COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposal for a Council Directive amending Directive 2006/112/EC on the common system of value added tax, as regards the temporary application of the generalised reverse charge mechanism in relation to supplies of goods and services above a certain threshold
Date: 2016-12-21
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: VAT, delivery, fraud, goods and services, intra-EU trade, supply, tax harmonisation, tax offence, tax system

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   EUROPEAN COMMISSION  Brussels, 21.12.2016  SWD(2016) 458 final   COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  Accompanying the document Proposal for a Council Directive amending Directive 2006/112/EC on the common system of value added tax, as regards the temporary application of the generalised reverse charge mechanism in relation to supplies of goods and services above a certain threshold {COM(2016) 811 final} {SWD(2016) 457 final}  
 
 
Executive Summary Sheet 
Impact assessment - Generalised reverse charge mechanism (GRCM) 

A. Need for action 

Why? What is the problem being addressed?  
Some Member States (MS) are more heavily affected by carousel fraud (€ 50 billion in the EU) which finds 
its roots in the endemic weakness of the current VAT system (intended to be transitional), that allows for 
goods being bought cross-border VAT-free.  

A long-term solution is foreseen for 2017 as announced in the Action Plan on VAT. Meanwhile, the 
Commission accepted to consider temporary derogating measures to the VAT Directive as suggested by 
some MS1.  
What is this initiative expected to achieve?  

1) 
2) 

3) 

Reduce the VAT fraud, in particular carrousel fraud, in certain MS. 
Minimize the general increase in administrative burden (for businesses and tax administrations 
(TA)). 
Avoid  fraud  shifting  by  ensuring  that  tax  fraud  does  not  move  from  one  sector  to  another  or 
between MS. 

What is the value added of action at the EU level?  
The application by MS of a GRCM cannot be granted under the current VAT legislation2 and needs an 
amendment to the VAT Directive. 

B. Solutions 

What legislative and non-legislative policy options have been considered? Is there a 
preferred choice or not? Why?  
1)  Baseline,  which  includes  a  definitive  system  for  intra-EU  trade,  offers  a  coherent  and  EU-wide 
solution to carrousel fraud but its positive effects can only be expected in the medium to long term. 

2)  Option 2b: derogation to apply the GRCM to preselected MS on a voluntary basis.  

3)  Option  3b:  derogation  to  apply  the  GRCM  to  any  MS  on  a  voluntary  basis  and  on  the  basis  on 

predefined criteria.  

Discarded options: a GRCM without threshold and options 2a and 3a, based on a sectorial/optional 
approach. 

3b is the preferred option as it offers a short term solution to MS particularly affected by carrousel fraud. It 
minimises negative impacts on the internal market (IM) by limiting fraud shifting between MS. Its 
safeguard clause would help if the experiment has negative impacts on the IM.  

Who supports which option?  
Most business organisations do not support the application of a GRCM in individual MS as this would 
significantly increase compliance costs3. MS' views are divergent: some are favourable while others 
expressed doubts on its efficiency4.   

C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise main ones)?                                       
3b is expected to reduce carrousel fraud in the MS applying the GRCM (GRCM MS) in the short term and 
to limit fraud shifting to other MS. This remains, however, conditional upon the MS' ability to control the 
GRCM and to prevent new types of fraud. 

What are the costs of the preferred option (if any, otherwise main ones)?                                       

1   See COM statement to ECOFIN Minutes 17/6/16.  

2  

'Normal' derogations can be granted to MS (Article 395 of the VAT Directive). However a GRCM cannot be considered as a 
'normal derogation' as it entails a fundamental change to the VAT system.  

E.g. VAT Expert Group opinion of 20/5/16 and REFIT platform. 

3  
4   E.g. Group on the Future of VAT meeting of 5/2/16. 

2 

 
 
 
 
 
 
 
                                                            
Businesses' compliance costs are expected to increase in the short and longer term. Administrative costs 
to TAs will highly depend upon their actual level of efficiency which is dependent on their structure, 
organisation and level of computerisation. 

How will businesses, SMEs and micro-enterprises be affected?  
Businesses in a GRCM MS will have to adapt and comply with the new obligations. When also active in a 
non-GRCM MS, they will have to comply with the normal VAT rules. 
Businesses in the GRCM MS will have a different cash-flow situation5 compared to businesses in other 
MS.  

Will there be significant impacts on national budgets and administrations?  
Reduction of carrousel fraud in the GRCM MS can be expected in the short term if sufficient controls are 
in place. Fraud shifting to other MS would be curbed. New fraud risks are likely to develop in the GRCM 
MS in case of insufficient controls, but at an unpredictable speed.. Final impact on fraud is hard to assess 
without a real experience. 

Will there be other significant impacts?  
No.  

D. Follow up 

When will the policy be reviewed?  
The initiative has a sunset clause (5 years). The Commission might repeal it (safeguard clause) in case of 
negative impact on the IM..  

5   Under GRCM, VAT is only collected at the end of the supply chain instead of at each stage. 

3