October ECOFIN meeting: quick VAT fixes
In addition to the generalised reverse charge mechanism, other important VAT changes were agreed on at the October meeting of the Economic and Financial Affairs Council (ECOFIN). These involve quick fixes and the application of a reduced rate to e-books. For the Czech Republic, the most important issue was the extension of the temporary local reverse charge system’s effectiveness.
The generalised reverse charge mechanism agreed on at the October ECOFIN meeting (see the previous issue of Tax and Legal Update) was the most important point on the meeting’s agenda for the Czech Republic. Below, we present other legislative proposals whose implementation will also significantly affect Czech regulations.
Quick fixes
Quick fixes ought to remove the biggest VAT deficiencies in the period before implementing the definitive VAT system in June 2022. The approved amendment to the VAT Directive and the related council regulation, effective from 1 January 2020, regulate the selected areas as follows:
- Member states will have to introduce the simplification and harmonisation of rules regarding call-off stock arrangements.
- The uniform criteria for linking transport to a specific supply in a chain transaction to acquire the status of an intra-community supply exempt from VAT have been set. The criteria vary according to the entity carrying out the transport.
- Most importantly, an amendment to the regulation provides detailed information about how to prove the intra-community transport of goods, specifying essentials that must be included in the buyer’s declaration as well as other documents substantiating the provision of transport (usually two different documents that do not contradict one another and have ideally been issued by two independent participants to the transaction).
- A novelty for some member states is the restriction of applying the exemption with respect to intra-community supplies only to customers registered for VAT in another member state (checked via VIES). It will be vital to correctly declare exempt intra-community supplies in EC Sales Lists.
Extended reverse charge system effectiveness
The effectiveness of the directive’s provisions, based on which it is possible to apply the local reverse charge mechanism to selected supplies (such as the supply of cereals, metals and mobile phones costing more than CZK 100 000) has been extended to June 2022, which was very important for the Czech Republic.
Reduced VAT rate on e-books
The Economic and Financial Affairs Council also agreed on the application of a reduced VAT rate on e-books (acquired via the internet) with the aim to modernise the VAT system and adapt it to the needs of the digital economy.