Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC on the common system of value added tax as regards the period of application of the optional reverse charge mechanism in relation to supplies of certain goods and services susceptible to fraud and of the Quick Reaction Mechanism against VAT fraud
Date: 2018-05-25
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: European tax cooperation, VAT, fight against crime, goods and services, tax avoidance, tax harmonisation, tax offence

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   EUROPEAN COMMISSION  Brussels, 25.5.2018 COM(2018) 298 final 2018/0150 (CNS)  Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC on the common system of value added tax as regards the period of application of the optional reverse charge mechanism in relation to supplies of certain goods and services susceptible to fraud and of the Quick Reaction Mechanism against VAT fraud  
 
 
EXPLANATORY MEMORANDUM 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

The purpose of the current proposal for a Directive amending Council Directive 2006/112/EC 
of  28  November  2006  on  the  common  system  of  value  added  tax1  (hereafter  the  VAT 
Directive)  is  to  prolong:  1)  the  possibility  for  Member  States  to  apply  the  reverse  charge 
mechanism2  to  combat  existing  fraud  in  supplies  of  goods  and  services  included  in  Article 
199a(1)  of  the  VAT  Directive  and  2)  the  possibility  to  use  the  Quick  Reaction  Mechanism 
(QRM) to combat fraud.  
Article 199a3 of the VAT Directive allows Member States to optionally use the reverse charge 
mechanism  for  payment  of  VAT  on  supplies  of  pre-defined  goods  and  services,  which  are 
susceptible to fraud, and in particular, to Missing Trader Intra-Community (MTIC) fraud.  

If a Member State would like to apply the reverse charge mechanism to other supplies than 
those  listed  in  Article  199a  of  the  VAT  Directive,  a  derogation  can  be  granted  based  on 
Article 395 of the VAT Directive in order to simplify the procedure for collecting VAT or to 
prevent certain forms of tax evasion and avoidance. However, the adoption of the derogation 
based on this article requires a proposal from the Commission and unanimous adoption by the 
Council, a process which takes up several months (up to a maximum of 8 months according to 
Article 395 of the VAT Directive). In cases whereby a Member State is suddenly confronted 
with massive fraud, the duration of the procedure for obtaining a derogation based on Article 
395 could result in important losses of VAT receipts. The QRM included in Article 199b4 of 
the  VAT  Directive  contains  a  faster  procedure  for  allowing  Member  States,  under  certain 
strict  conditions,  to  introduce  the  reverse  charge  mechanism,  thereby  providing  Member 
States with a more adequate and effective response to sudden and massive fraud.  

The purpose of the measures foreseen in Articles 199a and 199b is to allow Member States to 
quickly tackle problems of the MTIC fraud: Article 199a by an option of applying the reverse 
charge mechanism for listed supplies and Article 199b by offering a faster procedure for the 
introduction  of  the  reverse  charge  mechanism  in  case  of  sudden  and  massive  fraud.  Both 
Articles expire on 31 December 20185.  

The MTIC fraud occurs when a trader acquires goods, transported or dispatched from another 
Member State, by means of a supply exempt from VAT and sells them on including VAT on 
the invoice to the customer. After having received the VAT amount from the customer such 
trader  disappears  before  paying  the  VAT  due  to  the  tax  authorities.  At  the  same  time  the 
customer, acting in good faith or not, can deduct the VAT he paid to the supplier through his 

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Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ L 
347, 11.12.2006, p.1.). 
As a general rule, Article 193 of the VAT Directive stipulates that the taxable person supplying goods 
or services is liable to pay VAT. As a derogation from this system of fractioned payment, the reverse 
charge mechanism allows to designate the recipient (taxable person) of the supply as the person liable 
for the payment of VAT.  
Introduced by Council Directive 2013/43/EU of 22 July 2013 amending Directive 2006/112/EC on the 
common  system  of  value  added  tax  as  regards  an  optional  and  temporary  application  of  the  reverse 
charge mechanism in relation to supplies of certain goods and services susceptible to fraud (OJ L 201, 
26.7.2013, p.4).  
Introduced by Council Directive 2013/42/EU of 22 July 2013 amending Directive 2006/112/EC on the 
common system of value added tax, as regards a quick Reaction Mechanism against VAT fraud (OJ L 
201, 26.7.2013, p.1).  
As regards the QRM, see Article 2 of Council Directive 2013/42/EU.  

