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

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

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

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.

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."

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.

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)…

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.

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.

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…).

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”.

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

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

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

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)

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

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

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

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

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

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.

European and International Taxation REGISTERATION and VAT

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.

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

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

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

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

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

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

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

European and International Taxation Calculate VAT due

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