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European Union-Lithuania-Romania

16 July 2021

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European Commission Infringement Package for July 2021 Includes VAT Issues for Lithuania and Romania

The European Commission has published the key decisions of its July 2021 infringements package. With respect to taxation, this includes letters of formal notice sent to Lithuania and Romania regarding VAT issues.

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Taxation: Commission takes action against LITHUANIA for failure to comply with EU rules on Value-Added Tax (VAT)

The European Commission has decided to send a letter of formal notice to Lithuania for its failure to properly apply VAT rules intended to simplify life for small businesses. Under the current VAT scheme for small and medium enterprises (SMEs), small companies in Lithuania with a turnover of less than €45,000 a year do not have to register for VAT. However, under anti-avoidance measures, Lithuania excludes businesses with lower turnovers when their ultimate owner's annual income exceeds the €45,000 threshold as a whole, even when that person's other businesses are legally independent and do not use purely artificial structures. Anti-avoidance and evasion provisions are allowed to ensure the correct collection of VAT. However, the Commission considers that excluding from the special VAT scheme businesses who, while financially linked, have completely independent economic activities, is disproportionate and contrary to the principle of fiscal neutrality. Consequently, the Commission considers that Lithuania has breached the VAT Directive. Lithuania has two months to address the shortcomings identified in this letter of formal notice. If Lithuania does not take appropriate steps within the next two months, the Commission may decide to send a reasoned opinion.

Taxation: Commission calls on ROMANIA to allow certain eligible businesses access to the Union One-Stop Shop in the area of VAT

The Commission decided today to send a letter of formal notice to Romania for failing to allow access to the Union One-Stop Shop (OSS) to certain categories of businesses who are otherwise eligible under the VAT Directive. The Union OSS is the electronic portal that online sellers will use to simplify and comply with their VAT obligations on their sales to consumers within the EU from 1 July 2021, by allowing them to register for VAT in a single Member State and to declare and pay the VAT due in other Member States. Firstly, the national legislation for the Union OSS excludes Romanian small and medium enterprises (SMEs) selling telecommunications, broadcasting or electronic services to consumers in other Member States (i.e. those businesses with a turnover of under €88,500 who take part in the special VAT scheme for SMEs). Secondly, registration in the Union OSS is open only to companies already registered for VAT in Romania for the purposes of domestic deductible transactions and certain intra-Community transactions, and not those registered for other purposes. Romania has two months to address the shortcomings identified in this letter of formal notice. If Romania does not take appropriate steps within the next two months, the Commission may decide to send a reasoned opinion.

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