EU VAT
Eleonor Kristoffersson & Pernilla Rendahl
Textbook on EU VAT
With preface by Michael Lang
Fourth Edition
eleonor kristoffersson
pernilla rendahl
Preface
This textbook addresses an area of taxation which has been gaining in importance in recent years and will also gain even more in 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 165 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 tax. 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 indeed be the major driver for its popularity. As states are constantly – due to the economic and financial crisis –struggling to achieve fiscal sustainability without harming economic growth, VAT seems to be the logical choice.
From the EU perspective, VAT enjoys 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 maintain extensive sovereignty – the harmonisation 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 from 1967 onwards. The
importance of VAT for the EU internal market is even more strongly 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 the 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 has still not been achieved.
Besides the growing recourse to VAT in a national and EU context, the OECD has also 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 in 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 large number of well-trained and qualified practitioners, scholars and researchers in the area of VAT. This book – directed at students, non-VAT experts and also non-EU researchers – will contribute substantially to building up a broad knowledge base. The book gives a well-structured and comprehensive overview of 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, the book is both an easy read and comprehensible, but it also provides a comprehensive overview of the at times rather technical
Preface 7
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 upon their basic knowledge of the EU VAT system.
Michael
Lang
Preface to the Second Edition
In this Second Edition, the book has been updated to where the law currently stands in July 2019. Since the First Edition was published in 2016, changes to existing directives and regulations have been adopted, mostly relating to reaching the goal of a single EU VAT area. The CJEU has also clarified the law substantively through its rich case law.
Eleonor Kristoffersson and Pernilla Rendahl
Preface to the Third Edition
The Third Edition has been updated with case law and legislative changes up until 1 July 2020. Substantive changes have also been made to several chapters to correct previous unclarities and to add examples. We would like to express our gratitude to Prof. YOON, Ji-Hyun, who made us aware on some unclarities during his and his students’ thorough reading of the Second Edition, while translating it into Korean language.
Eleonor Kristoffersson and Pernilla Rendahl
Preface to the Fourth Edition
The Fourth Edition has been updated with case law and legislative changes up until 30 April 2024. Since the third edition the CJEU has clarified substantive changes through its rich case law and Brexit has been given full effect.
A new chapter, chapter 11, has been added. In this chapter a short overview of VAT and the circular economy is presented.
Eleonor Kristoffersson and Pernilla Rendahl
Table of content
Preface 5
Abbreviations 15
1 Introduction 17
2 The Whys and Wherefores of VAT 19
2.1 General 19
2.2 How VAT Works 19
2.3 The History of VAT 22
2.4 VAT at Large 23
2.5 Moving Towards a Single VAT Area 24
3 EU VAT Sources 26
3.1 EU VAT as Part of EU Law 26
3.2 Basic EU Law 26
3.3 The CJEU 28
3.3.1 The Court and Its Various Procedures 28
3.3.2 Interpretative Methods 30
3.4 Principles Ensuring the Effects of EU Law at the National Level 33
3.5 The Principle of Prohibition of Abusive Practices 37
3.6 Concluding Remarks 38
4 The Scope of VAT 39
4.1 General 39
4.2 The Cumulative Effects of Concepts 39
4.3 Outside the Geographical or Substantial Scope of VAT 41
4.4 Concluding Examples 41
5 Taxable Persons 43
5.1 Introduction 43
5.2 The General Definition of a Taxable Person 44
5.2.1 Economic Activity 44
5.2.2 Independence 46
5.2.3 Optional Rules 49
5.3 VAT Groups 50
5.4 Public Bodies 51
5.5 Concluding Remarks 52
6 Taxable Transactions 53
6.1 Introduction 53
6.2 The Supply of Goods 54
6.2.1 The Supply of Goods Under the Obligatory Rules in the VAT Directive 54
6.2.2 Optional Rules Regarding the Supply of Goods 57
6.2.3 The Transfer of a Business or Part Thereof (Goods) 58
6.2.4 Intra-Union Supplies 59
6.3 The Supply of Services 60
