New administrative obligations for sectors sensitive to VAT fraud

A closer look

On 3 November 2023, the Luxembourg government submitted a draft bill to combat VAT fraud in certain domestic supplies of goods extremely sensitive to VAT fraud, such as laptops or mobile phones and raw or semi-finished metals. Under the bill, domestic supplies of such goods would be subject to the reverse charge rule. This rule implies that the payment of the VAT is shifted from the suppliers to their clients if the clients are VAT-registered, taxable persons and if the value of the supply exceeds €10,000 before VAT and without taking into account any subsequent reduction of the price of the transaction. In practice, the clients receive an invoice without VAT and with the specific quote “reverse charge.”

This change primarily concerns businesses active in these sectors but also any other businesses that would acquire more than €10,000 in good, such as computers or mobile phones.

Suppliers should check the identity, VAT status and number, good faith and solvability of their clients. Indeed, the Luxembourg VAT law foresees a joint liability for all persons, except individuals, that are parties to a taxable transaction. On this basis, the Luxembourg VAT authorities may claim that a business which rightly issues its invoice without VAT should pay the VAT due on the transaction by the purchaser pursuant the reverse charge rule if the latter has not paid it.

Businesses (both suppliers and purchasers) must adapt their Enterprise resource planning (ERP) system, accounting, invoicing, and payment processes accordingly. This is now crucial, considering that the law should enter into force on the 1^st of January 2024.

For more information read our Tax@hand article.