What We Know - And Don't Know -- About The VAT Reverse Charge On Electricity Supplies

In practical terms, if a particular transaction is subject to the VAT reverse charge rules, the supplier issues an invoice without VAT to the buyer, while the latter will include that transaction in his VAT return and account for both the output and input VAT related thereto. This way, VAT cash settlements with business partners and the state budget are no longer an issue.

It goes without saying that the application of the VAT reverse charge depends on the type of the underlying transactions and is subject to various conditions which vary based on the nature of these transactions. Where supplies of electricity are concerned, the first condition -- and the easiest one to fulfill -- is that both the supplier and the buyer must be taxable persons registered for VAT in Romania. However, things become more complicated when one needs to deal with the second set of conditions, which are specifically designed for supplies of electricity.

When Romania's Government Ordinance 16/2013 amending the Fiscal code was published in early August 2013, the VAT reverse charge for supplies of electricity, in force starting with 1 September 2013, should have been conditioned by several additional requirements that were relatively easy to meet. To be more exact, the buyer of electricity would have had to provide the supplier with: a copy of its license to supply electricity, issued by the Romanian Energy Regulatory Authority (ANRE) and attesting to the fact that the buyer is a trader of electricity, and an affidavit that the buyer's main business consists in the re-sale of the electricity it acquires while its own consumption is marginal. A point to note is that GO 16/2013 did not define the term "marginal".

The market seemed quite open to this relief, especially since the requirements related thereto did not seem cumbersome and the newly-introduced VAT reverse charge was likely to generate important cash flow advantages for certain players. We even witnessed affidavits flying left and right, so that when 1 September 2013 came, no trader would be taken by surprise.

Unexpectedly, yet not surprisingly, a new Government Ordinance (GO 28/2013) regarding certain fiscal and budgetary measures was published in Romania's Official Gazette on the last Friday of August, two days before the new relief entered into force. One of these "fiscal and budgetary" measures referred to the application of the VAT reverse charge for supplies of electricity in that it brought additional...