During its meeting of October 2, 2018 the Economic and Financial Affairs (ECOFIN) Council came to a political agreement on a proposal that will allow temporary derogations from normal VAT rules in order to better prevent VAT fraud. The proposed directive will allow member states that are most severely affected by VAT fraud to temporarily apply a generalised reversal of VAT liability.

 

This so-called generalised ‘reverse charge’ mechanism involves shifting liability for VAT payments from the supplier to the customer. The European Commission issued the proposal in December 2016 at the request of member states particularly affected by VAT fraud.

 

Member states will be able to use the generalised reverse charge mechanism (GRCM), only for domestic supplies of goods and services above a threshold of €17 500 per transaction, only up until 30 June 2022, and under very strict technical conditions. In particular, in a member state that wishes to apply such measure, 25% of the VAT gap has to be due to carousel fraud. Among other requirements, this member state will have to establish appropriate and effective electronic reporting obligations on all taxable persons, in particular those to which the mechanism would apply.

 

The generalised reverse charge mechanism may only be used by a member state once it meets the eligibility criteria and its request has been authorised by the Council. The application of this measure is also subject to strict EU safeguards.

 

The reverse charge mechanism can already be applied on a temporary basis, but not in a generalised manner. Under the current rules, it is limited to a pre-determined list of sectors. It may only be used by a member state that has made a specific request and if authorised to do so by the Council.

 

The directive will offer a short-term solution for containing fraud by the most affected member states, pending ongoing negotiations on a new and definitive VAT system where supplies would be taxed in the country of destination. The Commission has recently tabled the proposals aimed at replacing the current ‘transitional’ VAT arrangements by a definitive system.

 

According to a press release issued by the ECOFIN Council, the directive is expected to be adopted without further discussion once the European Parliament has delivered its opinion.

 

Click here to be forwarded to the text of the agreement as attached to the press release that was issued by the ECOFIN Council on October 2, 2018 in this respect.

 

 

Copyright – internationaltaxplaza.info

 

 

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