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VAT  return.  The  optional  reverse  charge  mechanism  based  on  Article  199a  of  the  VAT 
Directive appears to be a useful and precautionary tool for Member States to fight this type of 
fraud  in  the  pre-defined  sensitive  areas  when  it  occurs  on  their  territory.  Once  the  trader  is 
obliged  to  use  the  reverse  charge  mechanism  for  such  domestic  supplies,  he  cannot  charge 
VAT on its invoice. He will subsequently not receive the VAT amount from his customer and 
as a result he cannot disappear with the amount of VAT received. The QRM of Article 199b 
is an exceptional measure allowing Member States to quickly introduce a temporary reverse 
charge  mechanism  for  supplies  of  goods  and  services  in  sectors  where  sudden  and  massive 
fraud  occurred  and  which  are  not  listed  in  Article  199a  of  the  VAT  Directive.  Using  this 
mechanism Member States can bridge the period required for obtaining the normal derogation 
under Article 395 of the VAT Directive.  

As required by the VAT Directive, the Commission presented a Report on the effects of the 
mechanisms included in Articles 199a and 199b of the VAT Directive6. For the preparation of 
this  Report,  Member  States  were  invited  to  provide  their  experience  and  assessment  of  the 
measures.  To  ensure  that  the  feedback  from  business  is  taken  into  account,  business 
stakeholders  were  requested,  via  the  VAT  Expert  Group7,  to  provide  their  views.  Member 
States and consulted stakeholders generally consider the reverse charge mechanism included 
in  Article  199a  of  the  VAT  Directive  an  effective  and  efficient,  temporary  tool  in  fighting 
VAT fraud. Regarding the QRM included in Article 199b of the VAT Directive, although it 
was never effectively applied, most Member States consider that it remains a useful tool and a 
precautionary measure for exceptional cases of VAT fraud.  

The Commission presented lately two legislative proposals which aim at tackling VAT fraud 
more fundamentally. The first is a proposal for administrative cooperation and fighting fraud 
in  the  field  of  VAT8,  which  would  strengthen  cooperation  between  Member  States  to 
efficiently combat cross-border fraud.  

The second is the proposal outlining the cornerstones for a simpler and fraud-proof definitive 
VAT  system  for  intra-Union  trade9.  A  two-step  approach  will  be  followed  for  the 
implementation of these cornerstones. As a first step, the Commission will present in the first 
semester  of  2018  a  proposal  containing  the  detailed  provisions  for  the  operation  of  the 
definitive arrangements for intra-Union Business-to-Business (B2B) supplies of goods. 

These  arrangements,  which  should  enter  into  force  on  1  July  2022,  provide  a  fundamental 
response to MTIC fraud. Since VAT would be effectively charged on intra-Union supplies, a 
trader  can  no  longer  acquire  goods,  transported  or  dispatched  from  another  Member  State, 
exempt from VAT which is at the root of the MTIC fraud. Only trustworthy taxable persons 
that obtained the status of certified taxable person will be able to obtain goods transported or 
dispatched from another Member State without the VAT having been charged by the supplier.  

