Czech Republic delays introduction of Generalized Reverse Charge Mechanism (GRCM)

Mar 23, 2020 | VAT Updates

After years of efforts, the generalized reverse charge mechanism was approved by the Council Directive (based on the article 199c on the VAT) in November 2019. The new mechanism was originally due to come into effect on 1 January 2020 until place until 20th June 2022.

The generalized reverse charge mechanism was proposed by the Czech government to fight VAT frauds in the Czech Republic. The mechanism will affect the domestic supply of goods and services when the transaction exceeds the threshold level of €17,500. It involves shifting the liabilities for VAT payments from the business-to-business transaction, which moves the liabilities from the supplier to the customer. This means that the seller will not collect the VAT on the domestic transactions and the customer will need to report the transaction in their VAT returns as payable and receivable.

Council Directive (EU) 2018/2057 of 20th  December 2018, approved by the EU Council in October 2018, allows member states that are most severely affected by VAT fraud to temporarily apply a generalized reversal of VAT liability. In addition to this, the member state will also need  to fulfil other requirements mentioned in the Council Directive.

The Czech Republic’s VAT gap was 16.14% of its overall VAT liability and around 28% of the VAT gap was recognized as carousel fraud. Member States may use the GRCM once it meets the eligibility criteria and the request has been authorized.

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