PURPOSE: to allow temporary derogations from the common VAT rules in order to better prevent VAT fraud.

LEGISLATIVE ACT: Council Directive (EU) 2018/2057 amending Directive 2006/112/EC on the common system of value added tax as regards the temporary application of a generalised reverse charge mechanism in relation to supplies of goods and services above a certain threshold.

CONTENT: in light of the current level of VAT fraud and pending the introduction of a definitive VAT system, certain Member States have asked to be allowed to implement a temporary generalised reverse charge mechanism (‘GRCM’) with a certain threshold per transaction which would derogate from one of the general principles of the current VAT system, as regards the fractionated payment system, in order to address endemic carousel fraud.

This Directive will allow a Member State, until 30 June 2022, to introduce a generalised reverse charge mechanism (‘GRCM’) on non-cross-border supplies, providing that the person liable for payment of VAT is the taxable person to whom all supplies of goods and services are made above a threshold of EUR 17 500 per transaction.

A Member State wishing to introduce the GRCM shall comply with all of the following conditions:

- it has, based on the impact assessment that accompanied the legislative proposal, a carousel fraud level within its total VAT gap of more than 25 %;

- it establishes that other control measures are not sufficient to combat carousel fraud on its territory, in particular by specifying the control measures applied and the particular reasons for their lack of effectiveness, as well as the reasons why administrative cooperation in the field of VAT has proven insufficient;

- it establishes that the estimated gains in tax compliance and collection expected as a result of the introduction of the GRCM outweigh the expected overall additional burden on businesses and tax authorities by at least 25 %; and

- it establishes that the introduction of the GRCM will not result in businesses and tax authorities incurring costs that are higher than those incurred as a result of the application of other control measures.

Member States that apply the GRCM shall establish appropriate and effective electronic reporting obligations for all taxable persons and, in particular, for taxable persons who supply or receive goods or services to which the GRCM applies to ensure the effective functioning and monitoring of the application of the GRCM.

Member States wishing to apply the GRCM shall submit a request to the Commission. Where the Commission considers that a request complies with the admission requirements, it shall, no later than three months after it has received all the necessary information, submit a proposal to the Council. The Council, acting unanimously on such a proposal from the Commission, may authorise the requesting Member State to apply the GRCM. It shall, within the same deadline, communicate its reasons to the requesting Member State and to the Council.

Member States that apply the GRCM shall submit an interim report to the Commission no later than one year after the start of application of the GRCM. Three months after the end of the application of the GRCM, Member States that apply the GRCM shall submit a final report on its overall impact.

ENTRY INTO FORCE: 16.1.2019. The Directive is applicable until 30.6.2022.

The European Parliament adopted by 337 votes to 100, with 222 abstentions, under the consultation procedure, a legislative resolution on the proposal for a Council directive amending Directive 2006/112/EC on the common system of value added tax as regards the temporary application of a generalised reverse charge mechanism in relation to supplies of goods and services above a certain threshold.

The European Parliament approved the Commission's proposal subject to the following amendments:

Application of the generalised reverse charge mechanism (GRCM) : Member States shall be allowed to derogate from the common value added tax system in order to apply a generalised reverse charge mechanism (GRCM) to supplies exceeding an invoicing threshold of EUR 25 000 (instead of a threshold of EUR 10 000 in the Commission's proposal).

To benefit from this derogation, a Member State should:

in 2014, in accordance with the method and figures set out in the 2016 final report on the VAT gap published by the Commission, a VAT gap, expressed as a percentage of the VAT Total Tax Liability, of at least 15 percentage points above the Community median VAT gap; register a carousel fraud level within its total VAT gap of more than 25 % ; establish that other control measures are not sufficient to combat carousel fraud on its territory, in particular by specifying the control measures applied and the particular reasons for their lack of effectiveness, as well as the reasons why VAT administrative cooperation has proven insufficient; establish that the estimated gains in tax compliance and collection expected as a result of the introduction of the GRCM outweigh the expected overall additional burdens on businesses and tax administrations by at least 25 %; establish that businesses and tax administrations will not incur, as a result of the introduction of the GRCM, costs that are higher than those incurred as a result of the application of other control measures.

Members opposed allowing a Member State that shares a border with a Member State that applies the GRCM to also be authorised to apply the GRCM, under certain conditions.

Presentation of information : in order to be able to assess whether the introduction of the GRCM in one Member State results in fraud shifting towards other Member States and to be able to assess the degree of possible disturbances to the functioning of the internal market, it is appropriate to provide for a specific obligation to exchange information between Member States that apply the GRCM and other Member States.

Member States applying the GRCM shall submit in electronic format to all Member States, at the latest three months after the introduction of GRCM, the names of those persons who, in the twelve months preceding the date of application of the GRCM, have been subject to proceedings, whether criminal or administrative, for VAT fraud or the names of those persons, including in the case of legal persons the names of their directors, whose VAT registration in their Member State was terminated upon the introduction of the GRCM.

All such exchanges of information should be subject to applicable personal data protection and confidentiality provisions .

