In the practice of the civil law firm Costaș, Negru & Asociații, one of the pending tax issues is that of VAT for social services. More precisely, during several tax inspections, the control teams built an argumentation in the sense that art. 292 par. (1) letter i) Fiscal Code would not allow the exemption from VAT of social services provided by companies or associations legally established and authorized to provide such services in Romania in other member states of the European Union. The practical consequence of this interpretation was that additional payment obligations representing VAT were established for the respective taxable persons.
We proposed, within the framework of a brief analysis based on references of administrative practice and jurisprudence, to dismantle this theory.
In principle, according to art. 132 par. (1) letter g) of the VAT Directive, falls within the category of VAT-exempt transactions without the right to deduct, in the form of an exemption for transactions in the general interest, the provision of services and the supply of goods directly related to social assistance and social security, including those provided and supplied by nursing homes, public law bodies or other bodies recognized by the Member State in question as having a social character (for a general presentation, C.F. Costaș, S.I. Puț, Drept fiscal, 2nd edition, Ed. Universul Juridic, București, 2025, p. 414-420).
In Case C-174/11, Ines Zimmermann, the Court of Justice of the European Union indicated that, in the strict framework of VAT exemptions, in order to establish the “social nature” of services or supplies, national authorities may take into account several elements: the existence of specific provisions, whether national or regional, legislative or administrative, fiscal or social security; the general interest nature of the activities carried out by the taxable person concerned; the fact that other taxable persons carrying out the same activities already benefit from similar recognition; the fact that for the services in question the costs may be borne largely by health insurance companies or other social security bodies (see also Case C-141/00, Kügler).
Applying these criteria, the Court of Justice established, for example, that Art. 132 para. (1) lit. (g) of the VAT Directive must be interpreted as meaning that, on the one hand, the provision of services for the benefit of adults declared legally incapable and aimed at protecting them in civil actions constitute ‘services directly linked to social assistance and social security’ and that, on the other hand, it is not excluded that a lawyer who provides such services of a social nature may benefit, for the business he operates and within the limits of the services referred to, from recognition as a body having a social nature, without it being mandatory for such recognition to be granted by the intervention of a judicial authority unless, by refusing such recognition, the Member State concerned has exceeded the limits of its discretion in that regard (case C-846/19, EQ). The Court thus recognised that a lawyer registered with the Luxembourg Bar and carrying out activities representing adults as a trustee, curator and guardian-administrator could benefit from VAT exemption within the meaning of Article 132(1)(g) of the VAT Directive. Multiple services were at issue, such as those summarised in points 52 to 57 of the Advocate General’s Opinion, which include both services relating to civil actions and aimed at managing the daily life and assets of the incapable person, and those of a legal nature.
Per a contrario, the Court held that the VAT exemption provided for in Article 132(1)(g) of the Directive does not apply automatically and therefore cannot be granted directly to temporary employment agencies providing staff to hospitals (Case C-594/13, “go fair” Zeitarbeit OHG).
In Case C-620/21, Momtrade Ruse, the Court of Justice held that Article 132(1)(g) of the VAT Directive must be interpreted as meaning that, first, the supply of social services to natural persons established in a Member State other than that in which the provider has established his business is liable to be exempted under that provision and, second, that it is irrelevant in that regard that the provider has used a company established in that other Member State to contact his customers. Furthermore, the Court states that, where a company provides social services to individuals residing in a Member State other than that in which that company has established its business, the nature of those services and the characteristics of that company, in order to determine whether those services fall within the concept of ‘services directly linked to social assistance and social security provided by a body recognised by the Member State concerned as having a social character’, within the meaning of that provision, must be examined in accordance with the legislation of the Member State in which that company has established its business.
This business originating from Bulgaria is similar to the cases subject to tax inspections in Romania because a company with its registered office in Bulgaria provided services to elderly customers residing in Germany and Austria. The Bulgarian tax authorities considered that the company should have proven the social nature of the services in accordance with German and Austrian legislation and that it could not benefit from the VAT exemption in Bulgaria. On the contrary, the Court of Justice of the European Union considered that the VAT Directive does not provide for restrictions in relation to the place where the services concerned are actually carried out and, therefore, considered that an interpretation of art. 132 par. (1) letter (g) of the VAT Directive which limits the scope of the exemption provided for therein only to supplies of services actually carried out in the Member State in which the provider is established would be contrary to the objective of reducing the cost of those services and making them more accessible to individuals who may benefit from them (case C-657/19, Finanzamt D) if supplies of services which meet the two conditions laid down in that provision, supplied in a Member State other than that in which the provider is established to persons requiring assistance or care, were subject to VAT, which would necessarily have the effect of increasing the cost of the services in question, thus making it more difficult for those persons to access those services.
It should be recalled, briefly, that according to art. 292 par. (1) letter i) Fiscal Code, the provision of services and/or supplies of goods closely related to social assistance and/or protection, carried out by public institutions or other entities recognized as having a social character, including those delivered by nursing homes, are exempt from VAT.
Also, in Romania, the provisions of Law no. 197/2012 on quality assurance in the field of social services are applicable. This normative act regulates, according to art. 5, the accreditation of social service providers, respectively the licensing of social services based on minimum quality standards. From the analysis of Law no. 197/2012, it is clear that accreditation highlights the capacity of providers to establish, administer and provide social services and is confirmed by an accreditation certificate. Licensing, attested by an operating license, confirms that an accredited provider provides social services in Romania in accordance with minimum quality standards.
Therefore, in disagreement with the tax inspection teams, we will say that an accredited provider in Romania can provide VAT-exempt social services both in Romania (based on an operating license) and in other European Union member states.
For example, the Timișoara Court of Appeal reached this conclusion by civil decision no. 1137 of 19 November 2024, recalling the provisions of art. 26 par. (2), art. 56 and art. 63 of the Treaty on the Functioning of the European Union. The Court directly applied, on appeal, the provisions of art. 132 par. (1) letter g) of the VAT Directive and the Momtrade Ruse case law, holding that the applicant company held both the accreditation certificate and the operating license.
The General Directorate for the Settlement of Complaints also ruled in the same sense, which assessed that in a tax inspection completed on July 28, 2023, the control team should have taken into account the ruling in the Momtrade Ruse case, pronounced by the Court of Justice on May 11, 2023.
In the given circumstances, the Costaș, Negru & Asociații team assesses that the interpretation of the tax authorities, further exhibited in various tax inspections, is erroneous, which is why the exemption from VAT payment must also be recognized for social services provided by suppliers accredited in Romania in other member states of the European Union. Moreover, our interpretation has been judicially validated on several occasions.
Costaș, Negru & Asociații is a civil law firm with offices in Cluj-Napoca, Bucharest and Arad, which offers assistance, legal representation and consultancy in several areas of practice through a team of 16 lawyers and consultants. Details regarding legal services and the composition of the team can be found on the website https://www.costas-negru.ro. All rights for the materials published on the company’s website and through social networks belong to Costaș, Negru & Asociații, their reproduction being permitted only for information purposes and with correct and complete citation of the source.
