Proposal for a COUNCIL IMPLEMENTING DECISION authorising Czechia to apply the generalised reverse charge mechanism derogating from Article 193 of Directive 2006/112/EC
Date: 2019-06-21
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Czechia, VAT, derogation from EU law, goods and services, supply, tax collection, tax offence, taxpayer

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   EUROPEAN COMMISSION  Brussels, 21.6.2019  COM(2019) 283 final 2019/0137 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION authorising Czechia to apply the generalised reverse charge mechanism derogating from Article 193 of Directive 2006/112/EC  
 
 
EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

On  20  December  2018,  the  Council  adopted  Directive  (EU)  2018/2057  as  regards  the 
temporary application of a generalised reverse charge mechanism (‘GRCM’) for transactions 
above a threshold of EUR 17 5001 via an amendment to the VAT Directive2. 

This  followed  the  VAT  Action  Plan3  in  which  the  Commission  announced  its  intentions 
regarding the introduction of a definitive VAT system for cross-border intra-Union business-
to-business trade4. However, given the fact that it would take several years to implement such 
a definitive VAT system, certain Member States asked for urgent and specific measures as to 
combat  carousel  fraud5  in  the  meantime.  In  particular,  they  requested  the  possibility  to 
implement a temporary GRCM that, following a Commission proposal in this respect6, led to 
Directive (EU) 2018/2057 (hereafter, the ‘GRCM Directive’). 

Under  that  Directive,  Member  States  meeting  certain  defined  criteria  have  the  possibility, 
upon  their  request,  to  be  authorised  to  apply  a  temporary  GRCM  until  30  June  2022.  Via 
letters  registered  with  the  Commission  on  21  January  2019  and  22  March  2019,  Czechia 
requested  such  an  authorisation  and  provided  information  intended  to  demonstrate  that  it 
fulfils the criteria. 

This proposal should not preclude the ongoing discussions on the definitive VAT system7.  

• 

Reasons for and objectives of the proposal 

The criteria to be met and the procedure to be followed for a GRCM authorisation are set out 
in  the  new  Article  199c(1)  to  (4)  of  the  VAT  Directive,  inserted  by  the  GRCM  Directive. 
Czechia provided in this respect the following information, as required in particular by Article 
199c(3). 

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Council  Directive  (EU)  2018/2057  of  20  December  2018  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  (OJ  L  329, 
27.12.2018, p. 3-7). 
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). 
Communication  from  the  Commission  to  the  European  Parliament,  the  Council  and  the  European 
Economic and Social Committee on an action plan on VAT - Towards a single EU VAT area - Time to 
decide (COM(2016)148 final of 7.4.2016). 
In the meantime, the necessary proposals have been adopted by the Commission: 
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 of 4.10.2017). 
Proposal  for  a  Council  Directive  amending  Directive  2006/112/EC  as  regards  the  introduction  of  the 
detailed  technical  measures  for  the  operation  of  the  definitive  VAT  system  for  the  taxation  of  trade 
between Member States (COM(2018) 329 final of 25.5.2018). 
Carousel  fraud  (sometimes  also  referred  to  as  “missing  trader  fraud”)  finds  notably  its  roots  in  the 
current  exemption  for  intra-Community  supplies  that  allows  for  goods  to  be  obtained  VAT-free.  A 
number  of  traders  subsequently  engage  in  tax  fraud  by  not  paying  to  the  tax  authorities  the  VAT 
received  from  their  customers. Those  customers,  however,  being  in  receipt  of  valid  invoices,  remain 
entitled  to  a  tax  deduction.  The  same  goods  can  be  supplied  several  times  over  by  including  again 
exempt intra-Community supplies. Similar carousel fraud can also occur when services are supplied.  
COM(2016) 811 final of 21.12.2016. 
COM(2018) 329 final of 25.5.2018. 

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1. 

1.1. 

Detailed justification of the fulfilment of the relevant criteria (Article 199c(3)(a), in 
connection with paragraph (1), of the VAT Directive). 

A VAT gap of at least 5 percentage points above the Community median VAT gap in 
2014 according to the VAT gap final report of 23 August 2016. 