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Report  from  the  Commission  to  the  Council  and  the  European  Parliament  on  the  effects  of  Articles 
199a and 199b of Council Directive 2006/112/EC on combatting fraud, COM(2018) 118/2.  
The VAT Expert Group assists and advises the European Commission on VAT matters. The group is 
composed  of  individuals  appointed  in  a  personal  capacity  with  the  requisite  expertise  in  the  area  of 
VAT  and  organisations  representing  in  particular  businesses  and  tax  practitioners  which  can  assist  in 
the development and implementation of VAT policies.  
Towards a single EU VAT area - Time to act. Amended proposal for a Council Regulation  
amending Regulation (EU) No 904/2010 as regards measures to strengthen administrative cooperation 
in the field of value added tax, COM(2017) 706 final.  
Proposal  for  a  Council  Directive  amending  Directive  2006/112/EC  as  regards  harmonising  and 
simplifying  certain  rules  in  the  value  added  tax  system  and  introducing  the  definitive  system  for  the 
taxation of trade between Member States, COM(2017) 569 final.  

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It appears from the above that the measures included in Articles 199a and 199b of the VAT 
Directive  have  been  useful  as  temporary  and  targeted  measures.  Their  expiration  on  31 
December 2018 would deprive Member States of an efficient tool to fight fraud.  

It is therefore appropriate to prolong the measures included in Articles 199a and 199b until 30 
June  2022,  the  date  on  which  the  definitive  regime  for  intra-Union  B2B  supplies  of  goods 
should enter into force.  

According  to  Article  199a(1)  of  the  VAT  Directive,  Member  States  may  apply  the  reverse 
charge mechanism for a minimum period of two years. The requirement of a minimum of two 
years for the application of the measure proved to be an impediment to a few Member States 
wishing  to  introduce  the  reverse  charge  mechanism  in  the  course  of  2017  to  fight  newly 
discovered cases of VAT fraud in the supplies of goods and/or services included in the list of 
Article 199a. The Member States concerned ultimately had to file the request for a derogation 
based  on  Article  395  of  the  VAT  Directive  and  according  to  the  procedure  included  in  this 
Article  resulting  in  delaying  the  reaction  of  the  Member  States  to  the  fraud  problem. 
Consequently, it is proposed to remove the requirement of minimum period of two years from 
the provision.  

• 

Consistency with existing policy provisions in the policy area 

The  current  proposal  is  without  prejudice  to  the  Commission's  proposal  as  regards  the 
temporary  application  of  a  generalised  reverse  charge  mechanism10  which  would  provide 
Member  States  that  are  particularly  affected  by  fraud  with  the  possibility  to  introduce  a 
general  (and  not  sector  specific)  reverse  charge  mechanism  for  domestic  supplies  of  goods 
and  services  provided  strict  conditions  are  met.  The  scope  and  conditions  proposed  for  the 
application  of  the  general  reverse  charge  mechanism  are  different  from  the  conditions  of 
Articles 199a and 199b of the VAT Directive.  

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

The  Directive  amends  the  VAT  Directive  on  the  basis  of  Article  113  of  the  Treaty  on  the 
Functioning of the European Union.  

As the proposal prolongs the application of certain provisions of the Directive, an amendment 
of the VAT Directive is necessary.  

• 

Subsidiarity (for non-exclusive competence)  

According to the principle of subsidiarity, as set out in Article 5(3) of the Treaty on European 
Union,  action  at  Union  level  may  only  be  taken  if  the  envisaged  aims  cannot  be  achieved 
sufficiently by the Member States alone and can therefore, by reason of the scale or effects of 
the proposed actions, be better achieved by the Union. 

The objective of fighting fraud via the application of the reverse charge mechanism and the 
possibility  to  use  the  Quick  Reaction  Mechanism  to  fight  sudden  and  massive  fraud  is  best 
achieved at Union level and finds its specific legal basis in the VAT Directive. Therefore, the 
prolongation of these measures requires an amendment to the VAT Directive.  

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Proposal  for  a  Council  Directive  amending  Directive  2006/112/EC  on  the  common  system  of  value 
added tax as regards the temporary application of a generalised reverse charge mechanism in relation to 
supplies of goods and services above a certain threshold, COM(2016) 811 final.  

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• 

Proportionality 

Because of the optional and temporary character of the prolonged measures, the proposal is 
proportionate  to  the  aim  pursued  which  is  to  combat  fraud  in  certain  supplies  of  goods  and 
services and help Member States to tackle cases of sudden and massive VAT fraud.  

