EU Value Added Tax (VAT)
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Value Added Tax (VAT) is a general consumption tax assessed on the value added to goods and services.
It is a general tax that applies, in principle, to all commercial activities involving the production and distribution of goods and the provision of services. It is a consumption tax because it is borne ultimately by the final consumer. It is not a charge on companies. It is charged as a percentage of price, which means that the actual tax burden is visible at each stage in the production and distribution chain. It is collected fractionally, via a system of deductions whereby taxable persons (i.e., VAT-registered businesses) can deduct from their VAT liability the amount of tax they have paid to other taxable persons on purchases for their business activities. This mechanism ensures that the tax is neutral regardless of how many transactions are involved. (See The Taxation Policy in the European Union.)
Every Member State of the European Union has a Value Added Tax (VAT). The First VAT Directive of April 11, 1967 (as amended) required that Member States replace their general indirect taxes by a common system of value added tax. In fact, the assessment base for the Member States' VAT constitutes one of the critical components of "own resources"-the EU's budgetary revenue.
Yet the laws establishing the VAT are national laws, each framed within certain parameters specified by the EU in the Sixth Council Directive 77/388/EEC (as amended) on the common system of VAT and the uniform basis for its assessment. This Sixth VAT Directive aims to ensure that each Member State has a broadly identical "VAT base"-VAT levied on the same transactions. Its subsequent amendments have attempted to remove anomalies.
As of January 1, 1993, the "Single Market" became a reality, national borders ceased to exist within the European Union and the practical aspects of the VAT had to be adapted to the new scenario. Initially, a "transitional arrangement" was put in place that combined origin- and destination-based taxation, making it possible to abolish controls at tax frontiers. For individuals, VAT liability was incurred "by transactions," as it is under a national system. This meant that individuals could purchase goods and pay VAT on the goods in a Member State other than their own (i.e., at origin). They could then return to their home Member State (destination) with their purchases without paying any more VAT. Two exceptions to this arrangement are: the purchase of new means of transport, including motor vehicles (taxed in the Member State of destination at its rates and according to its rules), and mail order sales by a company located in another Member State (VAT is charged in either the buyer's or the seller's Member State as determined by the seller's annual sales volume in the country of destination).
While private individuals have benefited from origin-based VAT, companies have been subject to various destination-based methods. Though tax controls at frontiers have been abolished, businesses are required to maintain detailed records of purchases from, and sales to, other Member States, and the system is policed by administrative cooperation between Member States' tax authorities. This was intended to ensure that the VAT levied in each Member State reflected the volume of consumption there, and it was meant to guard against substantial transfers of revenue from one Member State to another.
Non-EU companies that export to the EU are taxed at import; exported goods are zero-rated and not subject to the VAT.
The transitional period was meant to last through 1996 at which time a "definitive" system was to have been established, based on payment at "origin." Agreement on the "definitive" system for VAT has not yet been reached. Decision-makers are studying and focusing upon the detailed impact of such a system.
According to Frits Bolkestein, Commissioner responsible for taxation and the internal market, the Commission does not question the idea of a definitive system of taxation at "origin" as a long-term Community objective. In the meantime, the Commission has shifted its emphasis from a move to a "definitive" system towards measures to improve the present "transitional" arrangements.
In June 2000, the Commission published a Communication to the Council and the European Parliament [COM(2000) 348 final] entitled A Strategy to Improve the Operation of the VAT System within the Context of the Internal Market.
This Commission paper outlines a new list of priorities and a timetable for decisions. The report considers new strategies to simplify, modernize and standardize the VAT system. It emphasizes the uniform application of implementing rules in the Member States and closer administrative cooperation between them to combat fraud.
EU VAT LEGISLATION AND PROPOSALS
Recent legislative developments related to VAT include a number of procedural improvements and simplifications, as well as rules relevant to the new information technology.
Recently adopted VAT legislation includes Directive 2001/4/EC, mandating that the minimum standard VAT rate set by Member States must be 15%, which will be in effect at least until December 31, 2005. Directive 2000/65/EC simplifies VAT for firms with taxable activities in a Member State other than that in which they are established. A principal provision of this Directive makes the appointment of a tax representative or agent optional rather than obligatory for European traders conducting business in another Member State.
On May 7, 2002, the Council adopted a proposal which modifies the rules for applying VAT to certain services supplied by electronic means as well as subscription-based and pay-per-view radio and television broadcasting. The objective is to create a level playing field for the taxation of digital e-commerce according to OECD principles. Once enacted (by July 1, 2003), Council Directive 2002/38/EC would ensure that the digital delivery within the EU of software and computer services generally-plus information and cultural, artistic, sporting, scientific, educational, or entertainment services, specifically-would be subject to VAT. When such services are supplied for consumption outside the EU, they are exempt from VAT.
A related procedural proposal was also adopted on May 7, 2002 (Council Regulation 792/2002/EC), which addresses administrative cooperation on VAT particularly as it pertains to electronic commerce.
EU VAT legislation currently in force may be accessed through the EU's EUR-Lex website.
Since each Member State has its own VAT law and, given that the EU has only mandated that the standard minimum VAT must be 15%, rates vary among Member States and among certain types of products. The most reliable source of information on current VAT rates for a specified product in a particular Member State would be that country's VAT authority. Nevertheless, one can get an idea as to current rates by looking at two EU publications.
The first is entitled VAT Rates Applied in the Member States of the European Community (pdf) and is updated through the current year. This paper shows Member State standard VAT rates ranging from 15% to 25%. It also includes more detailed information about reduced VAT rates, VAT exemptions and product and geographical coverage.
