Under national regulations and practices, Romania requires taxpayers to adjust the VAT on the cancellation date of the VAT code for capital goods. The practice, however, does not allow the possibility to prove that the goods have been used for economic activities.
The Court of Justice of the European Union has ruled that this legal text is incompatible with Community provisions, which is why the Romanian legislator was required to remove from the legislation the obligation to adjust the VAT deducted on capital goods on the cancellation date of the VAT code.
The case before the Court of Justice of the European Union involved a Romanian company registered for VAT, which purchased, manufactured, completed, constructed, and converted immovable properties and exercised its right to deduct the VAT paid upstream in respect of these transactions. The competent tax authorities had automatically cancelled the company’s VAT code on the grounds that the VAT returns submitted for two consecutive calendar quarters did not include any transactions subject to VAT.
Subsequently, the tax authorities ordered the company to adjust the tax originally deducted on the ground that the company had not made a negative adjustment to the tax deducted for the immovable property in stock at the date on which the tax authorities ordered the ex officio cancellation of the VAT code, relying on the rules implementing the Tax Code.
The Court of Justice of the European Union has established that the mere cancellation of the code cannot be synonymous with considering that the capital goods are not allocated to an economic activity and ordered the elimination of the text of law that regulated the automatic adjustment of deducted VAT on the capital goods of a legal person on the cancellation date of the VAT code, thus offering the possibility of proving that the relevant goods have been used for other purposes than the economic activities.
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