• 

Choice of the instrument 

A Directive is proposed in view of amending the VAT Directive.  

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

The  feedback  from  Member  States  and  stakeholders  was  presented  in  the  Commission's 
Report on the effects of Articles 199a and 199b of the VAT Directive on combatting fraud.  

As  set  out  in  the  Report,  Member  States  generally  consider  the  reverse  charge  mechanism 
included in Article 199a of the VAT Directive an effective and efficient tool in fighting VAT 
fraud.  Due  to  the  introduction  of  the  reverse  charge  mechanism  the  fraud  decreased 
significantly  or  disappeared  in  the  defined  sectors.  This  view  is  also  shared  in  the  replies 
received  from  the  consulted  business  stakeholders  who  consider  the  reverse  charge 
mechanism as an efficient, temporary measure for combatting fraud.  

Regarding the Quick Reaction Mechanism in Article 199b of the VAT Directive, although it 
has  never  been  used,  most  Member  States  consider  that  it  remains  a  useful  tool  and  a 
precautionary measure against exceptional cases of sudden VAT fraud.  

• 

Collection and use of expertise 

The  VAT  Expert  Group  was  consulted  regarding  the  effects  of  the  measure  included  in 
Article 199a of the VAT Directive. The feedback indicates that the reverse charge mechanism 
for given supplies is considered an efficient, temporary tool for fighting fraud.  

In  general,  the  optional  reverse  charge  mechanism  has  been  assessed  in  earlier  studies. 
According to a recent study on the assessment of the optional reverse charge mechanism11, the 
reverse charge mechanism implies an increase by 43% of compliance costs to businesses. An 
assessment  of  a  general  reverse  charge  mechanism  (also  comparing  to  the  sectorial  reverse 
charge) on the internal market has been carried out in the impact assessment accompanying 
the proposal on the temporary application of a generalised reverse charge mechanism12. Given 
its  limitation  in  scope  and  time,  the  targeted  reverse  charge  mechanism  does  not  appear  to 
have major detrimental consequences.  

• 

Impact assessment 

The initiative prolongs the measures included in Articles 199a and 199b to support Member 
States in tackling VAT fraud until a more in-depth reform of the VAT system will be in place.  

Given the Commission's on-going work on the definitive VAT regime and its expected impact 
on the fight against fraud, it would not be useful for the moment to evaluate beyond the recent 

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EY, 2014. 
Impact assessment for the proposal as regards the temporary application of a generalised reverse charge 
mechanism in relation to supplies of goods and services above a certain threshold, SWD(2016) 457. 

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Report or revise the measures as any conclusions would be transitional and would need to be 
reassessed once the definitive regime enters into force.  

4. 

BUDGETARY IMPLICATIONS 

The proposal will have no negative implications for the Union's budget.  

5. 

OTHER ELEMENTS 

The proposal is limited in time.   

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2018/0150 (CNS) 

Proposal for a 

COUNCIL DIRECTIVE 

amending Directive 2006/112/EC on the common system of value added tax as regards 
the period of application of the optional reverse charge mechanism in relation to 
supplies of certain goods and services susceptible to fraud and of the Quick Reaction 
Mechanism against VAT fraud 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 113 thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national parliaments, 
Having regard to the opinion of the European Parliament1,  
Having regard to the opinion of the European Economic and Social Committee2,  

Acting in accordance with a special legislative procedure, 

Whereas: 

(1) 

(2) 

(3) 

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Tax  fraud  in  the  field  of  value  added  tax  (VAT)  leads  to  considerable  budget  losses 
and has an impact on the operation of the internal market.  
Article 199a of Council Directive 2006/112/EC3 allows Member States to provide that 
the person liable for payment of VAT on supplies listed in that Article is the taxable 
person to whom the supply is made (the reverse charge mechanism) in order to quickly 
tackle the problem of the missing trader fraud in intra-Community trade (MTIC). The 
Member  States  may  apply  this  mechanism  until  31  December  2018  and  for  a 
minimum period of two years.  

