EU VAT fraud sweeping reverse charge proposal

Thu 29th Dec 2016

The European Commission has proposed allowing member states to introduce the domestic reverse charge on all B2B transactions above €10,000 across all sectors.

The move would effectively remove VAT payments in the supply chain in an effort to reduce VAT fraud, estimated to cost the EU over €40 billion per annum.  Such a measure would be temporary, applicable until 2022, by which time the EC’s plans to develop a definitive EU VAT regime would be ready.  The proposal will now be reviewed by the European Parliament, and, if passed, would go to the European Council for ratification.

The domestic reverse charge means the customer becomes responsible for reporting both the sale and purchase VAT, and no cash exchanges hands. Currently, member states may only apply the measure on specific industries where they suspect cross-border VAT fraud. Examples include: laptops; computer chips; precious metals; wholesale electricity; and carbon license trading.

The measure has been championed by the Czech Republic. It has been backed by: Austria; Bulgaria; Czech Republic; Hungary and Slovakia. The EC had originally rejected the measure in October 2015 as it would seriously undermine a key component of VAT that it is charged, and recoverable, throughout the production chain by businesses.



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