Czech greenlight on generalised reverse charge

The Czech Republic has been granted approval from the Council of the EU to introduce the generalised reverse charge mechanism (‘GRCM’) from January 2020.

The anti-VAT fraud measure will effectively eliminate the cash payment on B2B domestic transactions for goods and services about €17,500. Instead, customers will report the VAT twice, as a purchase and sale, via their own VAT returns. This eliminates the need to make any VAT cash payment  by the customer and reduce the opportunity for VAT fraud.

The Czech derogation via Article 193 of the VAT Directive will last two years – from 1 January 2020 until 30 June 2022. To further extend the measure, the Czech Republic will have to review the impact of the measure and demonstrate progress on reducing its VAT fraud.

The Czech VAT gap, the short fall of VAT revenues from forecast, was 16.14%. This exceeds the minimum hurdle, 10.4%, required to introduce the GRCM. The level of carousel fraud within this VAT gap is put at more than 25%.