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ECOFIN reaches agreement on VAT rate e-books, quick fixes and reverse charge mechanism

ECOFIN reaches agreement on VAT rate

ECONFIN reaches agreement on VAT rate e-books, quick fixes and reverse charge mechanism

In its meeting n°3639 of 2 October 2018, the EU Economic and Financial Affairs Council reached important political agreements on the following VAT subjects with a potential major impact on the concerned markets.

1) Temporary generalized reverse charge mechanism

The reverse charge mechanism has often been used in specific sectors to tackle VAT fraud (see e.g. CO² emission rights in Belgium). Reverse charge means that the VAT liability is shifted to the recipient of the goods or services in order to make sure VAT is reported and paid to the Member State. In practice, it often ensures that the reporting is indeed performed because it entitles the recipient to simultaneously claim the deduction of said VAT as the case may be.

Member States that are most severely affected by VAT fraud (e.g. VAT carousels) will be allowed to apply the reverse charge on all domestic supplies of goods and services above a threshold of € 17.500 per transaction. Under the Directive to be adopted, this measure would be temporary (until 30 June 2022) and the Member States wishing to apply it will have to demonstrate a.o. that they are heavily affected by VAT fraud and that appropriate and effective electronic reporting obligations are in place.

2) Adoption of so-called “quick fixes”

Pending an even more drastic amendment of the VAT Directive and VAT system in general, the Commission had proposed and the Council approved 4 “quick fixes” to alleviate the VAT (administrative) burden in specific situations:

  • call-off stock. A simplified and uniform treatment for call-off stock arrangements, where a supplier transfers stock to a warehouse at the disposal of a known purchaser in another Member State. Such treatment aims at preventing that the supplier has to register for VAT in all Member States where such stocks are held;
  • mandatory VAT identification number. Case-law of the Court of Justice of the European Union had challenged the hard requirement to have a valid VAT number of one’s customer in order to benefit from a VAT exemption for the intra-EU supply of goods. In the future, being in the possession of a valid VAT number of the customer will again become a formal condition for the VAT exemption;
  • chain transactions. Uniform criteria in order to enhance legal certainty in determining the VAT treatment of chain transactions;
  • proof of intra-EU supply. A common framework for the documentary evidence required to claim a VAT exemption for intra-EU supplies.

3) Alignment of (reduced) VAT rates for e-publications compared to hard-copies

Pursuant to the current drafting of the VAT Directive and the case-law of the Court of Justice of the European Union, the e-publications are subject to the standard VAT rate even when the hard-copies of the same publications can benefit from a reduced VAT rate. New rules will be introduced to allow Member States to align the VAT rates of e-publications with those in force for the hard-copies.

4) Adoption of regulation aiming at enhancing the cross-border cooperation to tackle VAT fraud

The strengthening of administrative cooperation among Member States remains an objective that the EU Commission has pursued for ages. On a regular basis, the system is assessed and additional measures are implemented in regulations in order to improve its effectiveness on the cross-border administrative cooperation.

 

The new regulation introduces measures to e.g.:

  • Make it more difficult for Member States to refuse administrative enquiries requested by other Member States;
  • Facilitate the active participation of the officials of a Member State to an enquiry performed within another Member State;
  • Increase and facilitate the automatic exchange of information (more standard forms, access to national vehicle registrations, …);
  • Reinforce the efficiency of international network of officials (Eurofisc);
  • Further formalize the cooperation between Member States and OLAF (European Anti-Fraud Office).
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