Generalised reverse charge mechanism - a BusinessEurope position paper

Key messages

• BusinessEurope fully endorses the fight against VAT fraud. VAT fraud has a negative impact on government revenues, is a threat to the internal market, and harms legitimate business. BusinessEurope continues to be of the opinion that the best way to reduce VAT fraud is through enhancing administrative cooperation, collectively improving the performance of European tax administrations, ultimately within the framework of the definite regime.
• A reverse charge should be explored as one of the options in designing the definite regime, but BusinessEurope does not support a fragmented approach. The generalised reverse charge mechanism (GRCM) proposal would be a significant departure from the fundamental principle of fractional payment and has the potential of creating internal market distortions without ensuring that the GRCM can deliver a genuine absolute reduction in VAT fraud in the EU at an acceptable cost, rather than merely an expensive redistribution of fraud through the supply chain or across multiple Member States increasing administrative burden and cost for both legitimate businesses and tax authorities. If the proposal is adopted, it is of vital importance that the European Commission operates pro-actively and withdraws the GRCM the moment significant negative effects to the Single Market arise.
• It is of particular importance that neither this GRCM nor any other similar temporary measure should impose disproportionate compliance costs on affected taxable persons. The significant increase in administrative burden, as discussed in the Commission’s own impact assessment, is alarming. Not only will the proposed reporting scheme in itself constitute an administrative burden, but also the relatively short lifespan of the GRCM and the issue of running parallel systems will further add to this. Therefore, further clarity on the likely reporting and compliance requirements is needed and the Commission should make sure that Member States implement this proposal in a consistent and harmonised way.