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DRAFT REPORT (2025/2261(INI))

On the implementation of the VAT reverse-charge mechanism

ECON-PR-788867

Committee on Economic and Monetary Affairs · Rapporteur: Pierre Pimpie

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This draft report by the Committee on Economic and Monetary Affairs assesses the VAT reverse-charge mechanism under Articles 199a and 199b of Directive 2006/112/EC, which expire on 31 December 2026. It finds the mechanism effective against missing trader and carousel fraud in high-risk sectors, but notes differing national application, compliance costs and possible fraud displacement. The rapporteur proposes extending Article 199a beyond 31 December 2026, by at least four years, and reviewing the Quick Reaction Mechanism, which has never been applied. It asks the Commission to assess costs and benefits sector by sector, clarify definitions, and report every two years to Parliament and the Council.

Committee position. The rapporteur proposes extending Article 199a beyond 31 December 2026, by at least four years, and reviewing the Quick Reaction Mechanism to make it usable, while keeping the mechanism targeted and proportionate.

Key points

  1. The report recalls that the reverse charge mechanism is a targeted derogation from the VAT system and should not become a general replacement for it.
  2. It recognises that the mechanism has proved effective against missing trader intra-community fraud and carousel fraud in high-risk sectors, while fraud patterns continue to evolve.
  3. It notes that a vast majority of Member States applying the mechanism declared it reduced fraud, notably in high-value and standardised products.
  4. It calls for extending Article 199a beyond 31 December 2026 for a sufficiently long period, considering an extension of at least four years.
  5. It says any extension should remain targeted, evidence-based and justified by clear fraud risks, sector specificities and a lack of less burdensome alternatives.
  6. It calls on the Commission and Member States to assess costs and benefits sector by sector, covering fraud, businesses, tax administrations and possible fraud displacement, and to adapt the list of sectors.
  7. It asks for clearer definitions and guidance on sectors covered by Article 199a, without making the mechanism mandatory or harmonising national VAT systems.
  8. It says particular attention should be paid to high-value, fast-moving and digitalised transactions, including energy supply, emission allowances, energy certificates, electronics and metals.
  9. It suggests the Quick Reaction Mechanism should only be extended if its operability is improved, and calls on the Commission to propose simplification and acceleration while maintaining safeguards.
  10. It says reform could include a simplified activation procedure, a standard notification template, clearer evidentiary requirements and better articulation with the Article 395 derogation procedure.
  11. It stresses that any extension or adjustment must take account of compliance costs for businesses, especially SMEs, and that legitimate businesses should not become collateral victims.
  12. It requests that the Commission report every two years to Parliament and the Council on fraud reduction, compliance costs, fraud displacement and the impact of ViDA, and calls for stronger information exchange with Eurofisc, EPPO and OLAF.

Who is affected

  • Member States, which apply the reverse charge mechanism and would lose the anti-fraud tools if Articles 199a and 199b expire.
  • Businesses, especially SMEs, which face compliance costs, legal uncertainty and risks from fraud displacement.
  • Tax administrations, which must enforce the mechanism and issue VAT refunds to legitimate start-ups and small businesses.
  • High-risk sectors such as energy, emission allowances, energy certificates, electronics and metals.

Figures and deadlines

  • 31 December 2026, the date on which Articles 199a and 199b are currently due to expire.
  • at least four years, the minimum extension of Article 199a proposed by the report.
  • nine months, the current period of application of the Quick Reaction Mechanism that could be extended.
  • every two years, the frequency of Commission reporting to Parliament and the Council.

Legal basis: Rule 55 of its Rules of Procedure, and Article 1(1)(e) of, and Annex 3 to, the decision of the Conference of Presidents of 12 December 2002 on own-initiative reports.