Companies still struggling with compliance obligations, says Ernst & Young

Romanian companies have to deal with a considerable amount of additional formalities and paperwork related to their VAT and indirect tax obligations following Romania's accession to the European Union and the implementation of the EU Sixth VAT Directive.

VAT compliance requirements are part of a wide range of regulatory changes for business that were announced last year as becoming effective from the beginning of fiscal year 2007.

Speaking about these changes at the Romanian Tax, Law & Lobby Conference, held at the World Trade Center in Bucharest on Thursday, 22nd February, and organised by the Business Media Group, Jean-Marc Cambien, Indirect Tax Partner, Ernst & Young, said local businesses are finding it difficult to cope with all the tax compliance issues that concern them.

"There are many additional formalities and a lot of additional paperwork involved for VAT-registered businesses and part of the responsibility for ensuring adequate VAT compliance has been transferred from the tax authorities to the companies," Cambien said.

Speaking on the broad range of issues arising in the Romanian corporate tax regime as a consequence of EU accession, Alexander Milcev, Tax Partner, Ernst & Young, said these regulatory changes would continue over the coming years as newer legislation is enacted and implemented at the Community level.

"For instance, banks and branches of foreign banks operating in Romania will now have to make advance quarterly payments of their profits tax liabilities in 2007, as opposed to retrospective profits tax payment, which existed till now," Milcev said. "And starting from 2008, this norm will also apply to all other profits tax payers."

A large number of businesses across the EU have faced difficulties in aligning their operations to the new VAT principles and in the day-to-day practical application of these rules, according to Sarah Franklin, Indirect Tax Manager, Ernst & Young.

"Where the appropriate VAT registration has not been applied for with sufficient time, there is a risk that activities within the supply chain can be held up, leaving businesses unable to perform, for example, exempt intra-Community supplies prior to VAT registration," she said.

"Within the construction industry, there have been difficulties in ascertaining when the simplification should be used and companies performing construction works which fall within the simplification can find themselves in a net VAT repayment position creating possible cash flow difficulties in the case where a fiscal audit must be performed before the authorities provide the refund," she added.

In cases where the incorrect VAT treatment is applied, it can leave the company at risk of incurring penalties or being assessed for underpaid VAT.

At the same time, since businesses are still struggling with the new regulations, they fail to fully exploit the advantages and opportunities offered by the new Romanian VAT legislation. One such advantage for local businesses is the optimisation of their cash flow at the local and Community levels.

Ernst & Young Romania will be organising a series of EU VAT seminars and workshops for corporate CFOs and Tax Managers throughout the year, beginning with an EU VAT seminar on 13th March, more details of which will be available at the firm's website at http://www.ey.com/ro.