European VAT – General Principles EU Taxation European VAT – General Principles Arvind Ashta ESC Dijon 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) 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

Territory All of EU Excluded Included Canary Islands French DOMs Monaco in France Isle of Man in UK

Taxable Persons A person who engages in Exemptions Inclusions 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 Supply of Services Imports 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 Transaction General rule Where transport begins Where Supplier has fixed establishment Exceptions Many services (real estate, entertainment) Works contracts (registration number) Imports (country of import) Intra-community acquisitions (destination generally)

Supplier- OSP – Customer

Principal- OSP1-OSP2-Principal

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 exceptions: Country of origin: Small farmers, consumers buying < € 10000 Mail orders, etc shipping < € 100,000 (or € 35,000) Exceptions Transport, Ancillary services to transport, Intermediaries in transport Inclusion: Consumer buying transport

Intra-Community Transactions

Triangular Sales Goods dispatched directly

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.

REGISTERATION and VAT

REGISTERATION and VAT

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.

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 General rule Exceptions to 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) Exceptions 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 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

Example: ABC Limited, a French company buys shoes from Italy Example: ABC Limited, a French company buys shoes from Italy. Delivery is made on 20th of April.

Example: ABC Limited, a French company buys shoes from Italy Example: ABC Limited, a French company buys shoes from Italy. Delivery is made on 20th of April.

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 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 Not by final customers Not by holding companies As soon as invoice received If taxable and non-taxable business, proportional deductibility allowed

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

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

Calculate VAT due

Calculation of VAT due

Calculation of VAT due