Czechia’s VAT  gap in  2014 was 16.14% of its overall VAT liability according to  the 2016 
final report dated 23 August 2016 on the VAT gap published by the Commission8. That report 
also states that the median VAT gap in the European Union (EU) was 10.4%. Czechia’s VAT 
gap therefore exceeds the EU median VAT gap by more than 5 percentage points. 

1.2. 

A  carousel  fraud  level  within  the  total  VAT  gap  of  more  than  25%  based  on  the 
impact  assessment  that  accompanied  the  legislative  proposal  for  the  GRCM 
Directive. 

According to  that impact  assessment9, 28% of Czechia’s  VAT gap is  due to  carousel  fraud. 
Therefore, this criterion is fulfilled. 

1.3. 

It is established that other control measures as well as administrative cooperation in 
the field of VAT are not sufficient to combat carousel fraud. 

According  to  the  information  provided  by  Czechia,  this  Member  State  has  undertaken  a 
number  of  specific  control  measures  against  VAT  fraud.  An  overview  of  these  measures  is 
provided hereunder together with Czechia’s assessment of their functioning and effect. This is 
followed by Czechia’s evaluation of the administrative cooperation in the field of VAT with 
the other Member States.  

1.3.1.  Application of the sectorial reverse charge mechanism 

On the basis of Articles 199 and 199a of the VAT Directive, Czechia extended the application 
of  the  reverse  charge  mechanism  to  supplies  in  a  number  of  sectors  including:  construction 
work,  staff  for  construction  work,  immovable  property  where  the  supplier  has  opted  for 
taxation,  waste  and  scrap,  goods  provided  as  security  and  supplied  in  execution  of  that 
security,  goods  on  which  a  reservation  of  ownership  has  been  granted  to  an  assignee  and 
which are supplied in the framework of the exercise of this right by the assignee, immovable 
property  owned  by  a  judgment  debtor  and  supplied  in  a  compulsory  sale  procedure, 
greenhouse  gases  allowances,  mobile  phones,  integrated  circuit  devices,  gas  and  electricity 
and  electricity  certificates,  certain  telecommunication  services,  game  consoles,  laptops, 
cereals and certain crops, certain metals (including precious metals). 

According to Czechia’s assessment these measures have been highly effective but they have 
not  prevented  fraud  shifting  to  other  sectors;  e.g.  from  mobile  phones  to  other  electronics, 
from gold to other metals (silver, platinum). 

1.3.2. 

Joint and several liability 

Based  on  Article  205  of  the  VAT  Directive  Czechia  has  introduced,  for  supplies  between 
taxable persons, the joint and several liability for VAT purposes in a number of cases. Thus, 
joint and several liability is applicable in relation to certain supplies of mineral oils and other 
products subject to excise duties.  

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9 

Center  for Social and Economic Research (CASE), Study and Reports on the VAT Gap in the EU-28 
Member States: 2016 Final Report (TAXUD/2015/CC/131), 2016, p.19. 
SWD(2016) 457 final of 21.12.2016, p.39. 

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Further,  customers  have  also  been  held  jointly  and  severally  liable  for  payment  of  VAT  in 
relation to any other supply of goods or services where a customer has been found not to be in 
good faith, in particular when the ‘knowledge test’ is fulfilled, i.e. when the customer knew or 
should  have  known  that  the  VAT  would  deliberately  not  be  paid  by  the  supplier  to  the  tax 
administration. In addition, there are a number of particular situations under which the joint 
and  several  liability  of  the  customer  is  systematically  applied  like,  for  instance,  when  the 
price, without any apparent justification, clearly deviates from the normal market price; when 
virtual  currency  is  used,  or  when  the  supplier  is  an  unreliable  taxable  person  (see  further, 
point 1.3.4). 

According  to  Czechia’s  assessment,  this  measure  has  had  a  preventive  character  but  it  is 
difficult to apply in complex situations within supply chains, notably where the customer of a 
missing trader is an entity without any assets. Further, the ‘knowledge test’ has also created 
considerable problems for the tax authorities, as national courts have ruled that it is for the tax 
administration to prove that the customer ‘knew or should have known’ that the VAT would 
not be paid by the supplier. 

