Value Added Tax – Reverse Charge

The proposed amendment of the VAT Directive extends the application of the reverse charge mechanism to the trading of greenhouse gas emission allowances and to goods and services susceptible to fraud in order to combat VAT fraud in a more efficient way. In contrast to the existing taxation system, the reverse charge mechanism shifts tax liability from the service provider to the service recipient. Member States may apply the mechanism for a limited period of time.

The reverse charge mechanism eliminates the root causes of cross-border “carousel” fraud. Yet, at the same time, it is susceptible to new forms of fraud. Moreover, it is likely that the existing forms of fraud will migrate to those Member States which do not introduce the reverse charge system. For the companies affected, the new system leads to an increased administrative burden.