The reverse charge mechanism was accepted and implemented by the Sixth Directive in the European Union's member states' tax system. It represents the transfer of the obligation to calculate VAT (value added tax) from the seller to the buyer. After the Republic of Croatia's entry into the European Union, and thus the harmonization and coordination of the Croatian legislative framework of VAT with that of the Sixth Directive, the reverse charge mechanism was, not only implemented during foreign transactions, but also implemented in certain domestic transactions. This thesis will analyze the accounting and tax treatment of the mentioned mechanism. The purpose of the paper is to define the theoretical and legislative framework of the reverse charge mechanism, which will later serve as a basis for the interpretation of the final effect that the mechanism has on individual participants of the tax chain. During the preparation of the work, the collected secondary data sources, professional books by foreign and domestic authors, publications, scientific articles and Internet sources relevant to the studied topic were analyzed. In the first part of the paper, emphasis is placed on the analysis of the transfer of tax liability regarding deliveries or purchases of goods or services in transactions with member states. Also, exceptions and peculiarities from the basic rules in such transactions were defined. The reverse charge mechanism in domestic transactions was analyzed in the second part of the paper in which emphasis was placed on transactions within the construction sector to which the application of the mechanism is mandatory. In the final part, a case study was conducted on a company whose primary activity is construction. Concrete examples of transactions to which the mechanism was applied were listed and compared. The research into the ultimate effect of the reverse charge mechanism applied in transactions had a neutral effect on the observed company’s cash flow.