Indirect Tax News - October 2020

The general reverse-charge is being postponed

A pilot project meant to test application of a VAT general reverse charge mechanism in the Czech Republic is being postponed for now. Originally, the government in Prague expected the mechanism to be introduced in July 2020. But because it took more than five years to gain approval by the ECOFIN Council in November 2019, the timeframe for which the pilot would run would be very short – only from July 2020 through 30 June 2022. The Czech Republic has decided not to introduce a general reverse charge for such a short period.

Under the pilot project, all taxable supplies of goods and services exceeding the amount of EUR 17,500 for individual transactions were to be subject to a general reverse charge. In practice, this would mean that the tax would not be paid by the provider but by the recipient of goods and services. The Czech government had proposed the regime to reduce VAT fraud, especially the elimination of so-called carousel transactions, such as those within a supply chain where the trader that was supposed to pay VAT "disappears". In such cases, the state then returns VAT to the trader’s customer as part of the deduction, but in reality, the VAT is never actually collected from the trader who "disappeared".

The Czech Republic currently uses the reverse charge regime in all sectors where the current legislation of the European Union allows it. The possibility of introduction of a general reverse charge to all taxable transactions within the Czech Republic is, however, once again uncertain.

Petr Vondraš