On June 21, 2016 the Dutch Minister of Finance sent the Dutch Parliament a summary of discussions that were held during the EUROGROUP/ECOFIN Council meetings from June 16 and June 17, 2016. Although obviously more topics were discussed, below we will focus on a paragraph titled: “Analysis European Commission generalized reverse charge mechanism” that is included the summary as sent by the Dutch Minister.

In this paragraph the Dutch Ministry of Finance states the following:

“During the ECOFIN Council also an exchange of views has taken place on the Commission's analysis regarding a temporary derogation for a general reverse charge mechanism for the VAT purposes. In a general reverse charge system, the VAT that is due over transactions not charged by the supplier, but it is calculated and paid by the entrepreneur that buys the goods or services. The supplier reports the remuneration to which the reverse charge mechanism for VAT purposes has been applied in its VAT return. The buyer on its turn reports the remuneration and the VAT that has been reversed to him in its VAT return. But no 'VAT' money actually flows from one bank account to another bank account. Only in the final step when the product is transferred to the end consumer, the supplier will calculate and charge VAT. Briefly summarized this means that suppliers will no longer calculate and charge VAT over business-to-business transactions, as a consequence of which there will be significantly moments that lend themselves for VAT fraud. The temporary derogation only refers to domestic transactions. In particular the Czech Republic attaches great importance to this temporary derogation. It had stated that it could only agree on the proposal for an Anti Tax Avoidance Directive if the Commission would be willing to announce a legislative proposal regarding this temporary derogation. Now when a political agreement has been reached on the proposal for an Anti Tax Avoidance Directive, the Commission will present such a proposal before yearend. The proposal will regard a reverse charge mechanism for domestic supplies of goods and services. In order to as much as possible avoid administrative burdens, a threshold will apply. Moreover the proper functioning of the internal market as well as the potential shifting of VAT fraud to the neighbouring countries of the Member States that opt for such a temporary derogation have to be taken into account.”

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