1.3.3.  Split payment mechanism 

Czechia  has  introduced  an  optional  split  payment  mechanism.  Via  the  split  payment 
mechanism, the customer pays the VAT directly to the tax administration and no longer to the 
supplier. This eliminates the customer’s VAT liability in respect of the whole VAT due in a 
transaction, in cases where the customer is held jointly and severally liable on the basis of the 
conditions set out in point 1.3.2. 

According  to  Czechia,  the  measure  is  effective  but  has  disadvantages  owing  to  its  optional 
character.  Making  the  split  payment  obligatory  would,  in  the  view  of  Czechia,  be 
administratively  and  financially  too  demanding  in  terms  of  increased  administration  for 
payments, personnel and IT costs, both for traders and for the tax authorities. In addition, in 
case the customer does not make use of the split payment mechanism, it cannot be assumed 
that the ‘knowledge test conditions’ have been fulfilled. National courts have held that, even 
in that case, the tax administration has to demonstrate that the customer knew, or should have 
known, to be involved in a fraud situation. Moreover, the VAT can only be recovered from 
the  customer  who  has  not  used  the  split  payment  mechanism  under  the  joint  and  several 
liability  scheme,  insofar  the  recovery  from  the  supplier  has  proven  unsuccessful;  effective 
recovery can therefore only take place after a certain period. 

1.3.4. 

Identification of unreliable taxable persons (for registered persons) 

Where a serious breach of tax obligations has occurred, the tax administration can identify a 
taxable person as unreliable based on certain criteria, notably the following: cumulative VAT 
arrears for at least three consecutive calendar months of at least CZK 500 000, breach of tax 
obligations  leading  to  tax  adjustments  by  the  tax  administration  in  at  least  two  out  of  six 
consecutive  tax  periods,  rejection  by  the  tax  administration  owing  to  tax  infractions  of 
claimed  input  VAT  deduction  of  at  least  CZK  500 000,  failure  to  respond  to  the  tax 
administration’s requests, failure to file a VAT return at least twice during a period of twelve 
consecutive  calendar  months,  provision  of  false  or  incomplete  information  for  VAT 
registration  purposes,  or  establishment  by  the  tax  administration  that  an  amount  of  at  least 
CZK 500 000 output VAT has not been declared. Information on unreliable taxable persons is 
published on the website of the tax administration and an appeal procedure is foreseen. 

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According to Czechia, the measure has a preventive effect but requires an effective decision 
from  the  tax  administration,  before  which  fraudsters  can  already  commit  fraud.  Further,  the 
measure  is  not  really  effective  in  cross-border  situations  as  an  unreliable  taxable  person  in 
Czechia can still use a (valid) VAT number for intra-Community fraud schemes. 

1.3.5. 

Identification of unreliable persons (for non-registered persons) 

The  measure,  similar  to  the  previous  one,  is  intended  to  identify  unreliable  persons.  In  this 
case,  however,  the  target  are  those  persons  which  are  not  (yet)  registered  but  which  have 
already breached certain VAT obligations. The list of unreliable persons is published on the 
website of the tax administration. 

If such  an unreliable person  becomes  VAT registered, that  person automatically obtains the 
status  of  an  unreliable  taxable  person  within  the  meaning  of  the  measure  outlined  in  point 
1.3.4. Furthermore, when an unreliable taxable person is de-registered, the status as unreliable 
person is preserved. An appeal procedure to withdraw such status is foreseen on the basis of 
similar conditions as those existing for unreliable taxable persons. 

According to Czechia, the measure has a preventive effect and ensures a continuity between 
the status of unreliable person and unreliable taxable person. However, similar to the pitfalls 
identified in point 1.3.4 above, fraudsters are able to effectively circumvent the measure prior 
to registration and in cross-border scenarios. 

1.3.6.  Additional VAT reporting 

Data from additional VAT reporting submitted by taxable persons for each calendar month is 
cross-checked  in  order  to  identify  possible  tax  fraud  scenarios.  This  has  helped  the  tax 
administration  improving  the  method  for  selecting  taxable  persons  that  will  be  subject  to 
control. 

Although useful for detecting fraudsters in a quicker way, Czechia is of the opinion that this 
conventional tool has reached its limits, taking into account the overall control capacity of the 
tax administration. 

