Czech VAT fraud reverse charge

The Czech Ministry of Finance has updated its guidance on the application of the Czech VAT reverse charge announced last year.   The Czech VAT quick response mechanism is based on the EU measure to allow countries which suspect VAT fraud is taking place in certain sectors to temporarily withdraw any VAT liability.

The idea behind the reverse charge is that there is no VAT paid as normal on a domestic supply of goods. Instead, the recipient VAT registered business records both the input and output VAT as a single transaction. This eliminates the opportunity to commit missing trader VAT fraud.

The items now subject to the reverse charge applicable from 1 January 2015 will have a transaction threshold of CZK 100,000.  There will be a second round of goods subject to the reverse charge from 1 April 2015. These will include: games consoles; mobile phones; and computer chips.

Many EU member states have introduced the domestic reverse charge since the EU's quick reaction mechanism (Council Directive 2013/43/EU) was launched in 2013.  It is estimated by the European Commission that over €100 billion is lost by criminal gangs manipulating the EU VAT system.  This includes claiming that they have sold goods abroad, which incurs no VAT, whereas in reality they are selling them in-country with VAT.  They then retain the VAT charged.