Harmonization in EU
- V80 directive of EU
- why is harmonization so important?
- without harmonization there would be so severe double taxation, then the internal market would not function
Nature
- general consumption tax
- every purchase involves VAT
- indirect tax
- tax burden is passed on to the next person until the final consumer (us) bear the VAT
- VAT is a Withheld Tax for the consumer
- withholding party needs to pay VAT to tax authorities
- companies never bear anything from VAT
- transaction tax
- every transaction involves this tax
- although most transactions are not affected by this tax
- turnover tax
- since value added is mostly similar to turnover (especially production companies) the turnover “is taxed” according to VAT
- neutrality of VAT
- whatever and whoever buys the good is taxed equally
- beggars equally as millionaires
- luxury yacht equally as 60 cent chewing gum
- tax on value added
Legal Stuff
Definition
- supply of good Art 14 et seq
- supply of service Art 24 et seq
- by a taxable person/company Art 9 et seq
- as part of economic activity
- “place of supply” (i.e. within EU) Art 31 et seq
- for consideration Art 72 et seq
VAT is chargeable?
- who? (Taxable Person)
- what? (Taxable Transactions)
- where? (Place of Supply)
- when and how?
- how much?
- exemptions
- liability
- deductions
- administrative obligations
- special schemes
Taxable Person
- any person
- who carries out independently (e.g. not employee of company)
- in any place
- any economic activity
- whatever the purpose
- whatever the result of that activity (i.e. does not have to produce any profit)
Taxable Transactions
- supply of goods
- gas, water, electricity is also a good
- supply of service
- intra-community acquisition of goods
- import of goods (from outside of EU to Internal Market)
Place of Supply
- place (goods) … wherever the goods are physically when the transport begins
- main rule, many exceptions (e.g. Intra-Community Acquisition)
- place (services B2C) … wherever the permanent establishment of the supplying company is located
- B2B has place of establishment of recipient
- B2B regarding immovable property has place of property
- B2B regarding transportation of persons has place of departure
- B2C regarding broadcasting service has place of customer
- B2B regarding broadcasting services has place of recipient
- note on advertising industry:
- value of advertisement “is created” by someone being shown the ad → not taxed anyhow, because no cash is flowing
- taxed transaction is only between provider (e.g. google) and customer (e.g. pizza restaurant) as normal B2B transaction
- “value creation” is never an issue, since then VAT would be impossible to administer
- note on advertising industry:
Exception Online Shopping
- regarding online shopping, mail order company, tele-shopping or any other business which ships goods to the customer (distance sale)
- distance sale can also be from within outside of EU
- this enabled VAT Shopping
- all online retailers were registered in Luxemburg, since it hat only 15% VAT, to only charge 15% VAT in entire EU
- remedied by the rule, that for these businesses the VAT of the recipient country need to be payed (transport of goods ends, not begins)
VAT One-Stop-Shop
- allows to declare all VAT charges in entire EU in a single place which simplifies the whole system dramatically
- dealing with just 1 system instead of 27 individual tax administrations
Intra-Community Acquisition
- place … place where transport ends
- deduction of VAT for recipient is the same as the VAT rate charged in the transport
- prohibits double taxation
- this results in importing countries (e.g. Netherlands with the Rotterdam port) the import country gets an unfair share of the VAT, if importing country has higher VAT rate than country of recipient
Collection of VAT
- VAT is collected by the business selling to the customer
- output VAT is then payed to tax authorities
- input VAT is payed to the company
- input VAT and output VAT cancels out as much as possible
- in some cases only very little VAT to actually change hands between tax authority and business
Exception Reverse-Charge
- no cash VAT collection by supplier - recipient of supply pays net VAT due (i.e. after deduction of input VAT) over to tax authorities
- when input VAT can be fully deducted it is a cash neutral system
- used mostly within cross-border supply of services
- if supplier is not established in the member state of supply
- for B2B domestic recipient is a company as well
Tax Rates
- harmonized across EU
- one standard rate within a member state - not less than 15%
- up to 2 reduced rates - not less than 5% (Annex 3)
- example Austria:
- 20% standard rate
- 10% reduced rate
- food, books, passenger transport, medicine, rental income for residential purposes
- 13% reduced rate
- artists, music performances, museums, theaters, cinemas, sports events
- for very specific products (e.g. food, books) it is possible to go below 5%
- in total up to 5 possible rates: 1 standard, 2 reduced, 2 super-reduced
- example Austria:
- reduced rates are controversial
- most suppliers charge the same price as if it was taxed with 20% and just keep the delta for themselves
- tax deduction is not passed on to consumer, which would be the idea
Exemptions
Exemptions
Exemptions (Art 131 et seq)
Important
no output VAT deduction, but also no input VAT deduction
- E.g. transactions regarding immovable property, insurance services, banking and financial services, medical services, SMEs up to a turnover of €30,000 per year (opt-out possible) etc.
- No VAT charged to customers – but also no input VAT deduction for taxable person (see Art 168)
- Economic recovery of input VAT only through increase of customer price
“Zero-rating”
Important
no output VAT deduction, but input VAT deduction happening
- No VAT charged to customers due to exemption – but taxable person still untitled to input VAT deduction (see Art 169)
- Has the effect of a taxable supply with 0% tax rate
- In particular for cross border supplies of goods (third country exports and intra-EU supplies
Cross Border Export - Principle of Destination
- intra-EU supplies taxable, but zero-rated transaction
- right to deduct input VAT
- 0% output VAT
- third country exports taxable, but zero-rated transaction
- export to e.g. USA or Switzerland
- right to deduct input VAT
- 0% output VAT
Cross Border Import - Principle of Destination
- intra-EU supplies taxable, but zero-rated transaction
- B2C: VAT from destination is charged
- B2B: VAT from destination is charged
- but with input VAT deduction and with exceptions
- third country exports taxable, but zero-rated transaction
- import from e.g. USA or Switzerland
- VAT is payed according to country rates