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EU General reverse charge challenged

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EU General reverse charge challenged

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Proposal on introducing a change on the general reverse charge mechanism

Last 26 December 2016, the EU Commission put forward a proposal to introduce a general reverse charge mechanism on domestic sales within each EU country. The measure was initiated by certain EU countries such as Czech Republic on the grounds of reducing VAT fraud. Missing trader fraud or carrousel fraud costs over 100 billion Euros to member States every year. Proposals to reduce this fraud include the VAT Action plan or the General reverse charge mechanism.

A general reverse charge would require a significant deviation from the current fractioned payment of VAT, where all businesses in the production and supply chain of goods are partly responsible for the collection of VAT. The proposal foresees that invoices with an amount above €10,000 do not include VAT. Instead, this VAT portion would be self-assessed by the client. This mechanism is already existing in a number of supplies depending on the flow of goods, type of products  and supplier or customer conditions. 

European Council ECOFIN´s approach on this matter

The legal team of the European Council´s ECOFIN have raised concerns on this proposal. The ECOFIN explained that member States may not be allowed by the treaties to introduce a deviation of this kind for the current EU VAT Directive. In addition, when such measure is introduced only by certain countries, VAT fraud would be deviated to neighbour countries who would in turn be obliged to follow the same initiative.