1.3.7.  Seizure 

In  individual  cases,  seizure  orders  can  be  issued  by  the  tax  administration  in  order  to 
guarantee payment of the VAT. 

According  to  Czechia,  the  measure  is  very  effective  but  since  it  is  only  applicable  in 
individual situations, it does not provide a general protection to the common VAT system. 

1.3.8.  Automatic VAT deregistration 

This  measure consists in cancelling  the  VAT number of a taxable person in  case of serious 
breaches  of  VAT  obligations.  The  measure  is  applicable  in  relation  to  VAT  groups  and  to 
taxable  persons  that  had  a  turnover  that  did  not  exceed  CZK  1  million  during  the  previous 
twelve calendar months.  

Czechia  describes  the  measure  as  very  efficient  both  domestically  and  for  cross-border 
supplies. However, as the measure can only be applied after infractions have taken place, the 
measure is not able to entirely prevent the risk of fraud. 

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1.3.9.  Refusal of the right of deduction (or of the exemption for intra-Community supplies), 

based on the knowledge test 

The measure is applied to refuse the right of deduction, or the right to apply an exemption, in 
case the acquirer (in the first case) or the supplier (in the second) knew or should have known 
(knowledge test) that they were participating in a transaction connected with fraudulent VAT 
evasion. This reflects the case-law of the Court of Justice of the European Union (‘CJEU’), as 
set  out  in  Kittel10.  The  Czech  administration  makes  use  of  ‘knowledge  letters’  informing 
businesses  that  they  might  be  involved  in  a  fraud  scheme.  These  letters  are  either  recipient 
specific  (they  can  mention  the  suspected  business  partner  or  not)  or  general  (notification  to 
the  general  public  about the existence of a specific risk situation of fraud in  Czechia or the 
European Union). 

However, according to Czechia, it is difficult for the tax administration in case of organised 
fraud to demonstrate in practice that a business knew or should have known to be involved in 
fraud. 

1.3.10.  Screening of applicants before VAT registration 

Systematic  pre-registration  verification  takes  place  in  order  to  target,  inter  alia,  potential 
missing  traders;  e.g.  on-site  investigation  is  used  to  demonstrate  that  no  effective  economic 
activity is carried out or prepared in order to refuse registration. 

Czechia  considers  the  measure  to  be  highly  effective  in  preventing  fraudsters  from  entering 
the VAT system (and committing intra-Community fraud) but finds it difficult to demonstrate, 
on the basis of objective factors, that there is sound evidence leading to the suspicion that a 
VAT  identification  number  will  be  used  fraudulently,  taking  into  account  the  criteria  of  the 
CJEU laid down in Ablessio11. 

1.3.11.  Administrative  cooperation  in  the  field  of  VAT  (Council  Regulation  (EU)  No 

904/2010)12 

According  to  Czechia,  much  attention  is  given  to  the  cooperation  and  the  exchange  of 
information  with  the  other  Member  States.  In  addition  to  the  cooperation  provided  for  in 
Regulation (EU) No 904/2010, cooperation agreements have been established with Slovakia 
and Poland, and another one with Germany is under preparation. 

Czechia  also  regularly  participates  in  the  so-called  simultaneous  multilateral  controls  with 
other Member States. Further, Czechia is involved in all work conducted under the Eurofisc 
network  (missing  trader  intra-Community  (MTIC)  fraud,  means  of  transport,  customs 
procedures,  observatory,  e-commerce  and  Transaction  Network  Analysis  (TNA)).  Eurofisc 
data is actively used to detect suspicious transactions. 

Administrative  cooperation  in  the  field  of  VAT,  according  to  Czechia,  has  an  undeniable 
importance but does not entirely prevent the occurrence of fraud. Moreover, it is not useful for 
purely domestic fraud. 

1.3.12.  Conclusion 

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Judgment of 6 July 2006, Kittel, C-439/04, EU:C:2006:446. 
Judgment of 14 March 2013, Ablessio, C-527/11, EU:C:2013:168.  
Council Regulation (EU) No 904/2010 of 7 October 2010 on administrative cooperation and combating 
fraud in the field of value added tax (recast) (OJ L 268, 12.10.2010, p. 1).  