6.3.1 The Supply of Services Under the Obligatory Rules in the VAT Directive 60
6.3.2 Optional Rules Regarding the Supply of Services 62
6.3.3 The Transfer of a Business or Part Thereof (Services) 63
6.4 Intermediaries 63
6.5 For Consideration 64
6.6 Intra-Union Acquisitions of Goods 66
6.7 The Importation of Goods 69
6.8 Concluding Remarks 70
7 The Place of Taxable Transactions 71
7.1 General 71
7.2 The Supply of Goods 73
7.2.1 The Different Subcategories 73
7.2.2 The Supply of Goods Without Transport 75
7.2.3 The Supply of Goods That Are Transported 76
7.2.4 The Supply of Goods on Passenger Transport 80
7.2.5 The Supply of Goods that Are Installed or Assembled 81
7.2.6 The Supply of Gas, Electricity, Heat or Cooling Energy 83
7.2.7 The Supply of Goods to and from Third Countries 83
7.2.8 Concluding Examples 84
7.3 Intra-Union Acquisitions 85
7.3.1 Subcategories of Intra-Union Acquisitions 85
7.3.2 Basic Intra-Union Acquisitions 86
7.3.3 Triangular Intra-Union Acquisitions 88
7.3.4 New Means of Transport 91
7.3.5 Concluding Examples 92
7.4 The Supply of Services 93
7.4.1 General 93
7.4.2 Identifying the Status of the Supplier and the Acquirer 93
7.4.3 General Rules 96
7.4.4 Services Supplied by Intermediaries 105
7.4.5 Services Connected with Immovable Property 107
7.4.6 Transport Services 110
7.4.7 Heterogenic Groups of Services Taxed at the Place Where They Actually Take Place or Are Physically Carried Out 112
7.4.8 Restaurant and Catering Services 116
7.4.9 Hiring Means of Transport 118
7.4.10 Digital Supplies 121
7.4.11 Certain Services Supplied to Non-taxable Persons Outside the EU 130
7.4.12 The Prevention of Double Taxation or Nontaxation 132
7.5 The Place of Importation of Goods 133
7.6 Concluding Remarks 134
8 The Taxable Amount and Tax Rates 136
8.1 Introduction 136
8.2 The Taxable Amount 137
8.2.1 The Taxable Amount for the Supply of Goods or Services 137
8.2.2 The Taxable Amount for Intra-Union Acquisitions 138
8.2.3 The Taxable Amount of the Importation of Goods 139
8.2.4 Anti-avoidance Rules 139
8.3 Tax Rates 140
8.4 Composite Transactions 141
8.5 Concluding Examples 142
9 Exemptions 144
9.1 Introduction 144
9.2 General Provisions 144
9.3 Exemptions for Certain Activities in the Public Interest 145
9.3.1 Public Postal Services 145
9.3.2 Hospital and Medical Services 146
9.3.3 Human Organs, Blood and Milk 150
9.3.4 Dental Technicians 151
9.3.5 Independent Groups of Persons 151
9.3.6 Welfare and Social Security Work 152
9.3.7 The Protection of Children and Young Persons 154
9.3.8 Educational Services 155
9.3.9 The Supply of Staff by Religious or Philosophical Institutions 156
9.3.10 Trade Unions 157
9.3.11 Sport and Physical Education 157
9.3.12 Cultural Services 158
9.3.13 Fundraising Services 159
9.3.14 Transport for Sick or Injured Persons 160
9.3.15 Public Radio and Television Bodies 160
9.4 Exemptions for Other Activities 160
9.4.1 General 160
9.4.2 Financial and Insurance Transactions 161
9.4.3 Postage Stamps 167
9.4.4 Gambling and Betting 167
9.4.5 Immovable Property 168
9.5 Exemptions for Intra-Union Acquisitions, Imports and Exports 169
10 Deductions and Refunds of Input VAT 171
10.1 Introduction 171
10.2 The Main Rule – for the Purposes of Taxed Transactions 173
10.2.1 General 173
10.2.2 Used for Private Purposes 175
10.2.3 Starting Up and Shutting Down Activities 177
10.2.4 Fraudulent Transactions 178
10.3 Mixed Activities 178
10.3.1 General 178
10.3.2 The Pro-rata Calculation 179
10.3.3 Alternative Calculations 181
10.3.4 Activities Outside the Scope of VAT 183
10.4 Exercising the Right of Deduction 184
10.5 Adjustment of Input VAT 185
10.6 Concluding Remarks 187
11 VAT and the circular economy 188
Additional Reading 191
Cases from the CJEU 193
Index 207
1 Introduction
This book 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 who are 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 175 countries around the world use VAT as a means of taxing consumption. More than 70 per cent of the world’s population lives in a country with VAT. 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 nine explains the main features of exemptions from VAT. Chapter ten explains the core features of deductions and refunds of input VAT and in the final chapter, chapter eleven, a short overview of VAT and the circular economy is presented.
VALUE ADDED TAXES exist in more than 175 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.
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. 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.
ISBN 978-91-7737-288-2