Quick Response Mechanism to combat VAT

The European Commission has proposed from 31 July 2012 a Quick Response Mechanism (QRM) to combat VAT MTIC, carousel fraud.

Member States would be able to apply, within the space of a month, a “reverse charge mechanism” which makes the recipient rather than the supplier of the goods or services liable for VAT.

In order to deal with possible new forms of fraud in the future, it is also expected that other anti-fraud measures could be authorised and established under the QRM.

VAT fraud costs the EU and national budgets several billion euros every year.  In some serious cases, vast amounts are lost within a very short time.

Between June 2008 and December 2009, an estimated €5 billion was lost as a result of VAT fraud in greenhouse gas emission allowances.

Prior to the QRM, if a Member State wished to counteract VAT fraud through measures not provided for under EU VAT legislation, it had to formally request a derogation to do so. The Commission then submitted a proposal to this effect to the Council for unanimous adoption before the measures could be implemented. This process was slow and cumbersome, delaying the Member State in question from taking the necessary action to stop the fraud.

Under the QRM, Member States would be granted a temporary derogation within a month. The derogation would be valid for up to one year.

This would allow the Member State in question to begin counteracting the fraud almost immediately, while more permanent measures are being established (and if necessary while the standard derogation procedure is being launched).

The “reverse charge mechanism” undermines the whole basis of carousel fraud, by switching the tax liability to the customer, rather than the supplier. The customer is liable for the VAT.

The customer must report and pay the VAT, and can deduct this VAT from their taxable income at the same time subject to their taxable status.

If you would like further information in relation to the QRM please contact the TaxDesk on 0845 4900 509 and ask for Vaughn Chown (VAT) or John Hood (Tax Investigations).