What Are Reverse Charges?

Reverse charges are charges normally paid by the provider but incurred by the recipients of goods and services, with the two most common examples being certain forms of value added tax (VAT) and collect telephone calls. In these situations, the party who would normally be liable for charges does not pay them, with the burden passing to the other party in the transaction. It is possible to refuse or avoid reverse charges, as they are disclosed up front in the transaction to give parties an opportunity to decline.

With phone billing, normally the party placing a call also pays for it. In collect calls, callers reverse charges to the recipient. Typically when the recipient answers the phone, a recorded message plays to advise her that it is a collect call. The message provides information about rates and asks if the recipient accepts the charges. Recipients can decline the charges and hang up if they do not wish to pay.

Reverse charges with phone billing are commonly seen in emergency situations when callers do not have money or access to a mobile phone, but need to place a call for assistance to an attorney, friend, or family member. An operator will assist the caller with placing the call and getting authorization for reversing the charges. The charges will show up on a bill issued by the phone company, and it will forward monies collected to the agency that placed the call on behalf of the caller.

With some situations involving VAT, reverse charges can come into play. Normally sellers must pay VAT on the goods they sell, with the amount of tax liability increasing as the goods gain value. Sellers determine overall tax liability, subtract tax already paid by sellers higher up the supply chain, and remit the remainder as VAT. In reverse charges, the buyer must pay the tax, not the seller, and the invoice will clearly indicate that the buyer is incurring tax liability with the purchase.

Like other fees and charges, reverse charges must be disclosed at the start of the transaction to make all parties aware of the terms. It is possible to decline the charges by refusing to complete the transaction. In cases where the charges are accepted, it is important to take note of the terms and keep a record in the event of a dispute. With a collect call, for example, the recipient should make sure he is billed appropriately; if the call on the bill originates from a different location than the original call, or the timing is clearly off, he should contact the phone company to file a dispute.