Proposals of the EU Commission on reverse charge

The application of the VAT reverse charge mechanism has gained increasingly more appeal and raised an increasingly higher interest by the EU Commission and Member States in a perspective of fraud and tax avoidance prevention.

To this end, VAT Directive 2006/112/EC provides different possible applications of reverse charge, depending on whether it is provided as a final measure or for a limited period of time, or whether it is allowed basing on the Quick Reaction Mechanism against fraud. Member States have also the possibility to obtain a departure for the application of reverse charge in cases other than those specifically classified, pursuant to art. 395 of the VAT Directive.

The EU Commission proposal

The recent proposal of the EU Commission COM (2018) 298 dated 25 May 2018 aims at further extending the term for the application of the reverse charge and at better outlining the application of the Quick Reaction Mechanism against fraud, in sight of the implementation of the final exchange regime among Member States.

With the recent proposal of Directive COM (2018) 298 dated 25 May, the Commission aims at extending the reverse charge application period up to 30 June 2022, in relation to the terms for the application of a final VAT regime as concerns intra-EU exchanges. The Commission also aims at extending the term for the application of the QRM - Quick Reaction Mechanism to the same date and at regulating it more consistently and systematically.

The QRM was introduced through Directive 2013/42/EU of 22 July 2013, with deadline on 31 December 2018, in order to allow a quicker application of the derogating measure compared to the procedure based on art. 395 of Directive 2006/112/CE.

Particularly, the abovementioned article provides that the concerned Member State has to file a proper application, which must be approved by the Commission and unanimously adopted by the Council (as a decision), though with the risk of bearing high losses in revenues for the Member State affected by severe exposure to frauds.

Moreover, proposal COM (2016) 811 is aimed at introducing a “generalised reverse charge mechanism in relation to supplies of goods and services above a certain threshold”.

For further information, contact Mario Spera.