August 5, 2021

The EU approves allowing the buyer to enter VAT into the Treasury to avoid fraud

The EU approves allowing the buyer to enter VAT into the Treasury to avoid fraud



The Member States of the European Union (EU) today approved a temporary derogation from the VAT rules by which they may require the buyer of a good to pay that tax to the Treasury, unlike the current system, in which this responsibility falls on the supplier .

The so-called investment of the taxpayer of VAT is a measure that seeks to prevent fraud, said in a statement the Council, which brings together the countries of the community club.

In fact, the European Commission (EC) presented this proposal in December 2016 at the request of the Member States "particularly affected" by the value added tax fraud.

Countries may resort to this measure only for national transactions of goods and services in excess of 17,500 euros, only until June 30, 2022 and under "very strict" technical conditions.

The Council specified that in a country that wants to apply the investment of the taxpayer, 25% of what is known as the "VAT gap", the difference between the income expected and actually collected for this concept must have arisen from the fraud "carousel" .

This occurs when a merchandise is sold several times and the VAT is never transferred to the Treasury.

In addition, the State must establish "appropriate and effective" electronic notification obligations on all taxpayers, in particular, on whom the investment mechanism will be applied.

Temporary derogation may only be used in those Member States that meet the criteria once the Council has authorized it.

The application will also be subject to "strict EU safeguards".

The Council emphasized that the "weaknesses" in the VAT system leave a number of countries exposed to fraud with consequences for the State coffers. "This happens, above all, in cross-border transactions," he said.

This temporary solution, which required the unanimity of the Twenty-eight, was approved pending the conclusion of the negotiations on the definitive reform of the VAT.

Thus, the mechanism to invest the taxpayer will be adopted once the European Parliament has issued its opinion.

"This directive will provide a solution for Member States facing an endemic carousel fraud," said Austrian Finance Minister Hartwig Löger, whose country holds the rotating presidency of the European Union this semester.

He added that it is an "exceptional measure, limited in time, which could prove to be an effective way to combat VAT fraud".

For months, countries such as France and Slovenia had expressed their reluctance to approve this mechanism, which had the unconditional support of the Czech Republic.

In fact, at that time, Prague blocked the approval of reduced VAT for electronic publications due to the lack of progress in the investment of the taxpayer.

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