These large traders say that before the reverse charge mechanism was introduced, there were many missing traders which did not pay VAT to the state budget, whereas others did benefit from VAT refunds. The introduction of the reverse charge mechanism triggered the disappearance of most of these missing traders. However, the European Commission has ruled that Romania should not continue to apply the reverse charge mechanism and so further developments are expected soon.
How has this affected traders in cereals? 2-3 years is usually enough time to become subject to a tax audit. Routine checks performed by the tax authorities on the existence of the suppliers revealed that these suppliers were no longer active, as they had stopped their activity. The result was a catastrophic denial of the deductibility of the input VAT incurred by traders, although 3 years ago, when the transaction took place, the supplier of cereals was active, in every sense. Basically, the denial of the input VAT deduction was based on suspicions of involvement in fraudulent transactions. However, the reality may be less straightforward, and a taxable person should not be refused the right of deduction unless it is established, on the basis of objective factors, that that taxable person knew or should have known that, through the acquisition of these goods it was participating in a transaction connected with VAT fraud committed by the supplier or by another trader acting upstream or downstream in the chain of supply.
Nevertheless, the VAT reverse charge mechanism is definitely a good measure in fighting against fiscal evasion, but, as the European Commission has pointed out, it is an exceptional and temporary measure that must be accompanied by other steps that should be taken by the Romanian authorities, to combat fiscal evasion in this field successfully.
Improvements have been made to legislation affecting the oil and gas industry. Until recently, sale of excisable products below cost price has been discouraged, and where this has nevertheless happened, a large tax and supplementary charges have been payable. However, a recent Government ordinance has eased the problem by linking the price of products with an international or stock exchange public quotation.
Recognizing interdependence of prices of some goods on international and stock exchange quotations by law is good for transfer pricing, not only in oil & gas transactions, but in some other industries as well, such as cocoa, coffee, cereals and many others. The Romanian market is dependent on prices on the EU market as well as on prices on the non-European international market.