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Reverse charge
In the fight against missing trader intra-community fraud, or carousel fraud, a number of Member States have discussed how to change the VAT system substantially in order to combat such VAT fraud. One of the options discussed is the possible introduction of an optional reverse charge mechanism.
The European Commission has recently launched a public consultation on this issue with the objective to ascertain the views and opinions of businesses on additional costs and/or benefits which the possible introduction of an optional reverse charge mechanism might cause for them.
The consultation 'Possible introduction of an optional reverse charge mechanism for VAT - Impact on businesses', is based on a study assessing the expected impact of such an option on businesses. The final report of this study together with some more information can be found at http://ec.europa.eu/taxation_customs.
The Commission hopes to obtain a set of reactions and contributions concerning the issues raised by the study. Among others, the contributions made by all the interested parties will contribute to the further considerations of the Commission. Interested parties are invited to submit their comments by 15 October 2007 to Ms Petra Spaniol, e-mail: TAXUD-D4-ATFS@ec.europa.eu.
Baker Tilly explains that the consultation proposal 'would mean that Member States would have the option of implementing a system whereby the business customer would account for the VAT due, rather than the supplier. This would be a fundamental change to the present VAT system, which is based on the supplier accounting for the VAT due on the supplies he makes'. It would move the VAT model towards the sales tax model, says Baker Tilly, 'which some feel, could not support rates of up to 25%, the highest standard VAT rate permitted in the EU. In addition to this, the administrative burden on businesses with international operations would increase hugely. They would have to contend with a number of new procedures ranging from the most fundamental, such as identifying whether the Member State in question has opted for the reverse charge, to the more time-consuming such as identifying whether the customer is in business or not'.
