Artificial transactions have been a big thorn in the side of the business environment for years. Whether you’ve confronted yourselves with such problems, or just heard of them, the new requirements of the authorities surpass anything you may have known up to this point.
Through the new Tax Code, any company will be considered involved in tax evasion, even if it had no gains, if, in the chain of transactions, whether up or down the supply line, a supplier involved in tax evasion was implicated.
As such, companies should avoid business relations which fall under the risk of tax evasion.
Still, is it possible to check all of one’s business partners, especially when, in the supply chain, there could be tens or hundreds of suppliers? The mission seems impossible from the get go, as long as the verifications that the companies could make are limited, not just for legal reasons (related to documents which they could access), but also because of the costs of such an endeavor.
In Contexpert’s opinion, the consequences of these provisions are serious and on multiple scales:
– In the case of a tax inspection, the expenses from invoices from an inactive supplier are considered nondeductible, and the company loses the right to deduct the VAT. Moreover, the company will have to pay late payment penalties.
– Bank accounts and/or assets may be frozen by the state, as measures for collecting its taxes.
– The company’s activity can be obstructed for an indefinite period until the tax inspection occurs, inspection which ends with a report and taxation decision, which can confirm/contradict the decision of the Tax Antifraud department. The legislation doesn’t mention a strict term for beginning or ending the tax inspection.
– The Tax Antifraud department can contact the criminal prosecution authority, with the beginning of the lawsuit for tax evasion.
– A company’s good faith is ignored, which can be proved both with the payment of the invoices and other justifying documents mentioned in the Tax Code (invoices, VAT code print screens, the physical existence of the goods etc.)
– Last, but not least, business relations are affected because companies will refuse to conclude transaction with partners of who’s history they don’t know.
When is the deduction right cancelled?
The deduction right is cancelled in some situations, even if the buyer can prove his good faith:
– The inactive supplier in the supply chain is not the direct supplier, but the supplier of the supplier, or the supplier of the supplier of the supplier.
– The transaction took place within a 5 year period.
– At the moment of the transaction, the supplier was active for taxation purposes and had a valid VAT code, but later became inactive.
What the new Tax Code does is to legitimize the current practice of the tax inspection authorities
Practice proves that tax inspection authorities extend the provision of the law and consider as artificial transactions with inactive suppliers, regardless of the proving documents presented by the buyers. In this situation, the provisions of the new Tax Code confirm the means used up to now, via the introduction of line 12 at article 11, more accordingly: “The competent tax body can refuse the VAT deduction right for purchases of a taxpayer, if said taxpayer knew or should have known that, through its purchase, takes part in tax evasion, whether it obtains a benefit or not from the resale of the goods or from the use of services in its taxable operations it renders. The tax authorities have the duty to establish objective elements which can permit it to conclude that the taxpayer knew or should have known that the operation invocated for the deduction of VAT was implicated in tax evasion carried out by the supplier or by another taxpayer who was in the supply chain.”
Companies can check the status of the supplier, on whether it is inactive or not, using the site of the National Tax Administration Agency.
However, due to the costs of resources and time implied, many companies, although aware of what could happen if inspected by the tax authorities, assume the risk.
How a company can be declared inactive?
According to the Tax Procedure Code, a taxpayer is declared inactive if:
– It fails to submit its statements (forms 100, 112, 101, 300, 390, 394, 301) over a period of six months;
– It does not allow a tax inspection by declaring false headquarter identification information;
– It does not function at the declared tax headquarter.
According to the new Tax Procedure Code, taxpayers will also be declared inactive if:
– They registered with temporary inactivity at the Trade Register;
– The company’s period declared in the incorporation article is expired;
– The company no longer has legal representatives;
– The duration of the ownership of the headquarter is expired.
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