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VAT in View

Kitty Miv, Editor
18 May, 2022

In this week's column, we will be looking at recent VAT developments, starting with the European Parliament's endorsement of an extension to the optional reverse charge mechanism.

The European Commission has proposed extending – beyond June 2022 – the possibility for member states to react to VAT fraud encountered in their territory by introducing a VAT reverse charge, either under Article 199a(1) of the VAT Directive, or under the Quick Reaction Mechanism (QRM) in Article 199b. The proposal is in response to a delay to the implementation of the new definitive VAT regime for the EU.

Prior to the introduction of the QRM in Article 199b, a member state that wanted to counteract VAT fraud through measures not provided for under EU VAT legislation would have to formally request a derogation to do so. The EC would then draw up a proposal and submit it to the European Council for unanimous adoption before the measure to counteract the fraud could be implemented. With the QRM, however, member states are permitted to not wait for the conclusion of this formal process to apply anti-fraud measures, and are able to temporarily apply a reverse charge to the affected supplies.

Article 199a of the VAT Directive was introduced for the period 2010 until June 30, 2015, and was a first time extended, with amendments, until December 31, 2018. Article 199b of the VAT Directive was introduced for the period 2013 until December 31, 2018.

Both Articles 199a and 199b of the VAT Directive were subsequently extended until June 30, 2022, to coincide with the initially foreseen date on which the VAT definitive system would enter into force.

However, the Commission has now said "the state of play of the ongoing negotiations in the Council indicates that it will not be possible for the definitive VAT system to enter into force on July 1, 2022."

It added: "In order to allow the negotiations on the definitive system to continue, without putting at risk the available tools in order to combat VAT fraud, it is appropriate to prolong the anti-fraud measures contained in the said articles for another limited period."

Meanwhile, the International Monetary Fund has called on the new government in the Bahamas to consider tax increases, including an increase in the standard VAT rate, warning that the territory's public finances are in "a perilous state" and stating that the territory's "ambitious plans" to raise revenues by five percent of GDP must be backed up by "concrete, feasible, and growth-friendly spending and revenue measures".

The IMF set out a number of options for tax reform in its report on the Bahamian economy, including a gradual increase of the VAT rate to the regional average of 15 percent, which would raise around 2.7 percent of GDP.

And last, but by no means least, in Ireland, Minister for Finance, Paschal Donohoe, announced the extension of the nine percent Value Added Tax (VAT) rate for the tourism and hospitality industry for a further six months, until 28 February 2023.

This extension will cover the same goods and services as the original measure: restaurant supplies, tourist accommodation, cinemas, theatres, museums, historic houses, open farms, amusement parks, and hairdressing, as well as certain printed matter such as brochures, leaflets, programmes, and catalogues.

Until next week!


About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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