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EU implements VAT generalised reverse charge

  • Jan 9, 2019 | Richard Asquith

EU implements VAT generalised reverse charge

The EU VAT Directive has been updated from 1 January 2019 to introduce a voluntary generalised reverse charge measure on domestic transactions in member states.

The measure will help states combat VAT fraud by requiring B2B customers to account for sales VAT, as well as input VAT, on domestic supplies. This would remove the cash payment from the transaction. This does mean that it disrupts one of the key principles of the EU VAT regime: the fractional cash payment of VAT through the production chain.

The domestic reverse charge has been successfully applied in a narrow number of sectors prone to ‘missing trader’ and ‘carousel’ VAT fraud, including: computer chips; mobile phones; laptops; precious metals; carbon credits; wholesale energy; and crops.

Member states must first seek approval from the European Commission prior to introducing the measure. It will only apply to transactions above €17,500. The measure is only currently scheduled to be available until June 2022, after which the member states will evaluate the effects.

The Czech Republic, the main supporter of the measure, has already applied for the right to introduce the derogation.

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.
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