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EU VAT

About the authors: Professor Dr. Eleonor Kristoffersson is one of the leading VAT experts in Europe. She is often hired as a speaker at international tax conferences and has a long publication list in VAT and other tax topics. Associate Professor Dr. Pernilla Rendahl is one of the leading experts on VAT and digital commerce in Europe.

She is participating in several internationally renowned research groups including research on VAT and environmental taxes, particularly taxation of chemical cocktails.

Eleonor Kristoffersson & Pernilla Rendahl

VALUE ADDED TAXES exist in more than 160 countries around the world. The EU VAT is a tax providing substantial revenues for the Member States in the EU and is linked to each Member State’s fee to the European Union. It is an indirect tax aiming to tax consumption.

The EU VAT system is a dual tax system co-existing at both national and EU level. This textbook aims at providing introductory knowledge for understanding the EU VAT at the EU level.

This book is thought for university students, lawyers and people who work in tax administration, economists of public finances, with business administration and in accountancy firms. It gives the reader a solid introduction to the EU VAT system with references to the most important case law of the Court of Justice of the EU.

2 ISBN 978-91-7737-071-0

2nd edition

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EU VAT Eleonor Kristoffersson & Pernilla Rendahl

Textbook on EU VAT With preface by Michael Lang Second edition eleonor kristoffersson pernilla rendahl

Preface This textbook addresses an area of taxation which has been gaining importance in recent years and will also gain even more importance in future years. Value Added Tax (VAT) is on the rise: in a national, EU as well as global context. Currently, already more than 150 countries worldwide levy a VAT-like tax. Apart from the new introduction of VAT, many states have also taken measures to increase their already existing indirect taxes. The reasons for this rise of VAT are manifold: From an economic perspective, VAT is seen as a neutral tax and less detrimental to economic growth than income taxes.

From an administrative perspective, VAT is relatively easy to manage, as the collection of the tax is mainly outsourced to businesses.

In addition, VAT has also a comparatively high capacity to raise tax revenues which may be, indeed, the major driver for its popularity.

As states are – due to the economic and financial crisis – constantly struggling to achieve fiscal sustainability without harming economic growth, VAT seems to be the logic choice.

In an EU perspective, VAT has a unique position compared to other taxes, in particular direct taxes. It is the only tax which has been substantially harmonized. In contrast to direct taxes – an area where Member States still remain extensive sovereignty – harmonization of national VAT rules was considered as indispensable to ensure the establishment and the functioning of the EU internal market. Therefore, indirect taxes (including ‘turnover taxes’) were (and are still) explicitly mentioned in the provisions of the Treaty (Art 113 TFEU) and have already been harmonized beginning with

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Textbook on EU VAT

the year 1967. The importance of VAT for the EU internal market is even more highlighted by the fact, that VAT – although not directly collected for the EU – affects the EU financial interests, since the harmonized VAT assessment bases determined by the VAT Directive constructs the basis for Member States’ financial contributions to the EU budget. Based on its importance for the EU internal market, the European Commission is constantly trying to improve the EU VAT system, in particular the efficiency of tax collection, the fight against fraud and abuse and the readiness for the changing digital environment. The recently published Action Plan on VAT (COM(2016) 148) shows that there are a number of substantial changes on the agenda leading to a simplified and more efficient system. The aim of a “single EU VAT area” fostering growth and welfare is still not achieved.

Besides the growing recourse to VAT in a national and EU context, also the OECD has only recently begun to devote more attention to the VAT area. In the year 2012 a “Global Forum on VAT” was established: a platform for a worldwide dialogue on the design and operation of VAT. As a result of these discussions starting with 2014 the OECD has published “International VAT/GST Guidelines” summarizing general principles for national VAT regimes and proposing solutions for specific international issues. Although these guidelines are of political importance only and do not have any binding or enforceable character (“soft law”), this new focus by the OECD confirms the importance of VAT for national authorities and the international environment.

This growing reliance on VAT and the increasing international cooperation implies that there is a strong and ever-growing need for a great number of well-trained and qualified practitioners, scholars and researchers in the area of VAT. This book – addressed at students, non-VAT experts and also non-EU researchers – will substantially contribute to build up a broad knowledge base. The book gives a well-structured and comprehensive overview on the EU VAT system including the basic EU law principles relevant for VAT and the fundamentals of the EU VAT system. Besides the more basic sections,

Preface

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the book also provides both an easy reading and comprehensible, but also comprehensive overview on the sometimes very technical and detailed EU VAT rules on taxable persons, taxable transactions, the place-of-supply rules, the taxable amount, input VAT deduction, various rates and exemptions. I am convinced that this excellent book will help students and researchers worldwide to build up a basic knowledge on the EU VAT system.

