The EU Council has rejected Austria's request for a derogation from EU VAT rules to apply a reverse charge mechanism on supplies of immovable property by developers, following the European Commission's objection that Austria failed to demonstrate the necessity and proportionality of the measure. The decision, taken on 2 June 2026, blocks Austria's attempt to shift VAT liability to buyers to combat missing trader fraud in the real estate sector.
Austria's proposal and Commission's objection
Austria had requested authorisation under Article 395 of the VAT Directive (2006/112/EC) to introduce a reverse charge mechanism for supplies of immovable property by developers. The aim was to prevent fraud where a supplier collects VAT from the buyer but disappears without remitting it to the tax authorities. However, the European Commission, after analysing the request, concluded that Austria had not sufficiently justified that the measure was necessary and proportionate. The Commission argued that conventional tax controls and enforcement measures should be adequate to address the fraud risks identified by Austria.
Impact on stakeholders
The decision primarily affects Austrian tax authorities, which will need to rely on existing fraud prevention tools rather than the requested derogation. Real estate developers in Austria will continue to be responsible for collecting and remitting VAT on property sales, maintaining the current compliance burden. Buyers of new properties will not see a change in their VAT obligations, as the reverse charge mechanism would have shifted liability to them. The EU's VAT system remains uniform, preserving the single market's harmonised rules.
Institutional follow-up
Austria may choose to provide additional evidence to the Commission to support a renewed request, or explore alternative measures at the national level to combat VAT fraud in the real estate sector. The Council's decision is final for this request, but the procedure allows for future submissions under Article 395.
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