The EU VAT systems is essentially based on fractionised payments, VAT being collected at each stage of the production and distribution chain after offsetting the input VAT paid on purchases against output VAT received on sales. According to the main rule laid down by Article 193 of VAT Directive, the person liable for the payment of this VAT is the person supplying goods or services. The liable person is the person who is held to pay VAT to the Treasury
In certain well-defined situations, it is provided for that the liable person is the person acquiring goods or services and not the person supplying these goods or services. Such mandatory reverse charge is applicable throughout the EU in all EU Member States under the conditions determined by the Articles 195 to 198 of the VAT Directive.
Member States in which the VAT is due may provide for that the person liable for the payment of VAT is the person acquiring the goods or services where the transaction is carried out by a supplier who is not established in the country in which VAT is due. Such reverse charge is regulated by national regulation.
Member States in which the VAT is due may provide that the person liable for the payment of VAT is the person acquiring the goods or services for specific transactions irrespective of the supplier's place of residence or establishment.
Such reverse charge, which is aimed at tackling potential tax frauds or evasions, is regulated by national regulation.
The reverse charge mechanism can be implemented by the Member States in specific cases in accordance with the following provisions of the VAT Directive:
- Special authorization issued by the European Council on the basis of Article 395 of the VAT Directive (or on the basis of a standstill provision of Article 394);
- Option to apply the reverse charge mechanism to the supplies of goods or services defined by and under the conditions laid down of the Articles 199, 199a and 199b of the VAT Directive.