Michael Lang

Preface to 2nd edition In this second edition the book is updated to where the law stands in July 2019. Since the first edition in 2016 changes to existing directives and regulations have been adopted, mostly related to reaching the goal of a single EU VAT area. The CJEU has also clarified the law substantively through its rich case law.

Table of content Preface 5 Abbreviations 13 1 Introduction 15 2 The whys and wherefores of VAT 17 2.1 General 17 2.2 How VAT works 17 2.3 The history of VAT 19 2.4 VAT at large 21 2.5 Moving towards a single VAT area 22

3 EU VAT sources 24

3.1 EU VAT as part of EU law 24 3.2 Basic EU law 24 3.3 The CJEU 26 3.3.1 The Court and its various procedures 26 3.3.2 Interpretative methods 28 3.4 Principles ensuring the effects of EU law at national level 31 3.5 The principle of prohibition of abusive practices 35 3.6 Concluding remarks 36

4 The scope of VAT 37

4.1 General 37 4.2 The cumulative effects of concepts 37 4.3 Outside the geographical or substantial scope of VAT 39 4.4 Concluding examples 39

5 Taxable persons 41 5.1 Introduction 41

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Textbook on EU VAT 5.2 The general definition of a taxable person 42 5.2.1 Economic activity 42 5.2.2 Independence 44 5.2.3 Optional rules 46 5.3 VAT Groups 47 5.4 Public bodies 48 5.5 Concluding remarks 49

6 Taxable transactions 51

6.1 Introduction 51 6.2 The supply of goods 52 6.2.1 The supply of goods under the obligatory rules in the VAT Directive 52 6.2.2 Optional rules regarding the supply of goods 54 6.2.3 The transfer of a business or part thereof (goods) 56 6.2.4 Intra-Union supplies 57 6.3 The supply of services 58 6.3.1 The supply of services under the obligatory rules in the VAT Directive 58 6.3.2 Optional rules regarding the supply of services 60 6.3.3 The transfer of a business or part thereof (services) 60 6.4 Intermediaries 61 6.5 For consideration 61 6.6 Intra-Union acquisitions of goods 63 6.7 The importation of goods 66 6.8 Concluding remarks 66

7 The place of taxable transactions 68

7.1 General 68 7.2 The supply of goods 70 7.2.1 The different subcategories 70 7.2.2 The supply of goods without transport 72 7.2.3 The supply of goods that are transported 72 7.2.4 The supply of goods on passenger transport 77 7.2.5 The supply of goods that are installed or assembled 78 7.2.6 The supply of gas, electricity, heat or cooling energy 80 7.2.7 The supply of goods to and from third countries 80 7.2.8 Concluding examples 81 7.3 Intra-Union acquisitions 82 7.3.1 Subcategories of intra-Union acquisitions 82 7.3.2 Basic intra-Union acquisitions 83

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7.3.3 Triangular intra-Union acquisitions 84 7.3.4 New means of transport 87 7.3.5 Concluding examples 88 7.4 The supply of services 89 7.4.1 General 89 7.4.2 Identifying the status of the supplier and the acquirer 89 7.4.3 General rules 92 7.4.4 Services supplied by intermediaries 100 7.4.5 Services connected with immovable property 102 7.4.6 Transportation services 105 7.4.7 Heterogenic group of services taxed at the place where they actually take place or are physically carried out 106 7.4.8 Restaurant and catering services 111 7.4.9 Hiring of means of transport 112 7.4.10 Digital supplies 115 7.4.11 Certain services supplied to non-taxable persons outside the EU 125 7.4.12 The prevention of double taxation or non-taxation 126 7.5 The place of importation of goods 127 7.6 Concluding remarks 128

8 Taxable amount and tax rates 129

8.1 Introduction 129 8.2 Taxable amount 130 8.2.1 The taxable amount for the supply of goods or services 130 8.2.2 The taxable amount for intra-Union acquisitions 131 8.2.3 The taxable amount of the importation of goods 132 8.2.4 Anti-avoidance rules 132 8.3 Tax rates 133 8.4 Composite transactions 134 8.5 Concluding examples 135