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The  overall  conclusion  of  Czechia  with  regards  to  the  above-mentioned  measures  is  that, 
while they have significantly contributed to the reduction of fraud, they have not been able to 
entirely eliminate missing trader fraud in the current VAT system. 

Given the considerable and real attempts that have been made to fight (carousel) fraud and the 
fact that these attempts have not been wholly successful, the condition in Article 199c(1)(c) of 
the VAT Directive can be considered as being fulfilled. 

1.4. 

The  expected  estimated  gains  in  tax  compliance  and  collection  outweigh  the 
expected overall additional burden on business and tax authorities by at least 25%. 

According to the Czech authorities, the introduction of the GRCM will not require, as far as 
the  tax  administration  is  concerned,  any  increase  of  staff,  only  a  relocation  of  human 
resources.  The  cost  of  adapting  the  organisation  of  the  Czech  tax  administration  (including 
training and modification of the IT systems) is estimated at CZK 4 million. 

As regards taxable persons, the introduction of the GRCM will mean one-off costs in order to 
modify the IT systems. According to estimates, the GRCM should apply to a total of 97 000 
taxable  persons.  From  this  group,  more  than  60%  already  have  experience  with  sectorial 
reverse charge. Their IT structures and invoicing systems are prepared for the GRCM, so that 
they would only need partial modifications of existing structures. For the other 37 500 taxable 
persons, they may need to purchase new IT structures or extend the existing ones; however, 
based on queries from  the largest  tax and accounting software providers, it seems  that  such 
changes are part of regular updates and are not charged separately. 

Other costs are linked to employee training; however, such costs are required essentially with 
any legislative change. Since reverse charge is not a measure that would be completely new, it 
is not expected that these costs would be significant. 

Other costs for taxable  persons arise from  the need to  monitor for each  transaction whether 
the threshold of EUR 17 500, above which the GRCM would apply, is met. However, taking 
into account that in most cases this is done through accounting software, these costs will not 
be  very  significant.  Moreover,  in  the  GRCM  the  differentiation  of  transactions  in  terms  of 
their amount is significantly easier than the differentiation in the case of a sectorial approach.  

Further  in  some  cases,  suppliers  of  goods  and  services  may  need  to  verify  whether  the 
customer is a taxable person and therefore whether reverse charge applies. However, in those 
cases  the  register  of  taxable  persons  can  be  used,  which  is  made  available  by  the  tax 
administration (connection with the taxable person’s software). 

Czechia further explained that, when additional VAT reporting was introduced in 2016, costs 
for  taxable  persons  were  estimated  at  EUR  370  for  small  businesses  and  from  EUR  740  to 
EUR 3 000 for other companies, resulting in a total of around CZK 6 billion for businesses. 
The  Czech  authorities  estimate  that  the  total  costs  for  taxable  persons  arising  from  the 
implementation of the GRCM would approximately represent a 10% of that amount, namely 
CZK 0.6 billion. 

As  regards  the  benefits  of  the  system,  reference  is  made  to  the  experiences  in  the  sectorial 
reverse charge which have led to a decrease of 98% of the fraud amount and to a decrease of 
89% in the number of fraud cases. On this basis, it is expected that fraud will be reduced by 
CZK 5 billion per year. If applied for 2 years, the gain would be CZK 10 billion. On the other 
hand,  as  stated  above,  the  costs  incurred  by  the  tax  authorities  would  only  amount  to  CZK 
0.004 billion and the costs for taxable persons are expected at CZK 0.6 billion. In conclusion, 
the estimated costs represent 6.04% of the estimated benefits. 

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Given that the estimated gains (CZK 10 billion) largely exceed the overall costs (CZK 0.604 
billion) by more than 25%, this condition can be considered as fulfilled. 

1.5. 

The introduction of the GRCM will not result in higher costs for businesses and tax 
authorities than those arising from other control measures. 

On the basis of the above-mentioned calculations, it would appear that the expected costs for 
both  businesses  and  tax  administrations  are  not  significant,  although  Czechia  acknowledges 
that it is difficult to provide a precise comparison with other control measures.  

Czechia  has  no  intention  to  change  the  overall  organisation  of  its  tax  controls  after  the 
introduction  of  the  GRCM.  Therefore,  no  additional  costs  (apart  from  the  costs  mentioned 
above) will arise for the tax administration or the controlled businesses. 

