All lecture notes/summary of the course European Value Added Tax. The sheets are supplemented with self written notes. The course is part of the indirect master tax law.
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Master Fiscaal Recht
European Value Added Tax (TAX4005)
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HC 1 EVAT
Agenda
1. Information on this course
2. Basic features, design & functioning of the EU VAT Sytem
3. Essential characteristics and fundamental principles of the EU VAT System
4. Taxable persons
Basic Features of EU VAT Law
Introduction of consumption taxes
Why did/do countries implement consumption taxes?
Most of the European VAT systems were implemented during the first WO or crises;
they implemented VAT to collect money.
Advantages of a VAT system
1. Stable revenue basis
2. Relatively low costs of collection
- ‘Easy tax’
3. Not a tax on labor
- Does not affect employment
o Ageing population
4. Not a tax on savings or corporate income
- Does not affect investments
5. Neutral towards competition
- Does not affect exportation
6. General, equally applicable tax
- Tax burden carried by all residents
- Relatively low tax rates possible
7. Perceived tax burden low
- Taxation with least pain
8. Because the EVAT is a general turnover tax on all stages of the supply chain,
the risk of incorrect filling a VAT return or even VAT fraud is spread over the
entire supply chain.
VAT is an easy tax in terms of collections. Its an indirect form of taxation. The burden
is on the consumers, but the remittance is with the entrepreneurs/taxable persons.
Also, the people do not see the VAT on the invoice; no one looks at that invoice. It
hurts less.
Disadvantages of a VAT system
1. Ability to Pay: VAT does not keep in mind what the personal circumstances
are of that person; you can say that VAT is a regressive taxation.
– Regressive effect: burden relatively heavier for lower incomes
2. Detailed rules required to prevent taxation of productive consumption
3. Detailed rules required to prevent non-taxation of private consumption via
businesses
4. Administrative burden businesses: it is hard for non-EU services suppliers to
comply with all the rules.
5. Taxing ‘digital’ consumption poses difficulties: VAT can often not adapt to the
digitalization and globalization of the worlds economy. Supplies that used to
, be supplies of goods are now supplies of services. It is therefore difficult for
tax authorities to enforce the law on services providers that have no physical
presence in or link with an EU country.
Why European VAT?
1. Internal market
– No distortion of competition
– No obstacles movement of goods and services within EU
2. Own resources EU
Why do we have an European market?
The ultimate goal is taxing consumption.
Legal Character of VAT/GST
• What is meant with the concept of ‘legal character’? Legislative intent
1) What should be taxed
2) Who should carry the burden of the tax
• What is the legal character of VAT/GST?
1) To tax consumption
2) Consumers
Legal Character and Indirect Form of EU VAT
How the EU VAT System works
Sources of EVAT
o VAT directive
o VAT regulation 282/2011; the main purpose is to ensure the application of the
VAT system complies more fully with the objective of the internal market. In
other words its serves to further detail certain provisions of the VAT directive.
, o Refund directives: 2008/09/EC and 86.560/EEC(13th Directive); used for
taxable persons that are established in another member state than the
member state of refund and companies that want to refund VAT which are
established outside the EU and
o Art. 395 derogations: on the basis of this article member states may be
authorizes to introduce special measures derogating from the provisions of the
VAT Directive in order to simplify procedures for collecting VAT or to prevent
certain forms of tax evasion or avoidance.
o CJEU case law; remember the cases of CJEU.
o Guidelines VAT Committee(art. 398 VAT Directive): art. 398 is a source of EU
VAT law itself. This provision deals with the VAT Committee. The function of
the committee is to promote the uniform application of the provisions of the
VAT directive. It has only advisory power, no legislative power.
o Explanatory notes: these aim at providing a better understanding of the EU
legislation. These are not binding, only provide practical and informal
guidance.
o Communication European Commission: non legally binding communications
by the EU commission.
Relation:
Primary EU law; TFEU(treaties establishing the EU)
Secondary EU Law: VAT directive and regulation
National law: National VAT act.
Design & Functioning of the EU VAT System
Scheme
1. Who(taxable person) – 9-13
2. What(taxable transaction) – 14-30
3. Where(place of supply) – 31-61
4. When(chargeable event, chargeability of VAT) – 62-71
5. How much(tax base/tax rate) – 72-129
6. Exemptions – 131-166
7. Deduction of input VAT 167-192
8. From whom(person liable) - 192a-212
9. Administrative obligations - 213-280
10. Special schemes – 281-296
Essential characteristics of VAT and fundamental principles of the EU VAT system
Art. 1(2) VAT directive
What are the essential characteristics of VAT?
1. General, objective tax: all goods and services à because we tax all the
consumption of goods and services
2. Strictly proportional to the prices
3. It is charged in all stages production and distribution
4. Taxable persons can deduct the VAT charged to themà it is imposed on the
added value of goods and services, since the tax payable on a transaction is
calculated after deducting the tax paid on the previous transactions. This
means that taxable persons do not carry the burden of VAT and private
individuals are only taxed on their private consumption.
, e.g. CJEU Dansk Denkavit, Gil Insurance, Banca popolare di Cremona, KÖGÁZ, K1,
Profaktor (Cf. Art. 401 VAT Directive)
Other fundamental VAT characteristics
Preambule to the VAT Directive
1. Principle of neutrality
2. Highest degree of simplicity
According to the CJEU the principle of neutrality is the fundamental underlying
principle with underlies the common system of the VAT. The principle of neutrality
has to aspects:
o an economic aspect(VAT should be proportional to the price; this aspect
refers to ‘system neutrality’)
o a legal aspect(this is in fact a reflection in the field of VAT of the general
principle of equal treatment).
The principle of neutrality in EU VAT Law: 1 word, 2 meanings
1. Reflection of the principle that VAT must be exactly proportional to the
price(’system-neutrality’) economic aspect
a. No double taxation/no non-taxation
• Double taxation: this means that you have a base price which
you tax twice. This means VAT and VAT. The same price is
taxed. Price 100, tax 20, tax 20.
• No taxation: no tax on base price
• Mohsche case
Person uses car for business and private use. He labels the car
for business purposes. He deducts the VAT on the price of the
car. In a later point in time, because you use the car privately,
you have to pay VAT on the private use of the car to the tax
authorities. There were also maintenance costs and the VAT on
these costs he did not deduct. There is a deemed service, on
which the maintenance costs were included. The CJEU saw this
as double taxation.
“The taxation of business goods on which the residual tax was
not deductible would lead to double taxation contrary to the
principle of fiscal neutrality”. Therefore costs of maintenance
excluded from taxable amount self-supply (Art. 26(1)(a) & 75
VAT Directive)
b. No cascading of tax
• Double taxation: VAT and VAT; 100 euro tax and 20 and 20 VAT
• Cascading of VAT: VAT accumulated over VAT. VAT on 100 is
20. Price is 120. This VAT is not deductible which means it will
stay in the price after selling the good. Price is 120, VAT is 24.
This means VAT is accumulated on VAT.
The principle of neutrality
Prohibition of cascading of VAT
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