In the context of technological development, legislation has had to implement certain special regimes tailored to the needs of the current and future trend in the provision of remote services – services known as TBE – Telecommunications, broadcasting & electronic services.
The Costaș, Negru & Asociații tax team notes that in the field of value added tax the legislation has evolved by introducing a new special EU scheme – OSS applicable to electronically supplied telecommunications, broadcasting and television services – to provide a suite of solutions to accelerate the digital transformation for operators carrying out financial transactions in more than one Member State, but not in the Member State of consumption.
In practice, from 2021 onwards, various practical challenges have arisen in relation to the applicability of the new EU special scheme for supplies of services to non-taxable persons by taxable persons established in the EU but not in the Member State of consumption.
The new system of applying VAT tax treatment thus simplifies up to more than 90% of the VAT obligations for sellers of goods and services to non-taxable persons who have the place of supply in a Member State other than the one where the supplier is established.
It is vital to mention in this context that this system introduced at the beginning of July 2021 is not compulsory, so that economic operators will be able to choose whether or not, as we shall see during the course of this analysis, to register for VAT by electronic means in a single Member State for all distance sales and supplies of services, thus avoiding registration in each Member State where the supply to final beneficiaries takes place.
In practice, the firm Costaș, Negru și Asociații has been called upon in various cases to analyse the VAT treatment and applicability of the new EU special scheme for distance supplies of services in the context of legislation which is not currently adapted to the new international instruments.
Among the firm’s clients, several tax challenges have been referred to us, and we have had to unravel the appropriate legal and tax reasoning relating to:
- Invoicing and registration of electronically provided services;
- Applicability of the OSS system;
- The possibility of deducting certain expenses that are incidental to the core business of providing services;
- The records that the economic operator must keep in order for the OSS scheme to apply.
First of all, we point out that for the applicability of the OSS system, economic operators are subject to the quality of the service provider who must be registered for VAT purposes, according to art. 316 of the Tax Code, and if he is not registered, he must apply for registration according to art. 317 of the Tax Code and declare the transaction in the recapitulative statement (390) as follows, if the beneficiaries are taxable persons for VAT purposes.
From a VAT point of view, the place of supply is the country where the recipient has his place of business (or fixed establishment).
The transaction will constitute an intra-Community supply of services which is not taxable in Romania if the supplier (customer) can prove that he has supplied the services to a person who has given him an EU address and a valid VAT code in another Member State.
We point out that intra-Community supplies of services which are exempt from VAT in the Member State where they are taxable – the recipient state – are not declared in the recapitulative statement, whereas intra-Community supplies which are not exempt in the recipient state (being taxable) are declared in the recapitulative statement (390), with reverse charge transactions being mentioned.
If we are talking about services not taxable in Romania, the invoice will be issued without VAT, whereas if the operation is taxable in the Member State where the beneficiary is established, “reverse charge” is mentioned. These will be declared in the VAT return on rd. 3 and by rd. 3.1 and line 3.1. must coincide with those declared in the recapitulative statement.
If the transaction is exempt in the Member State where the services are provided, we point out that the supplier in Romania is not obliged to declare the service in the recapitulative statement, it remains only on rd. 3 of the VAT return.
Invoices are issued for the intra-Community supply of non-taxable services without VAT being shown and, in the case of taxable services in the Member State in which the recipient is established, “reverse charge” is mentioned.
The direct consequence of this simplified mechanism is that the supplier cannot deduct the VAT on the transaction.
In the same context, it is mandatory that before the services are provided the Romanian supplier requests a valid VAT code issued by the foreign authorities for the beneficiary.
For the application of the OSS, the following distinction must be made:
- The amount of the services does not exceed €10,000
For the supply of services by electronic means to natural persons from other Member States, the place of supply of services shall be in Romania if the total value, exclusive of VAT, of the services does not exceed, in any calendar year, the sum of EUR 10,000 or the equivalent in national currency, nor has it exceeded this amount during the previous calendar year.
As conditions, if the value is less than €10,000, the invoice will be issued with VAT (19%) – unless the supplier applies the special exemption scheme for small businesses. The 19% VAT will be collected and paid to the state budget by the supplier in Romania, who will be able to deduct it.
- The amount of the services exceeds €10,000
To the extent that the amount of EUR 10,000 is exceeded (as the applicants state is the case), the supplier will be liable for VAT in each of the Member States where the natural persons receiving the services are located (the place of supply being considered, by way of exception, under Article 278 (5)(h) Tax Code, in the country of the recipient).
From this point on, the supplier has two possibilities:
- Either register for VAT purposes in each of the Member States where the beneficiaries (individuals) are established, charge VAT according to the Member State and pay VAT in that country;
- Either register in Romania for the One Stop Shop scheme in case.
In conclusion, as a way of application, as specified above, the taxable person established in Romania and supplying electronic services to non-taxable persons, with the place of taxation in the Member State, other than Romania, where the recipient is established, may apply for registration in the EU-OSS special scheme, without having to register in each Member State where the supply of services takes place (Member State of consumption).
He will submit a single special VAT return in Romania, declaring the VAT due in each Member State of consumption and making a single payment in Romania which will be distributed by the Romanian State to the Member States of consumption on the basis of the special VAT return.
This article was prepared for the blog of the law firm Costaș, Negru & Asociații by Ms. Larisa Mărginean of the Cluj Bar Association.
Costaș, Negru & Asociații is a civil law firm with offices in Cluj-Napoca, Bucharest and Arad, offering assistance, legal representation and advice in several practice areas through a team of 17 lawyers and consultants. Details of the legal services and the composition of the team can be found at https://www.costas-negru.ro. All rights for materials published on the company’s website and via social media belong to Costaș, Negru & Asociații, reproduction of which is permitted for information purposes only and with correct and complete citation of the source.