‘Shall Allow’ option for non-residents to use B2B reverse charge; currently member states control the option to implement as ‘may’ provision under Article 194
The European Commission is to push for harmonisation of the rules for the simplification that allows non-resident traders selling in an EU state to a resident business to use the VAT reverse charge for goods – Article 194 of the EU VAT Directive. This means the VAT reporting obligation switches to the customer and the foreign supplier has no requirement to VAT register. This would apply from 1 January 2025.
This is contained with the EU Single VAT Registration pillar of the VAT in the Digital Age reforms proposed for January 2025.
Changing B2B reverse charge ‘may‘ to ‘shall allow‘ provision
The current ‘may provision‘ for states, in Article 194 allows member states the option to impose their criteria on this option. This will end and change to a ‘shall allow’ provision, and the only criteria will be if the customer is identified (VAT number) in the country of supply. Therefore, non-resident traders will be able to chose if they wish to use the reverse charge, or maintain their own local VAT number to expedite local VAT recovery.
The measure is offered as the Commission concluded that it would not include B2B cross-border sales in the extension of the One Stop-Shop OSS return. It was felt this would be too complex, particularly as businesses appreciate the right to deduct input VAT via a foreign VAT registration.
Updating Article 194 of the EU VAT Directive
Under the EC’s proposal, Article 194 of the EU VAT Directive would be updated with a modification in Article 194 renders mandatory for the Member States to accept the application of the reverse charge mechanism where a supplier, who is not established for VAT purposes in the Member State in which VAT is due, makes supplies of goods to a person who is identified for VAT in that Member State. follows:
‘Article 194 Without prejudice to Articles 195 and 196, 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 shall allow that the taxable person liable for payment of VAT is the person to whom the goods or services are supplied if that person is already identified in that Member State.
It will remove the following, second paragraph from the existing Directive: “Member States shall lay down the conditions for implementation of paragraph 1.”. This therefore curbs the conditions the member states may impose if they elect to use this ‘may provision’.
VATCalc gets the reverse charge rules right across the EU and beyond.
One of the unique features of VATCalc’s tax engine, VAT Calcualtor, is that it automatically adjusts to the pan-EU rules on the reverse charge automatically for you. There is no requirement for reconfiguration with expensive consultants or calling on your ERP team for help. And of course this means your VAT transactions are correctly reported in the return which are produced on the same, single app via VAT Filer.
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EU VAT in the Digital Age reforms
| EU VAT in the Digital Age | |
| 3 reforms to improve efficiency of VAT for all and reduce fraud | |
| 1. Single VAT registration in the EU; extension of OSS to B2C own stock movements | 2025 (?): Following the 1 July 2021 introduction of the One Stop-Shop (OSS), extended to cover movement of own stocks prior to cross-border B2C to reduce the foreign, non-resident VAT registrations & returns. Plus to movements of own stock with ending of 'call-off' stock burden |
| More details on Single VAT Registration in the EU | |
| Marketplaces deemed supplier for EU sellers | |
| EU IOSS mandated for marketplaces | |
| EU tackles misuse of IOSS numbers | |
| Quick fixes to existing e-commerce VAT rules | |
| Call-off stock VAT simplification ends | |
| Harmonisation of B2B Reverse Charge rules | |
| 2. Digital Reporting Requirements; e-invoicing | 2030 (?): Mandatory digital reporting of intra-community transactions; obligation to be able to issue and receive intra-community e-invoices; member states free to impose own e-invoicing or real-time reporting but most conform to EU e-invoice standard EN 16931 |
| Read more about EU Digital Reporting Requirements (DRR) | |
| E-invoices mandated intra-community supplies 2028 | |
| EC Sales lists replaced by Digital Reporting Requirements | |
| 2014 EU legal permissions for e-invoicing lifted | |
| 3. VAT treatment of the platform economy | 2026 (?): Travel & accommodation sharing platforms to become deemed supplier / liable to users' VAT. New definitions of the roles of providers, users and platforms to avoid double and no-taxation |
| Read more - Travel & accommodation platforms deemed suppliers for EU VAT | |
