals are kept on paper. At the same time, the duration of tax inspections will be longer and the checks will take longer, in which case the daily activity of the taxpayer could be disturbed for a longer time”, explained the Crowe Romania representative.
At the same time, the question arises as to how far ANAF's rights to establish claims can be extended, i.e. if ANAF can calculate interest and late penalties for periods longer than the 5 years and 6 months provided by law.
This could be the case for taxpayers who have not had VAT inspections or refunds for more than 5 years, carrying forward the negative VAT balance and offsetting it against the VAT payment balance. In case of an unexpected control, up to what period can the ANAF checks be extended at the level of the taxpayer?
In theory, the law would limit the control bodies to 5 years and 6 months, but as long as the regularization of the VAT balance is imprescriptible, why wouldn't the verification of the correctness of the regularization benefit from the same treatment?
How will the practice of ANAF be influenced
It should not be neglected how this ÎCCJ decision will influence ANAF practice in future inspections and how ÎCCJ arguments will be used in tax inspection reports and tax administrative appeals when claims older than 5 years will be discussed at the level of taxpayers.
All these situations represent just a few examples that may appear in practice following the decision and arguments of the ÎCCJ, each case leaving room for unclear, subjective or favorable interpretations for any of the parties involved (taxpayer or ANAF).
In the absence of an official position from the Ministry of Finance or ANAF regarding the effects of the ÎCCJ decision or some legislative changes that would establish clear directions for the interpretation of the situation created, at this moment, this decision can only bring longer fiscal inspections through possible extensions of the fiscal period analyzed, longer waiting periods for VAT refunds, aggravation of the lack of personnel from the ANAF on the control side, as well as higher costs for taxpayers on the consultant side and lawyers. In short, we are talking about interpretations and unpredictable situations that will most likely be clarified (possibly also in a non-unitary way) in national courts.
What does the ÎCCJ Decision consist of?
The court concluded that when a right to deduct VAT arises in the taxpayer's patrimony, it has two options:
- or request reimbursement of the balance of the negative tax amount from the reporting fiscal period, by ticking the corresponding box in the tax statement from the reimbursement fiscal period, in which case the tax statement constitutes, according to the law, also a request for reimbursement
- or opts for the carryover of the balance of the negative amount in the statement of the next fiscal period, for an indefinite period, or at least until the company ends its economic activity
Practically, when a taxpayer registers a purchase with deductible VAT, he can choose between requesting a refund of the deductible VAT amount from ANAF, being subject to the 5-year limitation period, as well as an anticipated or subsequent fiscal inspection, or carry over the amount of deductible VAT in his VAT return for an indefinite period defined by law, to be compensated with amounts of future VAT payment.
Two options quite clearly highlighted by the ÎCCJ are, in its view, in full harmony both with the decisions of the Court of Justice of the European Union, as well as with the principles of the VAT Directive, respectively with the principle of legal security and tax neutrality in particular.
As can be seen from above, questions arise regarding the second option, namely the carryover of the negative VAT balance for an indefinite period, or at least until the taxpayer's activity ceases.