Member States applying the GRCM shall submit an interim report to the Commission no later than one year after the start of application of the GRCM. This report shall provide a detailed assessment of the effectiveness of the GRCM.

The Directive shall apply until 30 June 2022 .

The Committee on Economic and Monetary Affairs adopted, under the consultation procedure, the report by Gabriel MATO (EPP, ES) on the proposal for a Council directive amending Directive 2006/112/EC on the common system of value added tax as regards the temporary application of a generalised reverse charge mechanism in relation to supplies of goods and services above a certain threshold.

The committee responsible recommended that the European Parliament approve the Commission's proposal subject to the following amendments:

Application of the generalised reverse charge mechanism (GRCM) : Member States shall be allowed to derogate from the common value added tax system in order to apply a generalised reverse charge mechanism (GRCM) to supplies exceeding an invoicing threshold of EUR 25 000 (instead of a threshold of EUR 10 000 in the Commission's proposal).

To benefit from this derogation, a Member State should:

in 2014, in accordance with the method and figures set out in the 2016 final report dated 23 August 2016 on the VAT gap published by the Commission, a VAT gap, expressed as a percentage of the VAT Total Tax Liability, of at least 15 percentage points above the Community median VAT gap; register a carousel fraud level within its total VAT gap of more than 25 %; establish that other control measures are not sufficient to combat carousel fraud on its territory, in particular by specifying the control measures applied and the particular reasons for their lack of effectiveness, as well as the reasons why VAT administrative cooperation has proven insufficient; establish that the estimated gains in tax compliance and collection expected as a result of the introduction of the GRCM outweigh the expected overall additional burdens on businesses and tax administrations by at least 25 %; establish that businesses and tax administrations will not incur, as a result of the introduction of the GRCM, costs that are higher than those incurred as a result of the application of other control measures.

Members opposed allowing a Member State that shares a border with a Member State that applies the GRCM to also be authorised to apply the GRCM, under certain conditions.

Presentation of information : in order to be able to assess whether the introduction of the GRCM in one Member State results in fraud shifting towards other Member States and to be able to assess the degree of possible disturbances to the functioning of the internal market, it is appropriate to provide for a specific obligation to exchange information between Member States that apply the GRCM and other Member States. All such exchanges of information should be subject to applicable personal data protection and confidentiality provisions.

Member States applying the GRCM shall submit an interim report to the Commission no later than one year after the start of application of the GRCM. This report shall provide a detailed assessment of the effectiveness of the GRCM.

The Directive shall apply until 30 June 2022 .

PURPOSE: to amend Directive 2006/112/EC on the common system of value added tax as regards the temporary application of a generalised reverse charge mechanism in relation to supplies of goods and services above a certain threshold.

PROPOSED ACT: Council Decision.

ROLE OF THE EUROPEAN PARLIAMENT: the Council adopts the act after consulting the European Parliament but without being obliged to follow its opinion.

BACKGROUND: the creation of a robust single European VAT area is one of the key actions announced by the Commission in its VAT action plan . It will require the setting up of the definitive VAT system for intra-EU business-to-business (B2B) cross-border trade in order to replace the current system which was intended to be transitional.

The European Parliament and the Council agreed that this definitive VAT system will be based on the principle of taxation in the country of destination of the goods (the so-called “destination principle”) whereas the current system is based on exemption of supplies of goods in the Member State of departure.

Given the current level of VAT fraud and the fact that not all Member States are equally affected by this fraud, and given the fact that it will take several years for the definitive VAT regime to be implemented, some urgent and specific measures may be necessary .

In this context, certain Member States have asked to be allowed to implement a temporary generalised reverse charge mechanism (GRCM) with a certain threshold per invoice which would derogate from one of the general principles of the current VAT system, as regards the fractionated payment system, in order to address endemic carousel fraud .

IMPACT ASSESSMENT: the impact assessment identified, as preferred option, a derogation to apply the GRCM by certain Member States fulfilling pre-defined criteria, on a voluntary basis and to all goods and services with an invoice threshold of more than EUR 10 000.

CONTENT: this proposal to amend Directive 2006/112/EC (VAT Directive) seeks to authorise Member States to derogate from the common system of value added tax so as to apply a generalised reverse charge mechanism ( GRCM ) to domestic supplies with an invoice threshold of more than EUR 10 000 and to preserve the Internal Market.

The granting of the GRCM is subject to pre-defined criteria aiming to limit the scope of the measure to Member States which are particularly affected by carousel fraud.

In this context:

a VAT gap excess of 5 percentage points above the EU median; a carousel fraud level within a Member States' total VAT gap of more than 25%; other control measures are not sufficient to combat carousel fraud on its territory.

Moreover, a Member State having a common border with a Member State that applies the GRCM, should also be authorised to apply the GRCM under certain conditions.

A safeguard clause provides that the Commission should be empowered to repeal, without retroactive effect, derogations in case the impact on the internal market would be negative.

This Directive shall apply until 30 September 2022.