The importance of such measures amongst a number of initiatives aimed at better combating tax evasion and tax fraud was highlighted by the European Council at its meeting on 22 May. Weaknesses in the VAT system leave Member States vulnerable to fraud, often with serious consequences for national exchequers. This is particularly the case with cross-border transactions. Fraud schemes evolve rapidly, giving rise to situations that require a rapid response. A common example is "carousel" fraud, where supplies are rapidly traded several times without payment of VAT.
Until now, such situations have been tackled either by amendments to the VAT Directive (2006/112/EC) or through individual derogations granted to Member States under that Directive. Both require a proposal from the Commission and a unanimous decision by the Council, a process that can take several months.
The two Directives adopted today amend Directive 2006/112/EC on the EU's common VAT system:
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One is aimed at enabling immediate measures to be taken in cases of sudden and massive VAT fraud ("quick reaction mechanism");
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The other allows Member States to apply, on an optional and temporary basis, a reversal of liability for the payment of VAT ("reverse charge mechanism"), with the aim of closing off certain types of known fraud, in particular carousel schemes.
Both Directives will apply until 31 December 2018, and any renewal thereafter would require a proposal from the Commission and the unanimous approval of the Council. In the meantime, the Commission will prioritise work on a new VAT system, as outlined in a December 2011 communication, with a view to facilitating the prevention of VAT fraud rather than relying on solutions based on derogations.
Press release
Reverse Charge Mechanism
© European Council
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