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Czech Republic To Apply Generalized Reverse Charge From Jan 1

by Ulrika Lomas, Tax-News.com, Brussels

11 October 2019


The Czech Republic will be permitted to use the new generalized reverse charge mechanism from January 1, 2020, until June 30, 2022.

The generalized reverse charge shifts the liability of collecting VAT to the consumer for business-to-business transactions worth EUR17,500 (USD19,930) or more.

Council Directive (EU) 2018/2057 of December 20, 2018, approved by the EU Council in October 2018, allows member states that are most severely affected by VAT fraud to temporarily apply a generalized reversal of VAT liability. This so-called generalized "reverse charge" mechanism involves shifting liability for VAT payments from the supplier to the customer, to prevent suppliers from charging VAT on onward supplies and failing to remit VAT collected to the relevant tax agency. The most pervasive and costly version of this fraud is carousel fraud.

Member states will be able to use the generalized reverse charge mechanism (GRCM) only for domestic supplies of goods and services above a threshold of EUR17,500 (USD19,950) per transaction, until June 30, 2022, and under very strict technical conditions.

In particular, in a member state that wishes to apply the measure, 25 percent of the VAT gap has to be due to carousel fraud. Among other requirements, this member state will have to establish appropriate and effective electronic reporting obligations on all taxable persons, and in particular on those to which the mechanism would apply.

The generalized reverse charge mechanism may only be used by a member state once it meets the eligibility criteria and its request has been authorized by the Council. Such authorization was approved for the Czech Republic in September 2019.

The reverse charge mechanism can already be applied on a temporary basis – but not in a generalized manner – to a predetermined list of sectors. The reverse charge mechanism may only be used by a member state that has made a specific request and received authorization from the EU Council.

The Czech Republic's VAT gap in 2014 was 16.14 percent of its overall VAT liability, against the median VAT gap that year for EU countries of 10.4 percent. Around 28 percent of the Czech Republic's VAT gap was attributed to carousel fraud. It has also been established that other control measures, as well as administrative cooperation in the field of VAT, are not sufficient to combat the fraud.

TAGS: tax | business | value added tax (VAT) | Czech Republic | services

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