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Briefing document & Podcast: EU VAT Directive 2006/112/EC Explained: ”Liability to pay VAT” (Art. 192a -212)

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SUMMARY

This briefing document summarizes the key provisions of the provided source text, focusing on Title XI, Chapter 1, Section 1 and 2, which detail the obligations of taxable persons and certain non-taxable persons regarding Value Added Tax (VAT) payments within the European Union.

I. Core Themes:

  • Liability for VAT Payment: The document primarily addresses who is responsible for paying VAT in various scenarios, clarifying the general rule and outlining numerous exceptions. It emphasizes situations where the recipient of goods or services, rather than the supplier, becomes liable for the VAT payment.
  • Reverse Charge Mechanism: A recurring theme is the reverse charge mechanism, where the liability for VAT payment shifts from the supplier to the customer. This is particularly prevalent in cross-border transactions, specified sectors, and scenarios designed to combat fraud.
  • Non-Established Taxable Persons: The document clarifies the obligations related to taxable persons operating in a Member State where they are not established. It addresses situations where the supplier, recipient, or a tax representative may be liable for VAT payment.
  • Anti-Fraud Measures: Several articles focus on mechanisms designed to combat VAT fraud, including the Quick Reaction Mechanism (QRM) and reverse charge applications in specific sectors prone to fraudulent activities.
  • Member State Discretion: The legislation provides Member States with considerable flexibility in implementing and adapting these rules. They can designate the liable party, specify conditions for reverse charge, and implement anti-fraud measures within the framework of the directive.

II. Key Articles and Ideas:

  • Article 193: General Rule: “VAT shall be payable by any taxable person carrying out a taxable supply of goods or services…” This establishes the fundamental principle that the supplier is generally responsible for VAT payment.
  • Article 194: Reverse Charge – Non-Established Suppliers: “Where the taxable supply of goods or services is carried out by a taxable person who is not established in the Member State in which the VAT is due, Member States may provide that the person liable for payment of VAT is the person to whom the goods or services are supplied.” This is a crucial exception, enabling Member States to implement the reverse charge mechanism for foreign suppliers.
  • Article 196: Reverse Charge – Services: “VAT shall be payable by any taxable person, or non-taxable legal person identified for VAT purposes, to whom the services referred to in Article 44 are supplied, if the services are supplied by a taxable person not established within the territory of the Member State.” Extends the reverse charge to specific cross-border services.
  • Article 199: Optional Reverse Charge on Specific Supplies: This article lists various types of supplies where Member States may choose to implement the reverse charge mechanism. Examples include:
  • Construction work
  • Supply of immovable property where the supplier has opted for taxation
  • Supply of used/waste materials.
  • Article 199a: Temporary Reverse Charge (Until 2026): Allows Member States to apply the reverse charge on certain goods and services susceptible to fraud, “Until 31 December 2026, Member States may provide that the person liable for the payment of VAT is the taxable person to whom any of the following supplies are made”, and lists supplies like greenhouse gas emission allowances, mobile telephones, and integrated circuit devices.
  • It also contains a section on reporting requirements for those member states that leverage this article.
  • Article 199b: Quick Reaction Mechanism (QRM): This article introduces a temporary measure to combat sudden and massive VAT fraud. It allows Member States to quickly designate the recipient as liable for VAT payment under specific conditions.
  • The QRM is limited to 9 months, and is subject to Commission approval.
  • The QRM also expires on December 31, 2026.
  • Article 204: Tax Representative: “Where…the person liable for payment of VAT is a taxable person who is not established in the Member State in which the VAT is due, Member States may allow that person to appoint a tax representative as the person liable for payment of the VAT.” Allows (or in some cases, requires) non-established taxable persons to appoint a tax representative to handle VAT obligations.
  • Article 206: Payment upon VAT Return: “Any taxable person liable for payment of VAT must pay the net amount of the VAT when submitting the VAT return…” This aligns VAT payment with the regular VAT return process.
  • Article 211: Deferred Payment on Import: “…Member States may provide that, in the case of the importation of goods by taxable persons…the VAT due by reason of the importation need not be paid at the time of importation, on condition that it is entered as such in the VAT return…” Allows for deferred payment of import VAT for taxable persons, streamlining the import process.

III. Implications:

  • Complexity: The VAT rules are complex, with numerous exceptions and variations depending on the nature of the transaction, the location of the parties involved, and the specific implementation by each Member State.
  • Compliance Burden: Businesses engaged in cross-border transactions, or those dealing in sectors subject to reverse charge or special anti-fraud measures, face a significant compliance burden.
  • Risk Management: Understanding the specific rules and liabilities is crucial for businesses to avoid penalties and ensure compliance with VAT regulations.
  • Dynamic Landscape: The ongoing introduction of anti-fraud measures and the evolving interpretation of VAT rules necessitate continuous monitoring and adaptation by businesses and tax professionals.

