Generally applicable reverse charge mechanism

The proposal to implement a generalised reverse charge mechanism (i.e. a regime in which VAT is declared by the supply recipient) was adopted in December 2016 based on an initiative of the states that are most severely affected by VAT fraud. Despite a significant deviation from the basic VAT principles, according to which VAT is generally declared and paid by the person effecting a taxable supply, this temporary solution should help member states affected by VAT fraud effectively collect tax.

The conditions for the implementation of a generalised reverse charge regime will be specified in Article 199c of Council Directive 2006/112/EC, on the common system of value added tax. Member states will have to prove that carousel fraud represents more than 25% of the VAT gap, give reasons why the measures so far adopted have been insufficient or ineffective, and document that the expected effect will be positive for all parties concerned despite the increased additional administrative burden. Moreover, they will also have to submit the design of a suitable control mechanism to ensure that the desired regime operates effectively and cannot be easily evaded.

After fulfilling all prescribed conditions, member states will be allowed to apply to ECOFIN for the approval to implement the reverse charge mechanism. Once approved, the member state will be authorised to implement the reverse charge mechanism in respect of all sorts of domestic supplies of goods and services, above a threshold of EUR 17 500 per transaction.

The Council agreed that after being approved the regime will be applicable until 30 June 2022 at the latest. After that date the entire EU should head for a definitive VAT system.