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Finland Introduces New VAT Reverse Charge

by Ulrika Lomas, Tax-News.com, Brussels

14 January 2015


Finland introduced a new value-added tax (VAT) reverse charge on supplies of scrap metal at the beginning of this year.

The measure was proposed by the Government in May 2014 to replicate similar arrangements in other EU member states.

The reverse charge shifts the obligation to account for value-added tax from the supplier to the recipient, as a mechanism to prevent the perpetration of VAT fraud and in particular missing trader intra-community (MTIC) fraud.

MTIC manipulates the lack of VAT on intra-Community supplies and the subsequent inclusion of VAT on supplies to a member state's domestic market. Under this form of fraud, VAT is collected by the supplier as normal on supplies to the domestic market, after importation from another member state, but the supplier fails to remit the VAT and disappears. The reverse charge shifts the responsibility to account for VAT to the recipient, requiring that he contemporaneously account for both input and output VAT (a revenue-neutral consideration), which ensures that VAT is never passed from recipient to supplier and thereby removes the potential for fraud.

Finland confirmed that it had decided to move forward with its plans after learning from Sweden that its application of the mechanism to supplies of scrap metal in 2013 operated as expected and without significant problems.

The tax authority has estimated that the reverse charge will yield additional revenues worth about EUR7.5m (USD8.8m) each year.

TAGS: compliance | VAT tax authority guidance | VAT special schemes | tax | value added tax (VAT) | VAT cross-border transactions | tax authority | Finland | Sweden | trade | VAT compliance matters

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