This briefing doc provides a high-level overview. A thorough understanding requires consulting the full text and relevant national legislation.

 

Other articles on ”Unwrapping the EU VAT Directive 2006/112/EC):

Articles in the EU VAT Directive 

TITLE XI
OBLIGATIONS OF TAXABLE PERSONS AND CERTAIN NON-TAXABLE PERSONS

CHAPTER 1
Obligation to Pay

Section 1
Persons Liable for Payment of VAT to the Tax Authorities

Article 192a
For the purposes of this Section, a taxable person who has a fixed establishment within the territory of the Member State where the tax is due shall be regarded as a taxable person who is not established within that Member State when the following conditions are met:
(a) he makes a taxable supply of goods or services within the territory of that Member State;
(b) an establishment which the supplier has within the territory of that Member State does not intervene in that supply.

Article 193
VAT shall be payable by any taxable person carrying out a taxable supply of goods or services, except where it is payable by another person in the cases referred to in Articles 194 to 199b and Article 202.

Article 194

  1. Where the taxable supply of goods or services is carried out by a taxable person who is not established in the Member State in which the VAT is due, Member States may provide that the person liable for payment of VAT is the person to whom the goods or services are supplied.
  2. Member States shall lay down the conditions for the implementation of paragraph 1.

Article 195
VAT shall be payable by any person who is identified for VAT purposes in the Member State in which the tax is due and to whom goods are supplied in the circumstances specified in Articles 38 or 39, if the supplies are carried out by a taxable person not established within that Member State.

Article 196
VAT shall be payable by any taxable person, or non-taxable legal person identified for VAT purposes, to whom the services referred to in Article 44 are supplied, if the services are supplied by a taxable person not established within the territory of the Member State.

Article 197

  1. VAT shall be payable by the person to whom the goods are supplied when the following conditions are met:
    (a) the taxable transaction is a supply of goods carried out in accordance with the conditions laid down in Article 141;
    (b) the person to whom the goods are supplied is another taxable person, or a non-taxable legal person, identified for VAT purposes in the Member State in which the supply is carried out;
    (c) the invoice issued by the taxable person not established in the Member State of the person to whom the goods are supplied is drawn up in accordance with Sections 3 to 5 of Chapter 3.
  2. Where a tax representative is appointed as the person liable for payment of VAT pursuant to Article 204, Member States may provide for a derogation from paragraph 1 of this Article.

Article 198

  1. Where specific transactions relating to investment gold between a taxable person who is a member of a regulated gold bullion market and another taxable person who is not a member of that market are taxed pursuant to Article 352, Member States shall designate the customer as the person liable for payment of VAT. If the customer who is not a member of the regulated gold bullion market is a taxable person required to be identified for VAT purposes in the Member State in which the tax is due solely in respect of the transactions referred to in Article 352, the vendor shall fulfill the tax obligations on behalf of the customer, in accordance with the law of that Member State.
  2. Where gold material or semi-manufactured products of a purity of 325 thousandths or greater, or investment gold as defined in Article 344(1), are supplied by a taxable person exercising one of the options under Articles 348, 349, and 350, Member States may designate the customer as the person liable for payment of VAT.
  3. Member States shall lay down the procedures and conditions for the implementation of paragraphs 1 and 2.

Article 199

  1. Member States may provide that the person liable for payment of VAT is the taxable person to whom any of the following supplies are made:
    (a) the supply of construction work, including repair, cleaning, maintenance, alteration, and demolition services in relation to immovable property, as well as the handing over of construction works regarded as a supply of goods pursuant to Article 14(3);
    (b) the supply of staff engaged in activities covered by point (a);
    (c) the supply of immovable property, as referred to in Article 135(1)(j) and (k), where the supplier has opted for taxation of the supply pursuant to Article 137;
    (d) the supply of used material, used material which cannot be reused in the same state, scrap, industrial and non-industrial waste, recyclable waste, part processed waste, and certain goods and services, as listed in Annex VI;
    (e) the supply of goods provided as security by one taxable person to another in execution of that security;
    (f) the supply of goods following the cession of a reservation of ownership to an assignee and the exercising of this right by the assignee;
    (g) the supply of immovable property sold by a judgment debtor in a compulsory sale procedure.
  2. When applying the option provided for in paragraph 1, Member States may specify the supplies of goods and services covered, and the categories of suppliers or recipients to whom these measures may apply.
  3. For the purposes of paragraph 1, Member States may take the following measures:
    (a) provide that a taxable person who also carries out activities or transactions that are not considered to be taxable supplies of goods or services in accordance with Article 2 shall be regarded as a taxable person in respect of supplies received as referred to in paragraph 1 of this Article;
    (b) provide that a non-taxable body governed by public law shall be regarded as a taxable person in respect of supplies received as referred to in points (e), (f), and (g) of paragraph 1.
  4. Member States shall inform the VAT Committee of national legislative measures adopted pursuant to paragraph 1 in so far as these are not measures authorized by the Council prior to 13 August 2006 in accordance with Article 27(1) to (4) of Directive 77/388/EEC, and which are continued under paragraph 1 of this Article.

