EU legal blow to reverse charge fraud measures

Tue 30th May 2017

Lawyers to the European Council of Ministers have alegedly cast doubt on a proposal to introduce a voluntary reverse charge mechanism to combat VAT fraud.  The measures were to be introduced until 2022 to help reduce fraud estimated to cost member states up to €50billion per annum in lost VAT revenues

Generalised reverse charge proposal

The proposal was put forward by the Czech Republic, Austria, Slovakia and other central European states which have experienced high volumes of missing trader VAT fraud.  The same measure, domestic reverse charge, has been used successfully in fraud-sensitive industries only to reduce fraud by eliminating the cash payment of VAT.   This latest proposal, generalised reverse charge, had aimed at extending it to all B2B transactions above €10,000 on a country-by-country voluntary basis.  This would only be on a temporary basis until 2022 by which time a definitive VAT reform would be concluded to tackle the fraud issue.

Measure deemed excessive and distortive

The EU’s Council of Ministers’ legal service however last week indicated that the measure may cause disturbance to the EU single market and was disproportionate.  The measure also deviates from the EU’s general VAT principles on the levying of VAT through the transaction chain.  The legal service calls for more investigation into alternative measures.



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