The European Commission's proposal aiming to allow certain states to carry out pilot projects for a generalised reverse-charge mechanism (providing for VAT to be paid by the end consumer) finally seems to be complete.
This proposal is particularly eagerly anticipated by the Czech Republic and Austria, which feel that a reverse-charge mechanism permitted in derogation to the VAT directive would be a more appropriate means than conventional methods to fight VAT fraud, in particular so-called 'carousel' fraud.
Several countries are, however, dead against the idea that a country may derogate from the directive and apply this principle. Businesses have also taken a position against. In view of the Commission's ambivalence, the Czech Republic was obliged to use strong-arm tactics, threatening to veto the anti-tax avoidance directive in May of this year. It was against this backdrop that the Commission undertook to table a proposal by the end of the year.
And what the Commission is getting ready to put forward on Wednesday 21 December is not expected to delight the Czech delegation, as the criteria retained to allow such a derogation fairly restrictive.
Under the draft proposal, of which we have had sight, the derogation would be authorised for member states with a VAT gap representing five percentage points above the median European VAT gap.
According to the Commission's figures from September of this year, this stands at 10.4%. The Czech VAT gap is 16.14%, meaning that the country would be eligible today. However, the country has implemented a number of conventional measures to reduce this gap and may therefore end up above that figure when the time comes to apply for the derogation. The criteria will be the subject of a negotiation between the member states, which must make a decision unanimously. Once the criteria have been approved, countries may decide to request a derogation. Austria has a VAT gap of 10.17% and will therefore not qualify.
A second criterion set in place by the Commission is that the level of so-called carousel fraud must represent at least 25% of the VAT gap. Lastly, the country will have to establish that conventional measures are not enough to fight fraud of this kind.
In general, the countries will only be entitled to apply for this reverse-charge mechanism until 30 September 2022. This may not seem like a lot of time, given how long European legislative procedures may take in order firstly to agree on the criteria and then to apply for the derogation, obtain it and implement the mechanism. Lastly, the Commission has pledged to assess the implementation of this mechanism in the country in question after the first six months and reserves the right to suspend its implementation if it feels that it is having a considerable negative impact on the single market.
The only flexibility in the text is that the Commission alone, and not the Council, will assess the derogation request of the member states concerned, but the more reluctant countries may end up changing this provision in the negotiations on the proposal, due to open next year. (Original version in French by Élodie Lamer)