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The European Commission (EC) has published a proposal that would improve the ability to tackle complex VAT schemes such as carousel fraud, and reduce otherwise irreparable financial losses.
The measure would allow member states faced with a serious case of sudden and massive VAT fraud to be granted a temporary derogation, permitting them to implement a reverse charge mechanism, which would make the recipient, rather than the supplier of the goods or services, liable for VAT.
Called the quick reaction mechanism, the EC proposal would authorise the derogation within a month and would remain valid for up to one year. The tool was first mooted in the EC VAT strategy published in December last year.
Currently, if a member state wishes to counteract VAT fraud through measures not provided for under European legislation, it must formally request a derogation to do so.
The EC will then draw up a proposal to the effect and submit it to council for unanimous adoption, before the measures can be implemented.
The process can be slow, delaying the member state from taking the necessary action to stop the fraud.
