1. European and International Taxation
EU Tax Harmonization - VAT
Jean Monnet Module: Managing the EU: Taxation, Economics and Governance
Cluj-Napoca

2. European VAT – General Principles
European and International Taxation
European VAT – General Principles
Introduction
Territory
Taxable Person
Taxable Transaction
Place of Taxable Transaction
Chargeable event
Taxable Amount
Tax Rates
Exemptions
Deductions
Persons liable for payment of tax

3. Introduction 1967: First Directive (introduce by 1970)
European and International Taxation
Introduction
1967: First Directive (introduce by 1970)
1973: Nine different systems
1977: Sixth Directive on Harmonization
1991: Intra-community borders abolished
1999: Labour-intensive services
2000: Tax representation made optional
2002: Imports of radio, TV and electronic services taxed at place of consumption

4. The main features of the EU VAT system
European and International Taxation
The main features of the EU VAT system
Taxation in the "Member State of consumption".
taxation of supplies of goods and services,
taxation of imports and exemption of exports
exemption of intra-community supplies and taxation of intra-community acquisitions.

5. Import VAT procedure Clear distinction between:
European and International Taxation
Import VAT procedure
Clear distinction between:
the place where the import takes place (MS of arrival of the goods)
and the place of consumption (MS of destination of the goods).
Art 60 of the VAT Directive (2006/112/EC) :
"The place of importation shall be the Member State within whose territory the goods are located when they enter the Community."

6. Import VAT procedures Different possible scenarios:
European and International Taxation
Import VAT procedures
Different possible scenarios:
Final destination is the MS where the import takes place : VAT declared together with customs duties, possible deferred payment.
Final destination is another MS : VAT exemption of import (art 143.d of VAT Directive) and subsequent intracommunity supply, taxation of intracommunity acquisition in the MS of destination.

7. European and International Taxation
Import VAT procedures
Obligations in cases goods are supplied or transferred to another MS:
Conditions for the exemption are set by the MS (art 131 of VAT directive),
Different obligations, control mechanisms in place,
- VAT declaration,
- VAT identification / possible tax representative,
- Recapitulative statement (VIES)…

8. The concept of centralised clearance
European and International Taxation
The concept of centralised clearance
Art. 106 of the modernised Customs Code
Possibility for importers to declare and pay all their import duties in their MS of establishment, wherever the goods are supplied / transferred.

9. The concept of centralised clearance
European and International Taxation
The concept of centralised clearance
By 2013…
Centralised clearance would apply to:
goods that stay in the MS of physical importation,
Goods that are supplied / transferred to MS of establishment,
Goods that are supplied or transferred to a third MS.
Customs formalities complied with and customs duties paid in MS of establishment.

10. VAT aspect of centralised clearance
European and International Taxation
VAT aspect of centralised clearance
Need to comply with current VAT obligations in the MS of physical importation (even if customs obligations are complied with in the MS of establishment).
This is both valid in cases:
Where goods stay in the MS of importation (declaration, payment, possibly deferred…)
Where goods leave the MS of importation (declaration, exemption, intracommunity statement…).

11. VAT aspects of centralised clearance
European and International Taxation
VAT aspects of centralised clearance
Clear that the real benefit of centralised clearance for economic operators (importers) will only arise if the VAT dimension is fully taken into account…
Council statement stressed that "centralised clearance might need adjustments in the area of VAT”.

12. Territory All of EU Excluded Canary Islands French DOMs Included
European and International Taxation
Territory
All of EU
Excluded
Canary Islands
French DOMs
Included
Monaco in France
Isle of Man in UK

13. Taxable Persons A person who engages in Exemptions Inclusions
European and International Taxation
Taxable Persons
A person who engages in
Economic Activity
Independently
Even occasionally
Exemptions
Illegal
Free
Public bodies (except for commercial activities)
Private consumers
Inclusions
Any person buying new means of transport from another member-State
Imports : taxable person includes consumers

