Tax Flash No. 1/2023 – The Proposal for a Decision authorizing Romania to make the use of RO e-Factura mandatory was submitted to the Council of the EU by the European Commission
29.06.2023 – The Proposal for a Decision authorizing Romania to make the use of RO e-Factura mandatory was submitted to the Council of the EU by the European Commission
Through GEO no. 120/2021 subsequently approved with amendments via law no. 139/2022, Romania introduced a public system for to issue, transmit and receive invoices in a structured electronic format (XML) which allows for automatic and electronic processing. The RO e-Factura system covers both supplies to (deemed) public authorities (B2G) but also supplies between economic operators (B2B). As of 1 July 2022, the use of RO e-Factura is mandatory for B2G supplies and for B2B supplies of high tax risk products.
The issue of invoices for supplies of goods/services made by taxable persons is primarily regulated by the EU VAT Directive. In order to have RO e-Factura mandatory (for transactions between taxable persons), Romania has to obtain a derogation from Council of the EU as the mandatory character is against articles 218 and 232 of the EU VAT Directive.
On 23 June 2023, the European Commission submitted to the Council of the EU a Proposal for a Council implementing decision authorizing Romania to derogate from articles 218 and 232 of the EU VAT Directive:
- taxable persons established in Romania must transfer invoices (documents or messages) only in electronic format.
- the use of electronic invoices issued by taxable persons established in Romania is not subject to an acceptance by the recipient established in Romania.
The derogation will be valid from 1 January 2024 until 31 December 2026 or until EU Member States are to apply any national provisions transposing ViDA, whichever is the earlier.
This is a key milestone for Romania to obtain the derogation from the EU VAT Directive from the Council of the EU, which we expect to happen by the autumn 2023.
All taxable persons established for VAT in Romania should prepare to issue, transmit and receive all invoices via RO e-Factura as of 1 January 2024. This requires extensive preparation especially for companies with a high number of suppliers and customers. We cannot exclude that Romania implements in phases or delays the mandatory use of the RO e-Factura beyond 1 January 2024 due to IT infrastructure constraints.
VAT deduction: from the Explanatory Memorandum preceding the draft proposal, we understand that Romania changed its initial request to derogate from article 178 of the EU VAT Directive imposing the existence of a valid invoice to deduct VAT. We believe that the aim of the tax authority was to block the VAT recovery right in lack of using RO e-Factura. In lack of this approval, the settled rule would apply, i.e. holding an invoice meeting the content requirements. Given the consistent interpretation of the Court of Justice of the European Union on article 178 of the EU VAT Directive focusing on information allowing to check whether the substantive conditions to deduct VAT are met and not on the support of that information, we expect that the VAT deduction is granted even in lack of using RO e-Factura. Moreover, the ViDA proposal also does not impose such a restriction of the VAT recovery. On the other hand, we cannot exclude penalties for failure to use RO e-Factura. We will monitor whether such penalties would be introduced and their level.
Prior mandatory clearance by the tax authority. RO e-Factura involves a check by the tax authority of the correctness of the invoice before the electronic invoice can be considered valid. From the explanatory memorandum and preamble to the derogation decision, in the context of the ViDA directive, Romania agreed to make the necessary adaptations to the RO e-Factura to allow taxable persons, by 31 December 2025, to send the necessary data to the tax administration without the invoice being subject to a prior verification. In our reading, this means that Romania will make mandatory a system on 1 January 2024 just to change it until 31 December 2025. Given the high volume of invoices to be received from suppliers and sent to customers by the tax authority and the significant investments to be made by several companies to comply, one may wonder if it would not be simpler to make RO e-Factura mandatory only as a reporting system and allow taxable persons to send the electronic invoices directly between them.
The Romanian version of this newsletter is available here.