Reverse Charge Mechanism

The Reverse Charge Mechanism (RCM) is a tax mechanism used primarily in intra-EU transactions and other specified scenarios. It shifts the responsibility for reporting VAT to the buyer, rather than the seller, which is the usual practice. This method is particularly applicable when VAT-registered businesses purchase goods for business purposes. It helps prevent VAT fraud by ensuring that the buyer, who can reclaim the VAT, is responsible for its reporting and payment. The applicability of RCM, including the types of products and thresholds, can vary by country, making it vital for businesses to consult local VAT rules and ensure compliance when using this mechanism. Once goods are purchased, businesses must correctly apply RCM procedures to avoid penalties.