Romania might become the second Member State, after the Czech Republic, to apply the generalised reverse charge mechanism

In brief

ECOFIN (European Union Economic and Financial Affairs Council) recently decided that EU Member States "most affected by VAT fraud" will be able to apply until 30 June 2022, under very strict technical conditions, the generalised reverse charge mechanism for local operations (transferring the liability to pay VAT from suppliers to clients).

In detail

States will be able to use the reverse charge mechanism exclusively for local supplies exceeding the EUR 17,500 / transaction threshold. In EU Member States wishing to apply this measure, at least 25% of the VAT gap has to be due to carousel fraud.

In addition to other requirements, ECOFIN has established that Member States will have to set up appropriate and effective electronic reporting obligations on all taxable persons, in particular those to which the mechanism would apply. To use the reverse charge mechanism, states have to meet certain eligibility criteria and have the Council’s authorisation.  

The mechanism is to be applied as a pilot in the Czech Republic, which has shown interest for many years in using this simplified procedure. Depending on the pilot results, Member States, including Romania, will be able to request that the Council approve their application of the mechanism, if they meet the eligibility criteria.

Moreover, ECOFIN also agreed four VAT quick fixes, designed to modify EU rules, in order to provide solutions to specific issues, before transitioning to the definitive VAT system:

1.      in order not to incur VAT registration costs in other Member States, rules for call-off stock supplies of goods will be simplified and harmonised at EU level;

2.      to benefit from the VAT exemption for intra-Community supplies of goods, the customer identification number will become an additional condition;

3.      the documentary evidence required to claim the VAT exemption for intra-Community supplies of goods will be harmonised at EU level;

4.      rules for chain transactions will be harmonised at EU level.

During the same meeting, the Council adopted measures to strengthen administrative cooperation and to improve the prevention of VAT fraud. Those measures will improve the exchange of information between national administrations, as well as the quality and comparability of data.

The meeting also provided good news for electronic publications, which will benefit from reduced or zero VAT rates, as printed publications already do.

As agreement was reached during an ECOFIN meeting, all the normative acts needed to cover these changes will be adopted without further discussion.

Source: To access the European Council´s press releases, access:

The takeaway

Given the EU VAT gap, out of all these measures, the implementation of the generalised reverse charge mechanism is arguably the most important one in the fight against fraud. Of course, as it is a derogation from the general rule regarding who is liable to pay VAT, this concept might generate additional VAT compliance and IT systems update costs for taxpayers carrying out economic activities in eligible Member States exercising this temporary right. It is possible that, due to the mechanism’s strict implementation conditions, its overall impact will be limited, especially as the initial pilot project will include just one Member State.

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