EU Taxation European VAT General Principles Arvind

EU Taxation European VAT – General Principles Arvind Ashta ESC Dijon Introduction Territory Taxable Person Taxable Transaction Place of Taxable Transaction Chargeable event Taxable Amount Tax Rates Exemptions Deductions Persons liable for payment of tax 3/19/2018 1

Introduction • • 1967: First Directive (introduce by 1970) 1973: Nine different systems 1977: Sixth Directive on Harmonization 1991: Intra-community borders abolished 1999: Labour-intensive services 2000: Tax representation made optional 2002: Imports of radio, TV and electronic services taxed at place of consumption 3/19/2018 2

Territory • All of EU • Excluded – Canary Islands – French DOMs • Included – Monaco in France – Isle of Man in UK 3/19/2018 3

Taxable Persons • A person who engages in – Economic Activity – Independently – Even occasionally • Exemptions – – Illegal Free Public bodies (except for commercial activities) Private consumers • Inclusions – Any person buying new means of transport from another member -State – Imports : taxable person includes consumers 3/19/2018 4

Taxable Transactions • Supply of Goods • Transfer of economic ownership • Deemed supply of goods (for self, employees) • Supply of Services • Any transaction which is not a supply of goods • Imports • Intra-Community Acquisitions 3/19/2018 5

Place of Taxable Transaction • General rule • Where transport begins • Where Supplier has fixed establishment • Exceptions – Many services (real estate, entertainment) – Works contracts (registration number) – Imports (country of import) – Intra-community acquisitions (destination generally) 3/19/2018 6

Supplier- OSP – Customer 3/19/2018 7

Principal- OSP 1 -OSP 2 -Principal 3/19/2018 8

Intra-Community Acquisitions • General Rule: – Supplies exempt, Purchases Taxed, In Destination country – Taxable Persons: » Intra-community acquisitions added to sales » But also deducted from purchases • Conditional exceptions: – Country of origin: Small farmers, consumers buying < € 10000 – Mail orders, etc shipping < € 100, 000 (or € 35, 000) • Exceptions – Transport, Ancillary services to transport, Intermediaries in transport • Inclusion: 3/19/2018 – Consumer buying transport 9

Intra-Community Transactions 3/19/2018 10

Triangular Sales Goods dispatched directly 3/19/2018 11

EXAMPLE • B is French (VAT 19. 6%). He purchases goods worth € 50, 000 from A, an English company (VAT 17. 5%), and directs that send goods directly to C in Italy (VAT 20%). The English company, bills B for the transport of € 5000 also. B bills his Italian customer, C, for € 75, 000. The diagram in the above box therefore describes the situation. The taxation would depend on where B is registered. 3/19/2018 12

REGISTERATION and VAT 3/19/2018 13

REGISTERATION and VAT 3/19/2018 14

Example 2: In the above triangular sale case, if the English company wants to charge the French company € 5, 000 for transporting goods directly to Ireland, what would be the tax on the transport. 3/19/2018 15

Example 2: In the above triangular sale case, if the English company wants to charge the French company € 5, 000 for transporting goods directly to Ireland, what would be the tax on the transport. 3/19/2018 16

Chargeability • General rule – Chargeable event – Delivery of goods – Performance of service – Tax becomes chargeable – When authority entitled to it » On delivery of goods » On payment by customers for services » On importing (crossing customs barrier) • Exceptions to general rule – Repeated payments (for services & construction work) – At time of billing: last installment – On-account payment – Each payment 3/19/2018 17

Tax liability • Goods/services • Earlier of invoice or delivery / performance • Imports • Time of importing or included in tax return • Intra-community transactions • Later of chargeable event or Invoice but before 15 th of month after acquisition 3/19/2018 18

Example: ABC Limited, a French company buys shoes from Italy. Delivery is made on 20 th of April. 3/19/2018 19

Example: ABC Limited, a French company buys shoes from Italy. Delivery is made on 20 th of April. 3/19/2018 20

Tax Rates • • • Vary from one country to another Minimum 15% One or two lower rates, at least 5% No refunds should result No new Zero tax rates 3/19/2018 21

Exemptions • Within the country – – Public Interest Others (insurance, credit, real estate) No deductions allowed Option to be taxed for some of these • International transactions – – 3/19/2018 Exports Deductibility allowed Import of items which are exempt from domestic VAT Temporary imports, VAT warehouses 22

Deductions • Deduction of input VAT by taxable persons • Not by final customers • Not by holding companies • As soon as invoice received • If taxable and non-taxable business, proportional deductibility allowed 3/19/2018 23

Example: A buys inputs of € 500 and sells for € 1000 to B. B makes a local sale for € 2000. 3/19/2018 24

Persons liable for payment • Taxable person • If reverse charge is applied, the receiver • If identification number issued, the registered person • For imports, the importer • Taxable representative optional 3/19/2018 25

Calculate VAT due 3/19/2018 26

Calculation of VAT due 3/19/2018 27

Calculation of VAT due 3/19/2018 28