Temporary application of a generalised reverse charge mechanism

24 January 2019


An amendment to Directive 2006/112/EC on the common system of value added tax was adopted by the Council of the European Union on 20 December 2018 through the Directive 2018/2057 (‘GRCM Directive’). The Directive entered into force on the 20th day following the publication (which was on 27 December). 

In order to treat carousel frauds, the GRCM Directive allows the Member States, who meet the necessary criteria, to introduce a temporary generalised reverse charge mechanism (’GRCM’) for domestic (non-cross-border) sales – depending on a transactional limit - until 30 June 2022 (till introducing the final VAT system). Based on the rules of general reverse charge mechanism the taxable person to whom all supply of goods and services is made will be liable to pay VAT – above a threshold of EUR 17,500 per transaction. Application of GRCM should not be restricted to any specific sector.

A Member State intending to introduce GRCM has to comply with strict conditions. Thus, among other things, the ratio of the fraud level in this Member State within its total VAT gap has to exceed 25%, and the VAT gap has to be at least 5 percentage points higher than the median VAT gap in the Community.

In order to apply the generalised reverse charge mechanism Member States need to submit a request to the Commission, based on which the Commission submits a proposal to the Council, which, acting unanimously, may authorize the requesting Member State to apply the GRCM.

Szilvia Sári, Zsolt Dankó |