A reverse-charge mechanism for value-added tax (VAT) payments on energy transactions came into effect in Italy on 1 January, closing a loophole in the tax system that left the door open to tax fraud in the electricity, natural gas and carbon markets.
The measure was adopted by the parliament at the end of December as part of the budget law and will be in place for four years.
The reverse-charge mechanism inverts the responsibility for recording VAT on goods and services between sellers and buyers, making buyers responsible.
The system helps to prevent carousel fraud, which allow VAT evasion by making up intermediary transactions through conniving companies within EU states, which can be used to claim back VAT.
Ten European gas and power associations recently warned in a joint statement that law enforcement agencies have repeatedly reported signs of a major penetration of the gas and electricity markets by VAT fraudsters that use the loopholes of the previous system (see EDEM 25 November 2014).
The associations called for reverse-charge mechanisms to be adopted uniformly across the EU, where Austria, France, Germany, the Netherlands, Romania and the UK were early adopters.
Italy had been mulling the introduction of the system for years in response to a number of scandals involving its carbon market. Yet, the measure was delayed several times in the past (see sister publication EDCM 18 October 2012).
VAT fraud in the EU emission trading system alone have cost European taxpayers €5bn, according to Europol estimates.