News and Insights

Approval by State Secretary for Finance: VAT Reverse Charge Rule

Tax Development Jun 07, 2012

The State Secretary for Finance has expanded the fight against value added tax (VAT) fraud in the trade of mobile telephones and computer chips due to signs that this type of fraud, known as VAT carousel fraud, is on the increase in the Netherlands. VAT carousel fraud is when a fraudulent supplier, also called the “missing trader,” charges VAT to a customer but does not pass it on to the tax authorities. The missing trader then “disappears,” leaving the tax authorities unable to collect. The customer, however, reclaims the VAT from the tax authorities, leaving the authorities with a net deficit in the amount of VAT received. In the case of such carousel fraud, the tax authorities can, based on European case law, refuse the customer’s right to deduct VAT if it can be established that he knew or should have known that he was part of a VAT carousel fraud scheme. There’s also joint liability for these goods, regarding the VAT that the missing trader does not pay (e.g., entrepreneurs who should have known they were involved in VAT carousel fraud because the sales price is such that it deviates significantly from the market value). In short, there is much uncertainty for purchasers of mobile telephones and computer chips because of the subsequent risk of being confronted with a hefty VAT charge due to a missing trader involved in the chain.

To alleviate trade-hindering uncertainties, the State Secretary for Finance has approved that from 1 June 2012, the VAT reverse charge rule can be applied to the sale of mobile telephones and computer chips to other entrepreneurs. As a result, suppliers in the Netherlands do not have to charge VAT to their customers but provide an invoice stating “VAT reverse charged.” The VAT number of the customer must also be mentioned on the invoice. The customer should then pass this VAT on to the tax authorities and can deduct it in the same tax return, insofar as he has the right to deduct VAT. The risk for the tax authorities, whereby VAT is charged to the customer but not passed on to the tax authorities, therefore, disappears. The customer no longer has the risk of paying VAT to a supplier and then, subsequently, not receiving the VAT return from the tax authorities. However, there is one condition: the total invoiced amount must be at least EUR 10,000. As for the rest, the risk of the mutual liability for the VAT not transferred to the tax authorities by the missing trader in the chain still exists. So, if mobile telephones or computer chips are offered at a low price, a sign of VAT carousel fraud, vigilance is still required, including when the supplier wants to apply the VAT reverse charge rule.

For the time being, this is an optional measure, and a supplier may opt to apply the normal rules and, as such, charge VAT in the normal manner. In that case, the tax authorities have indicated that there will be some suspicion and an assumption of fraud. The State Secretary for Finance has, in the meantime, requested that the European Commission make the reverse charge mandatory and expects clarity on this matter within a number of months.


Suzanne C. den Breems
+31 (0) 72 540 1202