EU and Latvia - VAT Directive Derogation
The European Commission has authorised Latvia to introduce a special measure derogating from Article 193 of Council Directive 2006/112/EC on the common system of VAT. The full details of the authorisation, published on July 2nd 2018, can be read here.
The derogation stipulates that for VAT purposes Latvia are permitted to apply the reverse charge mechanism to supplies of ferrous and non-ferrous semi-finished metals. Under the reverse charge procedure, the taxable person, to whom the supplies are made, becomes liable for the payment of VAT. This taxable person, provided there is a full right of deduction, would simultaneously declare and deduct the VAT corresponding to the supply, thus leading to no effective payment of VAT to the Treasury.
Latvia requested the derogation because during tax audits VAT fraud schemes have been identified in the sector of metal products and therefore indicating the high risk of fraud in these transactions. The derogation will expire on December 31st 2018.
The EU Council, acting unanimously on a proposal from the Commission, may authorise Member States to apply special measures for derogation from that Directive in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance.
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