Generalised reverse charge mechanism

The European Commission permitted the Czech Republic to temporarily apply a generalised reverse charge mechanism – from 1 July 2020 to 30 June 2022, i.e. until the implementation of the final system of VAT rules. All taxable supplies of goods and services shall be subject to the new mechanism if the value of each transaction exceeds CZK 450,000 (approximately EUR 17,500).

Under the reverse charge mechanism, the purchaser is liable to report and potentially pay output VAT on taxable supplies with the place of supply in the Czech Republic.

The main reason for which the Czech Republic applied for a generalised reverse charge mechanism is to curb carousel fraud. A sector-related reverse charge mechanism has already been applied in the Czech Republic in all areas permitted by the existing EU law – in the construction sector, precious metal trade, for selected IT products, gas and electricity supplies. The Czech Republic applied for this exemption, under which Member States are allowed to implement a generalised reverse charge mechanism, in June 2014. The Economic and Financial Affairs Council gave its final approval to this application in November 2019.

The approved measure first needs to be translated into the Czech legislation. However, this procedure has not yet started, as the Czech Republic postponed the implementation of the mechanism in order to negotiate an extension before implementing it. The aim is to avoid criticism that an amendment to the tax scheme for only 18 months is not an appropriate systemic action, adding excessive administrative burden on companies.

It is currently unclear when and whether the extension will be approved. However, this is not likely to happen before the end of 2020 and it is difficult to anticipate the further developments in 2021.