EC’s Quick Reaction Mechanism to tackle EU VAT fraud

Fri 20th Jul 2012

In a communication issued on 31 July from Brussels the Commission adopted a proposal for what has been termed QRM, being a Quick Reaction Mechanism, to enable Member States to tackle fraud faster. Under current European VAT legislation, speedy implementation of anti-fraud changes in VAT procedures is simply not possible.

While recognising the positive direction and purpose of the legislation, EU business, particularly those trading over multiple EU Member State jurisdictions, will have to up their game in terms of staying fully informed of sudden VAT treatment regulatory changes to ensure they remain fully compliant.

EU VAT Fraud tools

The QRM facility will allow EU Member States , within as short a period as a month, to introduce reverse charge mechanisms changing the taxable responsibility for declaration from the supplier to the recipient. Currently, in order to implement legislation, the Member State must formally request a derogation. The process is protracted in that the Commission in turn puts the proposal to the Council for adoption. Implementation by the Member State can only take place following Council agreement. Under this process, in normal circumstances, the business community has time to be fully informed so that they can make all the necessary communication and accounting system changes required.

Algirdas šemeta, European Commissioner for taxation and anti-fraud, further backed up his earlier statement issued at the end of June, by stating that it was necessary to outpace the fraudsters who had become quicker and cleverer in robbing the public purse. Through the QRM, the Member State would be immediately provided with a 12 month temporary derogation to implement whatever necessary legislation would be required. At the same time, it would be expected that the Member State would establish permanent measures, so that the temporary derogation would not have to be continued.

Clearly the QRM will be welcome news to Member States providing the licence to shore up all weak areas quickly and effectively. Honest business, however, will have to be prepared for sudden legislative change, and this may prove costly if implementation is delayed to the point of non-compliance. In addition there may be significant accounting system changes required. It will be vital that businesses keep themselves fully informed of any possible new VAT regulations that could be relevant to them.