European Commission Presents New VAT Proposals
The European Commission has put forward a proposal to allow member states to expand their use of the value-added tax “reverse charge mechanism” for fraud-prone goods.
The proposal was first unveiled last month, and was presented to a meeting of the EU’s Economic and Financial Affairs Council on January 27.
The Council, which comprises EU finance and economy ministers, said that the Commission’s proposal “would allow a generalized but temporary reversal of VAT liability to be applied in order to prevent VAT fraud.”
“The so-called reverse charge mechanism involves shifting liability for VAT payments from the supplier to the customer,” the Council explained. This prevents unscrupulous suppliers from charging and collecting VAT but failing to remit it to the relevant tax authority, by requiring that the customer contemporaneously account for both input VAT and output VAT.
Under the previously implemented Quick Reaction Mechanism, member states may introduce a temporary reverse charge to counter rapidly evolving frauds, providing there is evidence that significant fraud exists. The reverse charge may only be introduced on a temporary basis, and only within a set list of sectors seen as posing a higher risk of fraud. The Commission’s proposal would allow member states to apply the mechanism in “a generalized but temporary manner for domestic supplies above a specified threshold.”
Speaking after the meeting, Commission Vice President for the Euro and Social Dialogue Valdis Dombrovskis said: “We see that there are different positions and opinions in the ECOFIN Council and we are ready for intense discussions on this file.”
The proposal must be approved by the European Parliament and the European Council.