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Reverse Charge Mechanism

Karlsson, Karolin (2008)
Department of Law
Abstract
The purpose of this thesis is to examine whether the reverse charge mechanism is an efficient method to solve the VAT fraud problem in the construction sector in Sweden. To be able to answer the stated question, the effects of the reverse charge mechanism will be evaluated. The effects of the reverse charge mechanism are then analysed as to whether they are proportional to the goal, which is to decrease the tax fraud in the construction sector. In 2007, Sweden introduced the reverse charge mechanism in the construction sector. The aim of the introduction was to stop tax fraud, which is dominant in this sector. Tax fraud is usually done by artificial arrangements. Companies are often established for the sole purpose of sending false... (More)
The purpose of this thesis is to examine whether the reverse charge mechanism is an efficient method to solve the VAT fraud problem in the construction sector in Sweden. To be able to answer the stated question, the effects of the reverse charge mechanism will be evaluated. The effects of the reverse charge mechanism are then analysed as to whether they are proportional to the goal, which is to decrease the tax fraud in the construction sector. In 2007, Sweden introduced the reverse charge mechanism in the construction sector. The aim of the introduction was to stop tax fraud, which is dominant in this sector. Tax fraud is usually done by artificial arrangements. Companies are often established for the sole purpose of sending false invoices. They receive the payment from the buyer, including VAT. As soon as they receive the payment the artificial companies disappear, without paying the output VAT to the tax authorities. At that time, the seller has deducted input VAT. The result is that the state loses huge amounts of VAT. The VAT is collected but never paid to the tax authorities. This also distorts competition among the economic actors. The reverse charge mechanism is a derogation scheme to the main scheme of VAT. It is the buyer who is liable for the payment of VAT. The buyer can thus deduct the VAT. The result is that the supplier never gets access to the VAT and then do not benefit from artificial arrangements. The payment of VAT to the tax authorities is postponed to the last supplier in a contractor chain. Negative effects of the reverse charge mechanism are that it can affect the liquidity for the supplier and the state. The reverse charge mechanism also can constitute an obstacle to the free movement of smaller companies. Most critics have been concerned by the uncertainty of the legislation's definitions of services and companies, to which the reverse charge mechanism is to be applied. Positive effects are the reduction of VAT fraud and the liquidity for the customer and for smaller companies. To conclude, the reverse charge mechanism is an efficient method to combat VAT fraud in the construction sector since the fraud consists of artificial arrangements down the supplier chain and the reverse charge mechanism puts more pressure on suppliers further up the chain and the supplier never gets access to the VAT. The effects of the reverse charge mechanism will be proportionate to the goal, in order to decrease VAT fraud. The uncertainties concerning the definitions and the administrative burden will probably decrease when the reverse charge mechanism has been applied for a longer time. The writer thus concludes that the reverse charge mechanism is a short term solution to a long term and on going problem. (Less)
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author
Karlsson, Karolin
supervisor
organization
year
type
H3 - Professional qualifications (4 Years - )
subject
keywords
EG-rätt, Skatterätt
language
English
id
1559104
date added to LUP
2010-03-08 15:55:23
date last changed
2010-03-08 15:55:23
@misc{1559104,
  abstract     = {The purpose of this thesis is to examine whether the reverse charge mechanism is an efficient method to solve the VAT fraud problem in the construction sector in Sweden. To be able to answer the stated question, the effects of the reverse charge mechanism will be evaluated. The effects of the reverse charge mechanism are then analysed as to whether they are proportional to the goal, which is to decrease the tax fraud in the construction sector. In 2007, Sweden introduced the reverse charge mechanism in the construction sector. The aim of the introduction was to stop tax fraud, which is dominant in this sector. Tax fraud is usually done by artificial arrangements. Companies are often established for the sole purpose of sending false invoices. They receive the payment from the buyer, including VAT. As soon as they receive the payment the artificial companies disappear, without paying the output VAT to the tax authorities. At that time, the seller has deducted input VAT. The result is that the state loses huge amounts of VAT. The VAT is collected but never paid to the tax authorities. This also distorts competition among the economic actors. The reverse charge mechanism is a derogation scheme to the main scheme of VAT. It is the buyer who is liable for the payment of VAT. The buyer can thus deduct the VAT. The result is that the supplier never gets access to the VAT and then do not benefit from artificial arrangements. The payment of VAT to the tax authorities is postponed to the last supplier in a contractor chain. Negative effects of the reverse charge mechanism are that it can affect the liquidity for the supplier and the state. The reverse charge mechanism also can constitute an obstacle to the free movement of smaller companies. Most critics have been concerned by the uncertainty of the legislation's definitions of services and companies, to which the reverse charge mechanism is to be applied. Positive effects are the reduction of VAT fraud and the liquidity for the customer and for smaller companies. To conclude, the reverse charge mechanism is an efficient method to combat VAT fraud in the construction sector since the fraud consists of artificial arrangements down the supplier chain and the reverse charge mechanism puts more pressure on suppliers further up the chain and the supplier never gets access to the VAT. The effects of the reverse charge mechanism will be proportionate to the goal, in order to decrease VAT fraud. The uncertainties concerning the definitions and the administrative burden will probably decrease when the reverse charge mechanism has been applied for a longer time. The writer thus concludes that the reverse charge mechanism is a short term solution to a long term and on going problem.},
  author       = {Karlsson, Karolin},
  keyword      = {EG-rätt,Skatterätt},
  language     = {eng},
  note         = {Student Paper},
  title        = {Reverse Charge Mechanism},
  year         = {2008},
}