Plans by Germany and Austria to depart from standard European VAT rules by introducing a so-called ‘reverse charge’ system have been vetoed by the European Union.

The two countries hoped the system would beat rampant VAT fraud by completely changing their tax collection systems, the FT reported.

Germany claims the reverse charge system would deny middle men the chance to commit fraud as VAT would be collected by the retailer at the end of the supply chain.

But Laszlo Kovacs, European Union tax commissioner, said the proposed system could not be allowed.

Germany, in turn, is blocking other EU tax agreements in an attempt to force Kovacs to change his stance.