EU implements VAT generalised reverse charge
- 9 January 2019 | Richard Asquith
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.