The second EU compilation concerning tax rates is known as The Inventory of Taxes, and the most recent (17th) edition is available on the Internet, as are updates for selected member states. This publication is organized by EU Member States and for each there is an entry that summarizes every type of tax assessed by that country-from VAT to excise taxes to income taxes.
While the EU mandates certain guidelines for the VAT, the implementation and administration of VAT remains a matter of national law in each of the fifteen Member States. The EU has obtained from the Member States' tax authorities and assembled in one publication, a range of basic information on the application of VAT arrangements in each of the EU countries. The January 2001 version is entitled VAT in the European Community: Application in the Member States, Facts for Use by Administrations/Traders Information Networks Etc… (pdf). It is in this publication that one can find the contact information for each of the countries' VAT offices. The publication offers detailed "how-to" information for traders.
One can verify the validity of a VAT number issued by any Member State by selecting that Member State from the drop-down menu provided on this page and entering the number to be validated.
REFUNDS. "A taxable person not established in the territory of the Community" may apply to a Member State for a refund of VAT paid on goods supplied in the territory of the Community and taken out of the Community. "A taxable person not established in the territory of the Community" is defined as someone who has not had a business address, or a permanent place of residence in a Member State during a period of time to be determined by the Member State, and who has not supplied any goods or services in that Member State with the exception of transport services or those on which tax is payable by the customer alone." It is left to the individual Member State governments to determine the practical means for application for and granting of such refunds, according to the Thirteenth Council Directive 86/560/EEC of 17 November 1986 on the harmonization of the laws of the Member States relating to turnover taxes - Arrangements for the refund of value added tax to taxable persons not established in Community territory. Individuals living outside the EU, and making purchases while visiting the EU, should inquire about VAT refund procedures at the time of purchase. Member State refund procedures differ, but chances are that forms will need to be filled out when the goods are bought.
MEMBER STATE VAT ADMINISTRATIONS
AUSTRIA Bundesministerium fur Finanzen; Abteilung IV/9; Himmelpfortgasse 4-8; 1010 Vienna, Austria; Tel: 0043/1/514 33/1561; Fax: 0043/1/5124174.
BELGIUM Bureau central de TVA pour assujettis étrangers; Tour SABLON - 24ième étage; Rue Stevens, 7; B-1000 Brussels, Belgium; Tel: 322/552 59 33/4; Fax: 322/552 5541; E-mail: firstname.lastname@example.org.
DENMARK Told- og Skatteregion Sonderborg; Hilmar Finsens Gade 18; DK-6400 Sonderborg, Denmark; Tel: 45/74 12 73 00; Fax: 45/74 42 28 09;
FINLAND Uudenmaan laaninverovirasto; Ratapihantie 11; PL 5; 00521 Helsinki, Finland; Tel: 358/9 7311 427 (switchboard); Fax: 358/9 7311 4993.
FRANCE Direction Générale des Impôts; Bureau des Relations Publiques; 86-92, allée de Bercy; F-75012 Paris, France; Tel: 331/40 04 11 20.
GERMANY ; Referat Presse und Information; 11016 Berlin, Germany; Fax: 030/2242-3266.
GREECE Ministry of Finance; Directorate-General for Taxation; Directorate 14-VAT; Sina 2-4; GR-10672 Athens, Greece; Tel: 301/3647203-5; Fax: 301/3645413.
IRELAND The Revenue Commissioners; VAT Branch; New Stamping Building; Dublin Castle; Dublin 2, Ireland; Tel: 353/1 6792777; Fax: 353/1 6795236; E-mail: email@example.com.
ITALY Ministero delle Finanze; Segretariato Generale; Ufficio per le Relazioni Internazionali; Viale'Aeronautica, 122; 00149 Rome, Italy; Tel: 39/6 5910909; Fax: 39/6 5912971; E-mail: firstname.lastname@example.org.
LUXEMBOURG Bureau d'imposition X de l'Administration de l'Enregistrement et des Domaines; 7, Rue Plebiscite; Boîte Postale 31; L-2010 Luxembourg-Ville, Luxembourg; Tel: 352/44905-1.
NETHERLANDS Belastingdienst Particulieren/Ondernemingen Buitenland; Postbus 2865; NL-6401 DJ Heerlen; Netherlands; Tel: 31/45/5736666; Fax: 31/45/5736684.
PORTUGAL Direcção-Geral dos Impostos; Direcção de Servicos do Iva; Rua da Prata, 10 - 2º; 1100 Lisbon, Portugal; Tel: 351 21/7936673 (general), 351 21/7936533 (direct), 351 21/7936548(direct); Fax: 351 21/7936508. E-mail: email@example.com.
SPAIN Subdirección de Asistencia al Contribuyente de la Agencia Estatal de la Administración Tributaria (AEAT); c/Infanta Mercedes No 37; E-28071 Madrid, Spain; Tel: 34 1/583 89 76.
SWEDEN Skattemyndigheten I Stockholms Ian; Skattenkontor Riks; S-106 61 Stockholm; Sweden; Tel: 46 8/694 1000; Fax: 46 8/642 9261; E-mail: firstname.lastname@example.org.
UNITED KINGDOM Aberdeen Non-established Taxable Persons Unit (NEPTU); Custom House; 28 Guild Street; Aberdeen AB9 2 DY: United Kingdom; Tel: 44 1224/844653/844654/844655; Fax: 44 1224/844611.