This condition can therefore be considered as fulfilled. 

2. 

Foreseen starting date of application of the GRCM and period to be covered (Article 
199c(3)(b) of the VAT Directive). 

Czechia has requested to be authorised to start the application of the GRCM from 1 January 
2020 and until 30 June 2022. 

3. 

Actions to inform taxable persons (Article 199c(3)(c) of the VAT Directive). 

Taxable persons will be electronically informed  about the introduction of the GRCM as well 
as the starting date of its application. Moreover, contacts will be established and discussions 
will  take  place  with  business  associations  and  tax  advisors.  Promotional  material  will  be 
distributed  via  public  media  (e.g.  leaflets,  information  on  the  website  of  the  tax 
administration). 

4. 

Detailed  description  of  the  accompanying  measures  (Article  199c(3)(d),  in 
connection with paragraph (2), of the VAT Directive). 

This  provision  requires  the  introduction  of  appropriate  and  effective  electronic  reporting 
obligations  for  all  taxable  persons  and,  in  particular,  for  taxable  persons  who  supply  or 
receive goods or services to which the GRCM applies to ensure the effective functioning and 
monitoring of the application of the GRCM. 

Czechia considers that the tax control mechanisms which are already in place suffice in order 
to  ensure  the  correct  functioning  of  the  GRCM  and  that  no  additional  control  measures  are 
needed.  Such  measures  already  include  the  additional  VAT  reporting  tools  referred  to  in 
section  1.3.6.  above.  In  particular,  data  obtained  from  such  reporting  obligations  already 
established at national level will be used as an analytical tool for detecting suspicious supply 
chains. According to this reporting system, which entails the submission of a VAT statement 
(listing  in  addition  to  the  VAT  return)  that  can  be  filed  electronically,  supplies  under  the 
GRCM will have to be reported in the same way as it is already done for domestic supplies 
under reverse charge (but with the addition of a special GRCM code). 

• 

Consistency with existing policy provisions in the policy area 

The purpose of this authorisation is limited in scope and in time and is without prejudice to 
the  development  of  the  definitive  VAT  system  for  intra-Union  business-to-business  cross-
border trade. 

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2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

Article 199c of the VAT Directive.  

• 

Subsidiarity (for non-exclusive competence)  

Considering  the  provision  of  the  VAT  Directive  on  which  the  proposal  is  based,  the 
subsidiarity principle does not apply. 

• 

Proportionality 

The Decision concerns an authorisation granted to a Member State upon its own request and 
does not constitute any obligation. 

Given  its  scope  and  limitation  in  time,  the  special  measure  is  proportionate  to  the  aim 
pursued, i.e. combating carousel fraud while, in the meantime, the definitive VAT system is 
being negotiated. 

• 

Choice of the instrument 

Proposed instrument: Council Implementing Decision. 

Under Article 199c of the VAT Directive, the GRCM can only be applied upon authorisation 
of  the  Council  acting  unanimously  on  a  proposal  from  the  Commission.  A  Council 
Implementing  Decision  is  the  most  suitable  instrument  since  it  can  be  addressed  to  an 
individual Member State. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

This proposal is based on a request made by Czechia and concerns only this Member State. 

• 

Collection and use of expertise 

There was no need for external expertise.  

• 

Impact assessment 

The insertion of Article 199c in the VAT Directive, on which this authorisation is based, was 
subject  to  an  impact  assessment  on  which  the  Regulatory  Scrutiny  Board  gave  a  positive 
opinion with recommendations on 28 November 201613. 

4. 

BUDGETARY IMPLICATIONS 

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

5. 

OTHER ELEMENTS 

The proposal is limited in time. 

13 

See: http://ec.europa.eu/smart-regulation/impact/ia_carried_out/cia_2016_en.htm 

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2019/0137 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

authorising Czechia to apply the generalised reverse charge mechanism derogating from 
Article 193 of Directive 2006/112/EC 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty on the Functioning of the European Union,  

Having  regard  to  Council  Directive  2006/112/EC  of  28  November  2006  on  the  common 
system of value added tax1, and in particular Article 199c(4) thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

Article 199c of Directive 2006/112/EC permits Member States, by way of derogation 
from  Article  193  of  that  Directive  and  under  certain  strict  conditions,  to  introduce  a 
generalised  reverse  charge  mechanism  (‘GRCM’)  on  non-cross-border  supplies  of 
goods and services, providing that the person liable for payment of VAT is the taxable 
person to whom all supplies of goods or services are made above a threshold of EUR 
17 500 per transaction. 

