EU rejects widening of anti-fraud reverse charge

Fri 30th Oct 2015

The European Commission has rejected a request from five central European member states to grant widespread powers to introduce the domestic reverse charge to counter VAT fraud.

The request had been put forward earlier this year by: Czech Republic; Austria; Hungary; Bulgaria; and Slovakia.

The domestic reverse charge effectively withdraws the cash payment of VAT on the sale of goods or services within an EU member state. Sales across EU member state borders are already zero rated under the reverse charge rules if the transaction is B2B – this is termed an intra-community supply.

Criminal gangs have exploited this rule by claiming to sell goods across borders, without VAT, when they actually sell them domestically and pocket the VAT charged.

This problem, often termed missing trader fraud, is estimated to cost the EU over €100 billion in lost tax revenues per year.

Currently, member states may apply to the EC to introduce the domestic reverse charge on a case-by-case situation where they can identify suspicious activities around the sales of certain goods or services.  The measures can be granted within 1 month.

The Commission’s decision not to allow the five countries the power to implement the domestic reverse charge in all situations without prior approval is based on insufficient evidence of the spread of VAT fraud beyond a narrow range of goods, including: computers, mobile phones, power supplies and precious metals.