Tax authorities in Romania issue caution to businesses regarding the deductibility of personal expenditures
The Romanian National Agency for Fiscal Administration (ANAF) has launched a national campaign to address irregularities discovered in value-added tax (VAT) declarations. The campaign aims to ensure compliance with fiscal regulations and correct reported inconsistencies, following the identification of irregularities through digitalisation initiatives aimed at improving ANAF's monitoring capabilities.
The practice of recording personal purchases as business expenses has been identified as a key concern. This distorts the tax base, leading to a decrease in declared and paid taxes/fees. Companies and individuals who engage in this practice face serious consequences, including tax reassessments, payment of additional VAT, and significant fines.
Recent tax decisions issued by ANAF have demonstrated the authorities' close scrutiny of expenses claimed for VAT deduction. For example, in one case, companies illegally deducting VAT on luxury cars were imposed additional payments exceeding 12.5 million lei and fines totaling nearly 720,000 lei[1].
VAT penalties in Romania include daily interest and fines. Missed VAT returns have fines ranging from 1,000 to 5,000 RON, while unpaid VAT accrues a daily interest of 0.02% plus a daily fine of 0.01% on the unpaid amount[5].
Given the high priority on combating VAT fraud in Romania and the European Public Prosecutor’s Office, companies caught inflating VAT deductions with personal expenses risk not only back taxes and penalties but also further investigations into potential VAT fraud[3].
The main consequences of recording personal expenses as business expenses include:
- Disallowance/reversal of the input VAT claimed on personal expenses improperly recorded as business expenses
- Payment of the additional VAT owed corresponding to the disallowed deductions
- Fines and penalties imposed by ANAF, which can be substantial (e.g., hundreds of thousands of lei in some cases)
- Accrued interest and fines for late VAT payment or filing
- Potential exposure to investigations or prosecutions if fraud is suspected
To avoid these severe financial and legal consequences, Romanian businesses and individuals should ensure a strict separation of personal and business expenses in VAT declarations. Personal purchases, such as goods and services acquired by companies but intended for the personal benefit of shareholders or associates, should not be included in business expenses.
The digitalisation initiatives at ANAF have significantly improved its monitoring capabilities, enabling the agency to cross-reference taxpayer data and detect inconsistencies more effectively. As such, businesses and individuals should be cautious in their VAT declarations to avoid unwanted attention from the authorities.
[1] Romanian tax authority imposes heavy fines for VAT fraud: https://www.romania-insider.com/vat-fraud-fines-720000-lei-anaf-2021-1 [3] European Public Prosecutor’s Office prioritises VAT fraud: https://www.european-prosecutor.europa.eu/priority-crime-areas/vat-fraud [5] VAT penalties in Romania: https://www.deloitte.com/content/dam/Deloitte/ro/Documents/tax/romania-vat-penalties-2019.pdf
Companies and individuals should take care to avoid recording personal purchases as business expenses, as this could lead to serious financial consequences, including tax reassessments, additional VAT payments, substantial fines, accrued interest, and potential investigations or prosecutions for fraud. The improved monitoring capabilities of the Romanian National Agency for Fiscal Administration (ANAF) due to digitalisation initiatives make it crucial for businesses and individuals to ensure a strict separation of personal and business expenses in VAT declarations to avoid unwanted attention from the authorities.