The  Quick  Reaction  Mechanism  (QRM)  special  measure  set  out  in  Article  199b  of 
Directive  2006/112/EC  offers  Member  States  a  faster  procedure  allowing  the 
introduction  of  the  reverse  charge  mechanism  as  regards  specific  supplies  of  goods 
and  services  in  order  to  combat  sudden  and  massive  fraud  liable  to  lead  to 
considerable and irreparable financial losses. In accordance with Article 3 of Council 
Directive 2013/42/EU4 Member States may apply the QRM special measure until 31 
December 2018.  

OJ C , , p. . 
OJ C , , p. . 
Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ L 
347, 11.12.2006, p. 1.).  
Council  Directive  2013/42/EU  of  22  July  2013  amending  Directive  2006/112/EC  on  the  common 
system  of  value  added  tax,  as  regards  a  quick  Reaction  Mechanism  against  VAT  fraud  (OJ  L  201, 
26.7.2013, p. 1).  

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(4) 

(5) 

(6) 

(7) 

On  8  March  2018  the  Commission  presented  a  Report  on  the  effects  of  the 
mechanisms  on  combatting  fraud  referred  to  in  Articles  199a  and  199b  of  Directive 
2006/112/EC to the European Parliament and to the Council5.  

According  to  the  Report,  Member  States  and  stakeholders  generally  consider  the 
reverse  charge  mechanism  set  out  in  Article  199a  of  Directive  2006/112/EC  as  an 
effective and efficient temporary tool in fighting VAT fraud in the given sectors or in 
preventing the fraud from taking place.  The requirement of a minimum of two years 
for  the  application  of  the  measure  included  in  Article  199a(1)  proved  to  be  an 
impediment  to  a  few  Member  States  wishing  to  introduce  the  reverse  charge 
mechanism  and  not  fulfilling  this  condition.  Consequently,  the  requirement  of 
minimum period of two years is removed from the provision.  

Regarding  the  QRM  special  measure  referred  to  in  Article  199b  of  Directive 
2006/112/EC,  although  it  has  never  been  effectively  used,  Member  States  consider 
that it should remain as a useful tool and a precautionary measure against exceptional 
cases of VAT fraud. 

Given  the  findings  and  the  conclusion  of  the  Report  it  appears  that  the  measures 
referred  to  in  Articles  199a  and  199b  of  Directive  2006/112/EC  have  proved  to  be 
useful  temporary  and  targeted  measures  to  fight  VAT  fraud.  Those  measures  are  to 
expire  on  31  December  2018  and  that  would  deprive  Member  States  of  an  efficient 
tool to fight VAT fraud. It is therefore appropriate to prolong the application of those 
measures  for  a  limited  period  of  time,  until  the  envisaged  entry  into  force  of  the 
definitive VAT regime.  

(8) 

Directive 2006/112/EC should therefore be amended accordingly, 

HAS ADOPTED THIS DIRECTIVE: 

Directive 2006/112/EC is amended as follows: 

Article 1 

(1) 

in Article 199a(1), the introductory words are replaced by the following: 

'Member States may, until 30 June 2022, provide that the person liable for the 
payment of VAT is the taxable person to whom any of the following supplies are 
made:'; 

(2) 

Article 199b is replaced by the following: 

"'Article 199b 

1.  A  Member  State  may,  in  cases  of  imperative  urgency  and  in  accordance  with 
paragraphs 2 and 3, designate the recipient as the person liable to pay VAT on specific 
supplies  of  goods  and  services  by  derogation  from  Article 193  as  a  Quick  Reaction 
Mechanism  ("QRM")  special  measure  to  combat  sudden  and  massive  fraud  liable  to 
lead to considerable and irreparable financial losses. 

