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EU fails to agree on VAT General Reverse Charge

  • Jun 18, 2017 | Richard Asquith

EU fails to agree on VAT General Reverse Charge

The most recent meeting of EU Finance Ministers (ECOFIN) on 16 June failed to agree on the implementation of the voluntary General Reverse Charge (GRC) to fight VAT fraud.

The GRC, promoted by the Czech Republic and other central European member states, was the latest strategy to attempt to combat the estimate €50billion ‘missing trader’ VAT fraud problem.  The proposal was for any member state to opt to apply the reverse charge on all B2B transactions.  This makes the buyer responsible for reporting both the sales and the purchase VAT with no cash payment.  This eliminates the opportunity for fraudsters to steal cash from the pan-European VAT regime.

The EU already allows a limited reverse charge mechanism on specific industries, including micro-chips, laptops, mobile phones, carbon trading, wholesale electricity and certain tradable commodities.

Potential to undermine EU VAT regime

France, Slovenia and EU legal counsel raised concerns at the ECOFIN meeting on the temporary measure, due to be put into place until 2021. At that time a new, definitive EU VAT regime would be launched. Legal counsel said that the regime may be disproportionate, and undermine the workings of the single market.

A compromise will now be sought offline between the member states.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which won International Tax Review's 2020 Tax Technology Firm of the Year. Richard trained as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.