On 10th of January 2020 tax authorities issued a new instruction on the correct application of the new art. 96, para. 10 of the VAT Act regarding the compulsory registration of persons who carry out homogeneous activities in one commercial property.
The NRA interpreted the conditions provided for in the VAT Act in order for an obligation to register under Art. 96, para 10 of the VATA and what should be taken into account when carrying out an inspection. The conditions are:
- The activity should be consistent: the concept of “consistent” should be interpreted in the sense of “which follows, is done, is carried out in a certain order, immediately following each other”. I.e. in order to have an obligation to register, the activity should be carried out in turns over certain period of time by two or more obligated persons, and not to be carried out in parallel; for example: several persons perform homogeneous activities in one and the same site and not all of the are registered for VAT purposes (accountants, lawyers, dentists) – it is nor required the non-registered professionals to register because of the new regulation.
- The business is homogeneous: homogeneous i.e. when there is a significant identity with respect to two or more of the following characteristics: the goods or services offered, the assets used, the staff, the trade mark / name of the establishment, suppliers / customers;
- The activity should be carried out by two or more related persons or persons acting in concert: In §1 item 93 of the VAT Act, the definition of the new concept “persons acting in concert” is introduced;
- The activity should be carried out in the same commercial premises: In §1, item 41 of the VAT Act, a definition of the term “commercial premises” is introduced.
The Instruction is explicit that “if a parallel activity by persons acting in concert is purely artificial and contrary to the normal economic logic, there is reason to treat it as law and tax evasion by the persons legally subjected to VAT registration and the respective rules circumvented should be applied. ”
Furtherly, each individual case should be assessed independently in relation to all relevant facts and circumstances, in order to avoid and / or minimize the tax risk of omission of compulsory registration under Art. 96, para 10 of the VATA and its subsequent sanctions.