EU VAT fraud reverse charge evaluation

Fri 9th Mar 2018

The European Commission has published this week an impact study of the effectiveness of the anti-VAT fraud domestic reverse charge mechanism.

The EU VAT Directive’s Article 199a permits the emergency imposition of the reverse charge (zero-rated VAT) on domestic VAT transactions of certain, high fraud risk goods and services. This was introduced to fight missing trader and carousel fraud, estimated to contribute to around €50billion in annual VAT fraud in the EU.

Most member states commented that they believed the mechanism was highly effective against fraud on sales of laptops, computer chips, mobile phones and similar small, high value goods. Although only for short periods. A number of states believed it just encouraged criminal gangs to move to other sectors, including rare metals and wholesale electricity trading markets.

Article 199a is due to expire at the end of this year, and the positive outcome of the study should encourage the Commission to extend it further. In the longer term, the proposed introduction of the definitive VAT regime, with destination-based VAT, should overcome many of the VAT fraud challenges.

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