Article 199a

  1. Until 31 December 2026, Member States may provide that the person liable for the payment of VAT is the taxable person to whom any of the following supplies are made:
    (a) the transfer of allowances to emit greenhouse gases as defined in Article 3 of Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community, transferable in accordance with Article 12 of that Directive;
    (b) the transfer of other units that may be used by operators for compliance with the same Directive;
    (c) supplies of mobile telephones, being devices made or adapted for use in connection with a licensed network and operated on specified frequencies, whether or not they have any other use;
    (d) supplies of integrated circuit devices such as microprocessors and central processing units in a state prior to integration into end-user products;
    (e) supplies of gas and electricity to a taxable dealer as defined in Article 38(2);
    (f) supplies of gas and electricity certificates;
    (g) supplies of telecommunication services as defined in Article 24(2);
    (h) supplies of game consoles, tablet PCs, and laptops;
    (i) supplies of cereals and industrial crops including oil seeds and sugar beet, that are not normally used in the unaltered state for final consumption;
    (j) supplies of raw and semi-finished metals, including precious metals, where they are not otherwise covered by point (d) of Article 199(1), the special arrangements for second-hand goods, works of art, collector’s items, and antiques pursuant to Articles 311 to 343, or the special scheme for investment gold pursuant to Articles 344 to 356.
    1a. Member States may lay down the conditions for the application of the mechanism provided for in paragraph 1.
    1b. The application of the mechanism provided for in paragraph 1 to the supply of any of the goods or services listed in points (c) to (j) of that paragraph is subject to the introduction of appropriate and effective reporting obligations on taxable persons who supply the goods or services to which the mechanism provided for in paragraph 1 applies.
  2. Member States shall inform the VAT Committee of the application of the mechanism provided for in paragraph 1 on the introduction of any such mechanism and shall provide the following information to the VAT Committee:
    (a) the scope of the measure applying the mechanism together with the type and the features of the fraud, and a detailed description of accompanying measures, including any reporting obligations on taxable persons and any control measures;
    (b) actions taken to inform the relevant taxable persons of the introduction of the application of the mechanism;
    (c) evaluation criteria to enable comparison between fraudulent activities in relation to the goods and services listed in paragraph 1 before and after the application of the mechanism, fraudulent activities in relation to other goods and services before and after the application of the mechanism, and any increase in other types of fraudulent activities before and after the application of the mechanism;
    (d) the date of commencement and the period to be covered by the measure applying the mechanism.

Article 199b

  1. A Member State may, in cases of imperative urgency and in accordance with paragraphs 2 and 3, designate the recipient as the person liable to pay VAT on specific supplies of goods and services by derogation from Article 193 as a Quick Reaction Mechanism (QRM) special measure to combat sudden and massive fraud liable to lead to considerable and irreparable financial losses. The QRM special measure shall be subject to appropriate control measures by the Member State with respect to taxable persons who supply the goods or services to which that measure applies, and shall be for a period not exceeding nine months.
  2. A Member State wishing to introduce a QRM special measure as provided for in paragraph 1 shall send a notification to the Commission using the standardized form established in accordance with paragraph 4 and at the same time send it to the other Member States. The Member State shall provide the Commission with the information indicating the sector concerned, the type and the features of the fraud, the existence of imperative grounds of urgency, the sudden and massive character of the fraud, and its consequences in terms of considerable and irreparable financial losses. If the Commission considers that it does not have all the necessary information, it shall contact the Member State concerned within two weeks of receipt of the notification and specify what additional information is required. Any additional information provided by the Member State concerned to the Commission shall at the same time be sent to the other Member States. If the additional information provided is not sufficient, the Commission shall inform the Member State concerned thereof within one week.
    The Member State wishing to introduce a QRM special measure as provided for in paragraph 1 of this Article shall at the same time also make an application to the Commission in accordance with the procedure laid down in Article 395(2) and (3).
    In cases of imperative urgency as set out in paragraph 1 of this Article, the procedure laid down in Article 395(2) and (3) shall be completed within six months of receipt of the application by the Commission.
  3. Once the Commission has all the information it considers necessary for appraisal of the notification referred to in the first subparagraph of paragraph 2, it shall notify the Member States thereof. Where it objects to the QRM special measure, it shall produce a negative opinion within one month of that notification and shall inform the Member State concerned and the VAT Committee thereof. Where the Commission does not object, it shall confirm this in writing to the Member State concerned and to the VAT Committee within the same time period. The Member State may adopt the QRM special measure from the date of receipt of that confirmation. In appraising the notification, the Commission shall take into account the views of any other Member State sent to it in writing.
  4. The Commission shall adopt an implementing act establishing a standardized form for the submission of the notification for the QRM special measure referred to in paragraph 2 and of the information referred to in the first subparagraph of paragraph 2. That implementing act shall be adopted in accordance with the examination procedure referred to in paragraph 5.
  5. Where reference is made to this paragraph, Article 5 of Regulation (EU) No 182/2011 of the European Parliament and of the Council shall apply, and for this purpose, the committee shall be the committee established by Article 58 of Council Regulation (EU) No 904/2010.
  6. The QRM special measure as provided for in paragraph 1 shall apply until 31 December 2026.

