Generally, pawnshops accept goods of a certain value, such as gold and silver jewelry, electronics and home appliances. Some people pawn their cars and even their apartments.
Should the depositors recover the goods before the deadline set by the contract, this operation would not trigger VAT implications, because there is no official transfer of ownership.
What happens if, due to their precarious financial situation, those who use pawnshops are unable to recover the goods pawned? After waiting a certain period of time from the due date, if the loan is not returned and the related fees not paid, the pawnshop may sell the pawned goods to recover the amount borrowed. Therefore, depending on the nature of the goods sold, the pawnshop may apply for the normal taxation regime, or for the special taxation regime for second-hand goods, works of art, collectors’ items and antiques.
The special taxation regime involves collecting the VAT only on the profit margin. This is calculated as the difference between the selling price applied by the pawnshop and the purchase price. However, the profit margin cannot be reduced by considering costs associated with storage, repair, cleaning and other activities related to keeping the items pawned in good condition.
Moreover, the special taxation regime can be applied only to certain categories of goods, specifically mentioned in the Romanian Fiscal Code. Since 1 March 2011, gold objects and jewelry made of precious metals, or precious or semi-precious stones, no longer fall within the category of second-hand goods. Consequently, the special second-hand regime cannot be applied for their sale, and VAT must be collected on the sale price.
If depositors do not recover the goods pawned and the pawnshop decides to sell the goods at a price equal to or less than the purchase price, there are no VAT implications. On the other hand, if the selling price is higher than the purchase price, different approaches arise as to what the profit margin should include.
In practice, the lack of clear legislation in this area leads pawnshop owners to calculate VAT for these transactions differently. Some pawnshops consider the fees granted for the loans to be included in the purchase price (which must be paid by depositors), while others take a more prudent approach, including the fee in the VAT-taxable base.
The first approach might be challenged by the Romanian tax authorities in the event of a future tax audit, resulting in charges of significant amounts of VAT and late payment penalties.