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VAT: towards a destination principle

VAT: towards a destination principle
17 Aug 2015

Published in Tax Journal, 17 August 2015

EU VAT began life as an origin-based tax on services and a destination tax on goods. Services, with a few exceptions, were taxed according to where the supplier was located. This worked well enough at a time when most services were provided to people who consumed them in the same country as the supplier was based. International supplies of goods on the other hand were generally taxed in the country where they were to be consumed by virtue of the VAT charge at importation.

With technological advances in the late 1990s, non-EU businesses found they had an advantage over their EU counterparts in not having to charge VAT on services they supplied to EU consumers.

The ubiquity of internet, which has rapidly led to a high volume of cross-border consumer transactions, has conveniently also brought with it the means by which the EU has been able to facilitate single online VAT returns covering all member states.

The MOSS is a welcome step forward. But the EU needs to do much more to minimise additional compliance burdens which arise when seeking to collect VAT at destination. 

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Taxand's Take

An EU VAT system based on the full destination principle is still a long way off. The EU will need to harmonise VAT rules to a much greater extent and design a sophisticated online system that could cope with a huge volume of B2B declarations before it could become a reality.

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