Article 200
VAT shall be payable by any person making a taxable intra-Community acquisition of goods.

Article 201
On importation, VAT shall be payable by any person or persons designated or recognized as liable by the Member State of importation.

Article 202
VAT shall be payable by any person who causes goods to cease to be covered by the arrangements or situations listed in Articles 156, 157, 158, 160, and 161.

Article 203
VAT shall be payable by any person who enters the VAT on an invoice.

Article 204

  1. Where, pursuant to Articles 193 to 197 and Articles 199 and 200, the person liable for payment of VAT is a taxable person who is not established in the Member State in which the VAT is due, Member States may allow that person to appoint a tax representative as the person liable for payment of the VAT. Furthermore, where the taxable transaction is carried out by a taxable person who is not established in the Member State in which the VAT is due and no legal instrument exists with the country in which that taxable person is established or has his seat, relating to mutual assistance similar in scope to that provided for in Directive 76/308/EEC and Regulation (EC) No 1798/2003, Member States may take measures to provide that the person liable for payment of VAT is to be a tax representative appointed by the non-established taxable person.
    However, Member States may not apply the option referred to in the second subparagraph to a taxable person within the meaning of point (1) of Article 358a who has opted for the special scheme for services supplied by taxable persons not established within the Community.
  2. The option under the first subparagraph of paragraph 1 shall be subject to the conditions and procedures laid down by each Member State.

Article 205
In the situations referred to in Articles 193 to 200 and Articles 202, 203, and 204, Member States may provide that a person other than the person liable for payment of VAT is to be held jointly and severally liable for payment of VAT.

Section 2
Payment Arrangements

Article 206
Any taxable person liable for payment of VAT must pay the net amount of the VAT when submitting the VAT return provided for in Article 250. Member States may, however, set a different date for the payment of that amount or may require interim payments to be made.

Article 207
Member States shall take the measures necessary to ensure that persons who are regarded as liable for payment of VAT in the stead of a taxable person not established in their respective territory, in accordance with Articles 194 to 197 and Articles 199 and 204, comply with the payment obligations set out in this Section. Member States shall also take the measures necessary to ensure that those persons who, in accordance with Article 205, are held to be jointly and severally liable for payment of the VAT comply with these payment obligations.

Article 208
Where Member States designate the customer for investment gold as the person liable for payment of VAT pursuant to Article 198(1) or if, in the case of gold material, semi-manufactured products, or investment gold as defined in Article 344(1), they exercise the option provided for in Article 198(2) of designating the customer as the person liable for payment of VAT, they shall take the measures necessary to ensure that he complies with the payment obligations set out in this Section.

Article 209
Member States shall take the measures necessary to ensure that non-taxable legal persons who are liable for payment of VAT due in respect of intra-Community acquisitions of goods, as referred to in Article 2(1)(b)(i), comply with the payment obligations set out in this Section.

Article 210
Member States shall adopt arrangements for the payment of VAT on intra-Community acquisitions of new means of transport, as referred to in Article 2(1)(b)(ii), and on intra-Community acquisitions of products subject to excise duty, as referred to in Article 2(1)(b)(iii).

Article 211
Member States shall lay down the detailed rules for payment in respect of the importation of goods. In particular, Member States may provide that, in the case of the importation of goods by taxable persons or certain categories thereof, or by persons liable for payment of VAT or certain categories thereof, the VAT due by reason of the importation need not be paid at the time of importation, on condition that it is entered as such in the VAT return to be submitted in accordance with Article 250.

Article 212
Member States may release taxable persons from the payment of the VAT due where the amount is insignificant.

 

 

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