EU – general reverse charge update

European Union (EU) member states have continued to discussion the planned introduction of an anti-fraud general reverse charge mechanism. In order to reduce VAT fraud, the EU is trying to enable countries to remove the cash-element of B2B domestic transactions.

This plan has been challenged by France on the basis that it contravenes EU treaties. But the Czech Republic, which sponsored the measure, is likely to push for a speedy acceptance.

The EU member states will decide whether to introduce the mechanism, and derogate from the EU VAT Directive. There will be no authorisation required from the European Commission (EC) – unlike the current sector-by-sector VAT reverse charge mechanism. Under a majority vote by the EU Council, any country may be blocked if the EC believes the mechanism is severely destructive to the operation of the single market.

Furthermore, any countries instigating the general reverse charge will be required to provide neighbouring member states with supplementary data to help them regulate if fraud has spread to their countries.