14. Taxable Transactions Supply of Goods Transfer of economic ownership
European and International Taxation
Taxable Transactions
Supply of Goods
Transfer of economic ownership
Deemed supply of goods (for self, employees)
Supply of Services
Any transaction which is not a supply of goods
Imports
Intra-Community Acquisitions

15. Place of Taxable Transactions
European and International Taxation
Place of Taxable Transactions
General rule
Where transport begins
Where Supplier has fixed establishment
Exemption
Many services (real estate, entertainment)
Works contracts (registration number)
Imports (country of import)
Intra-community acquisitions (destination generally)

16. Supplier – OSP - Customer
European and International Taxation
Supplier – OSP - Customer

17. Principal- OSP1-OSP2-Principal
European and International Taxation
Principal- OSP1-OSP2-Principal

18. Intra-Community Acquisitions
European and International Taxation
Intra-Community Acquisitions
General Rule:
Supplies exempt, Purchases Taxed, In Destination country
Taxable Persons:
Intra-community acquisitions added to sales
But also deducted from purchases
Conditional exemption:
Country of origin: Small farmers, consumers buying < € 10000
Mail orders, etc shipping < € 100,000 (or € 35,000)
Exemption
Transport, Ancillary services to transport, Intermediaries in transport
Inclusion:
Consumer buying transport

19. Intra-Community Transactions
European and International Taxation
Intra-Community Transactions

20. Triangular Sales Goods dispatched directly
European and International Taxation
Triangular Sales Goods dispatched directly

21. European and International Taxation
EXAMPLE
B is French (VAT 19.6%). He purchases goods worth € 50,000 from A, an English company (VAT 17.5%), and directs that send goods directly to C in Italy (VAT 20%). The English company, bills B for the transport of € 5000 also. B bills his Italian customer, C, for € 75,000. The diagram in the above box therefore describes the situation. The taxation would depend on where B is registered.

22. European and International Taxation
REGISTERATION and VAT

23. European and International Taxation
Example 2: In the above triangular sale case, if the English company wants to charge the French company € 5,000 for transporting goods directly to Ireland, what would be the tax on the transport.

24. Chargeability Chargeable event Tax becomes chargeable General rule
European and International Taxation
Chargeability
General rule
Chargeable event
Delivery of goods
Performance of service
Tax becomes chargeable
When authority entitled to it
On delivery of goods
On payment by customers for services
On importing (crossing customs barrier)
Exemptions to general rule
Repeated payments (for services & construction work)
At time of billing: last installment
On-account payment
Each payment

25. Tax liability Goods/services Imports Intra-community transactions
European and International Taxation
Tax liability
Goods/services
Earlier of invoice or delivery / performance
Imports
Time of importing or included in tax return
Intra-community transactions
Later of chargeable event or Invoice but before 15th of month after acquisition

26. Tax Rates Vary from one country to another Minimum 15%
European and International Taxation
Tax Rates
Vary from one country to another
Minimum 15%
One or two lower rates, at least 5%
No refunds should result
No new Zero tax rates

27. Exemptions Within the country International transactions
European and International Taxation
Exemptions
Within the country
Public Interest
Others (insurance, credit, real estate)
No deductions allowed
Option to be taxed for some of these
International transactions
Exports
Deductibility allowed
Import of items which are exempt from domestic VAT
Temporary imports, VAT warehouses

28. Deductions Deduction of input VAT by taxable persons
European and International Taxation
Deductions
Deduction of input VAT by taxable persons
Not by final customers
Not by holding companies
As soon as invoice received
If taxable and non-taxable business, proportional deductibility allowed

29. European and International Taxation
Example: A buys inputs of € 500 and sells for € 1000 to B. B makes a local sale for € 2000.

30. Persons liable for payment
European and International Taxation
Persons liable for payment
Taxable person
If reverse charge is applied, the receiver
If identification number issued, the registered person
For imports, the importer
Taxable representative optional

31. European and International Taxation
Calculate VAT due

32. Calculation of VAT due - Solution
European and International Taxation
Calculation of VAT due - Solution