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Lectures of European Value Added Tax incl. theorie of fundamentals
- Instelling
- Maastricht University (UM)
All lectures of European Value Added Tax incl. theorie of fundamentals
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Voorbeeld 4 van de 69 pagina's
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Voorbeeld van de inhoud
Lectures European Value Added TaxWeek 1 Introduction & fundamental principles of EU VAT
Advantages of a VAT system
1. Stable revenue basis
2. Relatively low costs of collection (easy tax)
3. Not a tax on labour (does not affect employment (ageing population))
4. Not a tax on savings or corporate income (does not affect investments)
5. Neutral towards competition (does not affect exportation): if you have a
wage tax then it will be visible in the price of the goods but with VAT this is
not the case.
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)
Disadvantages of a VAT system
1. Ability to pay (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. You want to tax private consumers. If you are a business, you
are supposed to be free of the burden of VAT, therefore you have the right
to deduct VAT. But if you buy like a coffee machine for work you can also
use it in private and to prevent this is very difficult.
4. Administrative burden for businesses
5. Taxing ‘digital’ consumption poses difficulties: the services are not visible.
Why European VAT?
Before we had turnover taxes but with turnover tax you don’t have a right to
deduct and because of that you create cascading VAT. If you export the product
you don’t know how much VAT is in the product.
1. Internal market
- No distortion of competition: if you have a harmonized system then
there will be no competition between the countries otherwise one
country will have a lower rate so another company will pay more taxes.
- No obstacles movement of goods and services within EU
2. Own resources EU
Difference between indirect and direct tax
- Direct: person responsible for paying the tax = the person intended to
carry burden of the tax
- Indirect: person responsible for paying the tax is not the person
intended to carry the burden of the tax.
The legal character of VAT is to tax consumption (consumers). The legislative
intent: what should be taxed, who should carry the burden of the tax legal
character: the legal character is to tax private consumption of private consumers.
We cannot do it in a direct way because it is difficult to measure and how do you
determent what is consumed. Therefore, we only tax supplies of goods and
services for consideration by entrepreneurs because they already have a
bookkeeping. The one who is taxed is not the same person who is carrying the
burden of the tax.
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,The system of fractional payments: the first wholesaler pays the VAT to the
tax authorities. So if anything goes wrong in the supply chain, the tax authorities
already received the VAT. We do not only tax the last one in the supply chain,
that is the system of fractional payments.
Sources of EU VAT Law
- VAT Directive
- VAT Regulation 282/2011: explain what is in de VAT directive. The
difference between a directive and legislation. The directive has to be
in the national law to be effective and the legislation does not have to
be effective it is European law.
- Refund Directives: 2008/09 and 13th Directive: 8 th VAT directive is for
businesses in the EU and the 13 th Directive is for the businesses outside
the EU.
- Art. 395 derogations
- CJEU case law: case law of the court of justice, over 1000 cases on VAT.
On the exam you have to remember the relevant rules of law, not the
name of the case.
- Guidelines VAT Committee (Art. 398 VAT Directive)
- Explanatory notes
- Communication European Commission
Determination scheme: the first three questions are the most important, always
to these first.
Essential Characteristics of VAT art 1(2) VD if you do not match one of
these conditions than it is no longer VAT.
1. General, objective tax: all goods and services
2. Strictly proportional to the prices: there cannot be any cascading of tax
and therefore there has to be a right of deduction.
3. All stages tax
4. Taxable persons can deduct the VAT charged to them
CJEU Dansk Denkavit, Gil Insurance Banca popolare di Cremona, KÖGÁZ,
K1, Profaktor (Cf. Art. 401 VAT Directive)
Other Fundamentals VAT Characteristics
1. Principle of neutrality
2. Highest degree of simplicity
Principle of neutrality
CJEU 19 July 2012, Case C-44/11, Deutsche Bank
CJEU: (…) That principle [of neutrality] is not a rule of primary law which can
condition the validity of an exemption, but a principle of interpretation, to be
applied concurrently with the principle of strict interpretation of exemptions.
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,The principle of neutrality combines elements of general law principles and
system principles of EU VAT. The principle of neutrality is a reflection of the field
of VAT of the general principles of equal treatment and a system principle of EU
VAT, essentially entailing that VAT should be strictly proportional to the prices of
the goods and services. The purpose of the principle extends to the person from
whom the tax is levied. The taxable persons that are in similar situations, should
be treated equally.
It is intended that the VAT system should attain the highest degree of neutrality
(point 5 VAT Directive). According to the CJEU the principle of neutrality is a
fundamental principle which underlies the common system of VAT (article 1(2)
Vat Directive). The principle of neutrality has two aspects.
- Economic aspect: it should be exactly proportional to the price of goods
and services art 1(2) VD. EU VAT law should not lead to concentration
of businesses in the production and distribution chain
a. No double taxation/ no non-taxation
b. No cascading of VAT: If VAT cascades in the supply chain of if
double of non-taxation occurs, VAT will no longer be exactly
proportional to the prices and likely have an effect on business
decisions (system-neutrality).
- Legal aspect: the reflection in the field of VAT of the general principle of
equal treatment. Similar goods and services (similar economic
transactions) are treated equally for VAT for VAT purposes. Even if
rates and exemptions are not fully harmonized, VAT should result in
neutrality in competition, such that within the territory of each Member
State similar goods and services bear the same tax burden, whatever
the length of the production and distribution chain.
a. Similar taxable person
b. Similar transactions
c. Similar internal and external transactions
Prohibition of double taxation
CJEU 25 May 1993, Case C-193/91, Mohsche
Uses the car for private and business purposes. He can label that car as a
business asset and therefore have full right of deduction. This is corrected by
having a fictive private use. When he had costs of maintenance he did not know
if it was for business use or private use. The costs of maintenance were not
deducted. He said that this led to double taxation but the court of justice ruled
that 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 form taxable amount self-supply (art
26(1)(a) & 75 VAT Directive). If you purchase something for both use then you
have the full right of deduction as long as you make a correction afterwards for
private use. The correction is made to a deemed supply.
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.
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, Therefore, costs of maintenance excluded from taxable amount self-supply (art
26(1)(a) & 75 VAT Directive).
CJEU 22 December 2010, case C-277/09 (RBS)
Prohibition of Cascading of VAT
CJEU 29 April 2004, Case C-137/02, Faxworld
Before the partnership between AG and Faxworld was incorporated they already
made costs. In article 19 and 29 member states can choose to implement this in
national law the transfer of totality of assets as not a taxable transaction. They
wanted to deduct the VAT on the investments. In this case the court of justice
ruled that in those precise circumstances and in order to ensure the neutrality of
taxation the vat was deductible.
Principle of Neutrality vs. General principle of Equal Treatment
For example: If you are a Belgium business and you receive a refund of VAT you
also receive interest. If you are a foreign business, then you also get back
interest but instead of 10% you receive 5%. This is about the general principle of
equal treatment because here is not a case of competition but discrimination.
Similar taxable person
Art. 13A(1)(b) and (g) Sixth VAT Dir. (now Art. 132(1)(b) and (g) VAT Dir. –
amended!) “organisations” organisations”
CJEU 7 September 1999, Case C-216/97, Gregg & Gregg
CJEU 11 August 1995, Case C-153/93, Bulthuis Griffioen
Similar transactions
CJEU 11 June 1998, Case C-283/95 Fischer
Art. 13B(f) Sixth VAT Dir. / Art. 135(1)(i) VAT Dir. betting, lotteries and other
forms of gambling, subject to the conditions and limitations laid down by each
Member State. These are the exact same transactions and competition.
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