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Report  from  the  Commission  to  the  Council  and  the  European  Parliament  on  the  effects  of  Articles 
199a  and  199b  of  Council  Directive  2006/112/EC  on  combatting  fraud,  COM(2018)  118  of  8  March 
2018..  

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The  QRM  special  measure  shall  be  subject  to  appropriate  control  measures  by  the 
Member  State  with  respect  to  taxable  persons  who  supply  the  goods  or  services  to 
which that measure applies, and shall be for a period not exceeding nine months. 

2.  A  Member  State  wishing  to  introduce  a  QRM  special  measure  as  provided  for  in 
paragraph 1 shall  send  a  notification  to  the  Commission  using  the  standardised  form 
established in accordance with paragraph 4 and at the same time send it to the other 
Member States. The Member State shall provide the Commission with the information 
indicating the sector concerned, the type and the features of the fraud, the existence of 
imperative grounds of urgency, the sudden and massive character of the fraud and its 
consequences  in  terms  of  considerable  and  irreparable  financial  losses.  If  the 
Commission considers it does not have all the necessary information, it shall contact 
the  Member  State  concerned  within  two  weeks  of  receipt  of  the  notification  and 
specify what additional information is required. Any additional information provided 
by the Member State concerned to the Commission shall at the same time be sent to 
the other Member States. If the additional information provided is not sufficient, the 
Commission shall inform the Member State concerned thereof within one week. 

The  Member  State  wishing  to  introduce  a  QRM  special  measure  as  provided  for  in 
paragraph  1  of  this  Article  shall  at  the  same  time  also  make  an  application  to  the 
Commission in accordance with the procedure laid down in Article 395(2) and (3). 

In cases of imperative urgency as set out in paragraph 1 of this Article the procedure 
laid down in Article 395(2) and (3) shall be completed within six months of receipt of 
the application by the Commission. 

3. Once the Commission has all the information it considers necessary for appraisal of 
the notification referred to in the first subparagraph of paragraph 2, it shall notify the 
Member States thereof. Where it objects to the QRM special measure, it shall produce 
a negative opinion within one month of that notification, and shall inform the Member 
State  concerned  and  the  VAT  Committee  thereof.  Where  the  Commission  does  not 
object, it shall confirm this in writing to the Member State concerned and to the VAT 
Committee  within  the  same  time  period.  The  Member  State  may  adopt  the  QRM 
special  measure  from  the  date  of  receipt  of  that  confirmation.  In  appraising  the 
notification, the Commission shall take into  account  the views of any other Member 
State sent to it in writing. 

4. The Commission shall adopt an implementing act establishing a standardised form 
for  the  submission  of  the  notification  for  the  QRM  special  measure  referred  to  in 
paragraph 2 and of the information referred to in the first subparagraph of paragraph 2. 
That implementing act shall be adopted in accordance with the examination procedure 
referred to in paragraph 5. 

5.  Where  reference  is  made  to  this  paragraph,  Article  5  of  Regulation  (EU)  No 
182/2011  of  the  European  Parliament  and  of  the  Council(*)  shall  apply  and  for  this 
purpose  the  committee  shall  be  the  committee  established  by  Article  58  of  Council 
Regulation (EU) No 904/2010(**). 

6. The QRM special measure as provided for in paragraph 1 shall apply until 30 June 
2022.'; 

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__________ 

(*) Regulation (EU) No 182/2011 of the European Parliament and of the 

Council of 16 February 2011 laying down the rules and general principles 
concerning mechanisms for control by Member States of the Commission's exercise 
of implementing powers (OJ L 55, 28.2.2011, p. 13). 

(**) Council Regulation (EU) No 904/2010 of 7 October 2010 on 

administrative cooperation and combating fraud in the field of value added tax (OJ L 
268, 12.10.2010, p. 1)."; 

(3) 

in Article 395, paragraph 5 is deleted. 

Article 2 

This Directive shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. 

This Directive is addressed to the Member States. 

Done at Brussels, 

Article 3 

For the Council 
The President 

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