The EU VAT Directive 2006/112/EC of 28 November 2006has been updated from 1 January 2019 to introduce a voluntary generalised reverse charge measure on domestic transactions in member states.

The measure will help states combat VAT fraud by requiring B2B customers to account for sales VAT, as well as input VAT, on domestic supplies. This would remove the cash payment from the transaction. This does mean that it disrupts one of the key principles of the EU VAT regime: the fractional cash payment of VAT through the production chain.

The domestic reverse charge has been successfully applied in a narrow number of sectors prone to ‘missing trader’ and ‘carousel’ VAT fraud, including: computer chips; mobile phones; laptops; precious metals; carbon credits; wholesale energy; and crops.

Member states must first seek approval from the European Commission prior to introducing the measure. It will only apply to transactions above €17,500. The measure is only currently scheduled to be available until June 2022, after which the member states will evaluate the effects.

VAT is applied to all transactions carried out in the EU for payment by a taxable person, i.e. any individual or body that supplies goods and services in the course of business. Imports by any person are also subject to VAT. It covers supplies of goods or services within the EU, intra-EU acquisitions of goods (goods supplied and dispatched or transported by a business in one EU country to a business in another) and imports of goods into the EU from outside. 

A taxable person has the right to deduct the amount of VAT paid on acquired goods or services in the EU country where these transactions are carried out. This input VAT can be deducted from VAT payable on taxed transactions, e.g. domestic supplies of goods or services. There is in general no right to deduct in the case of an economic activity that is exempt from VAT, or if the taxable person applies certain special schemes. In certain cases, deductions may be limited or adjusted.

For more information about VAT registration and compliance, please visit Registration for VAT in European Union (EU VAT Registration).

The new Slovak VAT Act will bring in changes to the Value Added Tax regime in 2016. The changes include:

  1. Basic foodstuffs are lowered to the 10% reduced VAT rate
  2. The introduction of the domestic reverse charge for supplies in the construction industry
  3. Cash-based VAT remittance for supplies to delay paying output VAT due until they receive the VAT from their customer. In return, the customer may not recover the VAT till they have paid their supplier if they are using this regime.
  4. The introduction of the reverse charge for non-resident VAT registered companies on domestic supplies
  5. Increases in penalty regime
  6. The right to recover VAT suffered on goods or services prior to VAT registration in certain circumstances

Ireland has raised its Intrastat reporting threshold on arrivals from €191,000 per annum to €500,000. The threshold for reporting dispatches will remain at €635,000 per annum.

Intrastat is the reporting regime for businesses to declare the movement of goods across EU borders. It is generally required on a monthly basis, with separate reports for goods leaving a country, dispatches, versus goods coming into a country, arrivals. It excludes goods’ movements into (imports) or out (exports) the European Union.

Italy is to press ahead with a reduction in the VAT rate on e-books, online newspapers or journals from 22% to 4% on 1 January 2016.

The reclassification will be in contravention of the European Court of Justice March 2015 ruling that e-books should be taxed at member states’ standard, higher VAT rate even if printed books are at a reduced rate. This was based on the rule that countries may only apply reduced rates on the exhaustive list of goods or services provided in Annex III of the EU VAT Directive. At the time of the completion of the VAT Directive, electronic books had not been developed.

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