9 Exemptions 137

9.1 Introduction 137 9.2 General provisions 137 9.3 Exemptions for certain activities in the public interest 138 9.3.1 Public postal services 138 9.3.2 Hospital and medical services 139 9.3.3 Human organs, blood and milk 142

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Textbook on EU VAT 9.3.4 9.3.5 9.3.6 9.3.7 9.3.8 9.3.9

Dental technicians 142 Independent groups of persons 143 Welfare and social security work 144 The protection of children and youngsters 145 Educational services 146 The supply of staff by religious or philosophical institutions 147 9.3.10 Trade unions 147 9.3.11 Sport and physical education 148 9.3.12 Cultural services 149 9.3.13 Fund-raising services 149 9.3.14 Transport for sick or injured persons 150 9.3.15 Public radio and television bodies 150 9.4 Exemptions for other activities 151 9.4.1 General 151 9.4.2 Financial and insurance transactions 151 9.4.3 Postage stamps 157 9.4.4 Gambling and betting 157 9.4.5 Immovable property 158 9.5 Exemptions for intra-Union acquisitions, imports and exports 159

10 Deduction and refund of input VAT 161

10.1 Introduction 161 10.2 The main rule – for the purposes of taxed transactions 163 10.2.1 General 163 10.2.2 Used for private purposes 165 10.2.3 Starting up and shutting down activities 167 10.2.4 Fraudulent transactions 168 10.3 Mixed activities 168 10.3.1 General 168 10.3.2 The pro-rata calculation 169 10.3.3 Alternative calculations 171 10.3.4 Activities outside the scope of VAT 173 10.4 Exercising the right of deduction 174 10.5 Adjustment of input VAT 175 10.6 Concluding remarks 177

Additional reading 179 Cases from the CJEU 181 Index 191

Introduction

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1 Introduction This textbook aims to describe the core features of value added tax (VAT) at the EU level. EU VAT is a dual system, co-existing at both the EU and national levels. The main objective of the book is to assist students learning the basics of EU VAT. However, it may also prove useful for those familiar with VAT at the national level, but less familiar with VAT at the EU level.

The background information used for this book is primarily EU directives and regulations as well as case law from the Court of Justice of the European Union (CJEU) covering the basics of EU VAT. There are numerous cases concerning VAT issues at both the EU level and from different national courts. Moreover, the Organisation for Economic Co-operation and Development (OECD) has developed international guidelines as more than 160 countries around the world use VAT as a means of taxing consumption. Since this book is introductory in nature, additional reading material is provided at the end.

The following chapter explains how VAT works technically and gives some historical background. The third chapter sets EU VAT in a general EU law perspective to explain the dual system of EU VAT. Chapter four explains the scope of EU VAT. The fifth and sixth chapters cover the fundamental concepts of taxable persons and taxable transactions. In the seventh chapter the place of taxation is explained for the different types of taxable transactions that exist at the EU level. Chapter eight covers the taxable amounts and the different rates that may apply to taxable transactions whereas Chapter

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Textbook on EU VAT

nine explains the main features of exemptions from VAT. In the final chapter, Chapter ten, the core features of deductions and refunds of input VAT are explained.

TEXTBOOK ON

EU VAT

About the authors: Professor Dr. Eleonor Kristoffersson is one of the leading VAT experts in Europe. She is often hired as a speaker at international tax conferences and has a long publication list in VAT and other tax topics. Associate Professor Dr. Pernilla Rendahl is one of the leading experts on VAT and digital commerce in Europe.

She is participating in several internationally renowned research groups including research on VAT and environmental taxes, particularly taxation of chemical cocktails.

Eleonor Kristoffersson & Pernilla Rendahl

VALUE ADDED TAXES exist in more than 160 countries around the world. The EU VAT is a tax providing substantial revenues for the Member States in the EU and is linked to each Member State’s fee to the European Union. It is an indirect tax aiming to tax consumption.

The EU VAT system is a dual tax system co-existing at both national and EU level. This textbook aims at providing introductory knowledge for understanding the EU VAT at the EU level.

This book is thought for university students, lawyers and people who work in tax administration, economists of public finances, with business administration and in accountancy firms. It gives the reader a solid introduction to the EU VAT system with references to the most important case law of the Court of Justice of the EU.

2 ISBN 978-91-7737-071-0

2nd edition

TEXTBOOK ON

EU VAT Eleonor Kristoffersson & Pernilla Rendahl