The Council of the European Union adopted two directives on 22 July aimed at combating VAT fraud, facilitating rapid reaction and allowing a specific measure to tackle carrousel fraud.

The new directives are designed to counter fraud schemes which evolve rapidly. The “quick reaction mechanism” provides for immediate measures to be taken in cases of sudden and massive VAT fraud while the “reverse charge mechanism”, provides for the liability for the payment of VAT to be shifted from the supplier to the customer for supplies for certain goods and services. Until to now, fraud schemes were tackled either by amendments to the VAT directive or through individual derogations granted to Member States. Both methods require a proposal from the Commission and a unanimous decision by the Council, a process that can take several months.

Under the new directives, Member States have the option of applying these anti-fraud measures temporarily within an extended pre-determined list of sectors or by derogation from the provisions of the VAT directive.

The “reverse charge mechanism” will now potentially apply to the following sectors: mobile phones, integrated circuit devices, supplies of gas and electricity, telecoms services, game consoles, tablet PCs and laptops, cereals and industrial crops and raw and semi-finished metals.

With the “quick reaction mechanism”, an accelerated procedure will enable member states to apply a “reverse charge” to specific supplies of goods and services for a short period of time, by derogation from the provisions of the VAT directive. When a Member State wishes to introduce a specific measure using the “quick reaction mechanism”, the Commission will have a short period in which to confirm whether it objects, taking into account the views of other Member States.

Both directives will apply until 31 December 2018, and any renewal thereafter would require a proposal from the Commission and the unanimous approval of the Council.