Special VAT regime

1. Introductory issues

Value-added tax ("VAT") is the most common tax liability in the activity of any legal entity. This is essentially a consumption tax, which applies to almost all goods and services sold/purchased and should, in principle, be borne by the final consumer.

The standard VAT rate is 19%, with exceptions where a reduced VAT rate applies of 9% (eg for food and drink) and 5% (eg for housing), respectively.

However, a less debated issue is that of the "tax base" to which the VAT as mentioned earlier rates apply.

That is why, in this article, we aim to analyze the tax base to which VAT applies when buying and selling second-hand goods, respectively.

2. The notion of second-hand good and the reselling taxable person

According to the provisions of art. 312 para. (1) lit. d) of the Fiscal Code, second-hand goods are tangible movable property that can be reused in the state in which they are or after repairs.

Therefore, for an asset to be considered second-hand within the meaning of the Tax Code, it must meet 2 (two) requirements:

(a) be a movable tangible asset (and not intangible, such as shares, receivables, etc.);

(b) can be reused as is or after repairs;

On the other hand, according to the provisions of art. 312 para. (1) lit. e) of the Fiscal Code, the reselling taxable person is the taxable person who, in the course of its economic activity, purchases or imports second-hand goods and / or works of art, collectors' items, or antiques for the purpose of resale, regardless of whether the taxable person acts on behalf of own or on behalf of another person under a purchase or sale commission agreement.

3. What is the special VAT regime applicable to the sale-purchase of second-hand goods?

Unlike any other purchases, in the case of second-hand goods, the VAT rate will not apply to the full value of the taxable base, but only to the profit margin obtained by the reselling taxable person.

The profit margin is defined by the provisions of art. 312 para. (1) lit. g) of the Fiscal code as the difference between the sale price applied by the reselling taxable person and the purchase price.

For example, if a second-hand car is purchased by a reselling, taxable person, for a price of EUR 10,000 and thereafter, the same car is sold to another person for a price of EUR 11,000, VAT rate (of 19 %) shall apply to the difference of EUR 1,000 between the purchase and sale price.

Therefore, even if, normally, the car had been sold for a price of 11,000 Eur + VAT (19%) applicable to the entire amount (total 13,090 Eur), by derogation, being a second-hand good, it will be sold for the amount of 11,000 Eur + VAT (19%) applicable to the profit margin of 1,000 Eur (total 11,190 Eur).

4. Reasoning for applying the special VAT regime in the case of the sale of second-hand goods

The special scheme was created to respect the principle of VAT neutrality. In most cases, reselling taxpayers buy second-hand goods from individuals. If these individuals do not deduct VAT for the purchase of goods, when they alienate them, the sale price will also include VAT paid for the initial purchase of goods. If the normal taxation regime were applied, a situation would be reached in which VAT would be added to the sale price (practiced in Romania), although the price of the second-hand good already contained the VAT initially incurred for the purchased good (by the person from the other EU Member State).

Therefore, the special scheme was created precisely in order to avoid: (a) the taxation of an amount already including VAT and thus to avoid double taxation, or (b) the artificial increase of the price, as a consequence of the distortion of competition.

The Court of Justice of the European Union also ruled in that regard by judgment in Case C 264/17 Harry Mensing v. Finanzamt Hamm, ruling as follows:

„32. (...) It is settled case-law that the principle of fiscal neutrality is inherent in the common system of VAT established by the Directive and that this principle precludes the different treatment of VAT collected by economic operators carrying out the same operations (see in Judgment of 13 March 2014, ATP PensionService, C 464/12, EU: C: 2014: 139, paragraphs 42 and 44, and the case-law cited)

35. (...) As regards, more specifically, the objectives pursued by the profit margin scheme, it should be noted that, according to recital 51 in the preamble to the VAT Directive, that system is intended, in the field of second-hand goods. works of art, antiques, and collectibles, to avoid double taxation and distortions of competition between taxable persons.

36. In that regard, it must be stated that, in that area, it may be difficult to determine whether a particular good was previously subject to VAT in so far as the good may be old or have been previously subject to VAT. several exchanges between different non-taxable persons ”.

5. Conditions necessary for the application of the special VAT regime

In order to benefit from the special VAT regime, a series of substantive conditions must be met, regulated both by the provisions of art. 312 of the Fiscal Code, as well as those of art. 314 of Council Directive 2006/112 / EC of 28 November 2006 on the common system of value-added tax ('the VAT Directive').

5.1. The reselling taxable person to purchase a second-hand good from an EU Member State.

5.2. The supplier from whom the good is purchased by the reselling taxable person is:

(a) a non-taxable person;

(b) a taxable person, in so far as the supply made by that taxable person is exempt from tax;

(c) a small enterprise, in so far as the acquisition relates to capital goods;

(d) another resale taxable person (applying the special VAT regime);

5.3. The reselling taxable person should not proceed to the VAT deduction;

For example, we are in the presence of a transaction subject to the special VAT regime where a reselling taxable person buys a used car from an individual in an EU Member State and later sells it in Romania.

6. The advantages of applying the special VAT regime

It is very important to point out that the reselling taxable person has no obligation to apply the special VAT regime - but only an option in this regard. Thus, the person who sells second-hand goods will be able to choose any of the following options:

a) opt for the special VAT regime and apply the tax only to the profit margin - thus losing the right to deduct VAT;

(b) opt for the normal VAT regime and apply the tax to the full value of the good - retaining the right to deduct VAT;

From our point of view, the first option has 2 (two) indisputable advantages, since:

(a) the price at which the second-hand property will be alienated by the reselling taxable person will be much more attractive / lower;

(b) in most cases, the reselling taxable person purchases goods from natural persons (who do not apply VAT), so that the right to deduct has a limited scope, it not being therefore effective;

7. Conclusions

As shown, the special VAT regime represents a fiscal and economic advantage offered by the legislator to a reselling taxable person, whose object of activity involves the sale of second-hand goods.

However, the effects of the special VAT regime will also benefit the final consumers, who will pay a lower price for the purchased goods, as a result of applying the VAT rate strictly to the profit margin.

Therefore, regardless of our position, it is certain that the regulation of the special VAT regime is an appropriate measure, with indisputable advantages.

MAXIM / Associates

Av.  Alexandru Filip