By  letters  registered  with  the  Commission  on  21  January  2019  and  22  March  2019, 
Czechia requested authorisation to apply the GRCM. 

The VAT gap in Czechia in 2014 was 16.14% of the VAT total tax liability, according 
to the method and figures set out in the Commission’s 2016 final report of 23 August 
2016  on  the  VAT  gap2.  Czechia’s  VAT  gap  therefore  exceeded  the  Community 
median VAT gap (10.4%) by more than 5 percentage points.  

The  carousel  fraud  level  within  Czechia’s  total  VAT  gap  was  more  than  25% 
according  to  the  impact  assessment3  that  accompanied  the  proposal  for  Council 
Directive (EU) 2018/20574, which introduced the GRCM. 

Czechia  provided  details  to  the  Commission  showing  that,  although  several  control 
measures had been implemented in Czechia with positive results, the measures had not 
been  sufficient  to  combat  carousel  fraud.  Administrative  co-operation  in  the  field  of 
VAT had also not proved sufficient to combat carousel fraud. 

(6) 

Czechia  provided  details  to  the  Commission  showing  that  the  estimated  gains  as  a 
result  of  the  introduction  of  the  GRCM  are  expected  to  be  CZK  10  billion.  Czechia 

1 
2 

3 
4 

OJ L 347, 11.12.2006, p. 1. 
Center for Social and Economic Research (CASE), Study and Reports on the VAT Gap in the EU-28 
Member States: 2016 Final Report (TAXUD/2015/CC/131), 2016, p.19. 
SWD(2016) 457 final of 21.12.2016, p.39. 
Council  Directive  (EU)  2018/2057  of  20  December  2018  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  (OJ  L  329  of 
27.12.2018, p. 3).  

EN 

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(7) 

(8) 

(9) 

also  showed  that  the  overall  additional  burden  on  business  and  tax  authorities  is 
expected  to  be  CZK  0.604  billion.  The  estimated  gains  therefore  outweigh  the 
expected overall additional burden by more than 25%.  

Given  that  Czechia  does  not  expect  the  overall  additional  burden  resulting  from  the 
introduction  of  the  GRCM  to  be  significant,  it  will  not  result  in  businesses  and  tax 
authorities  incurring  costs  that  are  higher  than  those  incurred  as  a  result  of  the 
application of other control measures. 

Czechia  has  asked  to  be  authorised  to  apply  the  GRCM  from  1  January  2020  to 
30 June 2022. 

Czechia has confirmed to the Commission that actions will be taken to inform taxable 
persons of the introduction of the application of the GRCM via e-mail, public lectures, 
discussions with business associations, the website of the administration and printed or 
electronic promotional material. 

(10)  Czechia has provided the Commission with a detailed description of its existing VAT 
control  mechanisms  and  confirmed  that,  with  the  addition  of  a  special  GRCM  code, 
the  existing  measures  will  be  sufficient  to  ensure  the  effective  functioning  and 
monitoring of the GRCM. 

(11)  Based on the information provided by Czechia to the Commission, it is considered that 
Czechia fulfils  the conditions  referred to  in  paragraph 1 of Article 199c  of Directive 
2006/112/EC  and  that  the  request  submitted  by  Czechia  complies  with  the  other 
requirements  of  paragraph  3  of  that  Article.  It  is  therefore  appropriate  to  authorise 
Czechia to apply the GRCM for the period requested by Czechia. 

(12)  The  derogation  will  have  no  adverse  impact  on  the  Union’s  own  resources  accruing 

from VAT,  

HAS ADOPTED THIS DECISION:  

Czechia is authorised to apply the generalised reverse charge mechanism in accordance with 
Article 199c of Directive 2006/112/EC for the period from 1 January 2020 to 30 June 2022. 

Article 1 

This Decision is addressed to Czechia. 

Done at Brussels, 

Article 2 

For the Council 
The President 

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