Lecture 1: Indirect Tax in Cross-Border Situations Introduction

Agenda

1. Course overview

2. Direct taxation vs indirect taxation: this is the only indirect tax course in our program

3. Taxing consumption: from a global view, what governments have

designed/implemented/introduced

4. Single stage taxation

5. Multiple/all stage taxation

6. Structure of a consumption tax: the building blocks of a consumption tax for when you
would design such a tax from a global perspective, many of the difficulties would be the
same all over the world, in a different environment but from a tax design perspective there
are similar problems everywhere

Course overview
We will take the EU VAT system as an example, specifically and look at it from a global view. As of
the second week we will start looking at the EU VAT system – the building blocks from an EU VAT
perspective. Which country is entitled to tax revenue? We will get to the case studies that will
prepare us for after the graduation. We will also look at the digital economy in the VAT. The exam
consists of 2 parts, 1 part is the open questions, the more theoretical questions (40%). And part 2 is
about case studies (60%), the case studies will be EU VAT based case studies. With the case studies
we will look at what kind of indirect tax issues we see. The first case will focus on the basic stuff and
further on the course we will get into other stuff. The exam will be written, the resit is oral.

There is no syllabus available. Specifically for the selected topics they will select the articles, give you
directions to prepare for that lecture, in terms of the EU VAT lectures the structure of the book
follows the structure of the lectures so read those topics from the lectures in the book. You should
bring a copy of the EU VAT Directive. When you’re asked to do case studies on EU VAT law you will
be allowed to use the Directive, but it is not an open book exam. The exam will take place maybe
fully online or in a hybrid way depending on the situation.

Direct taxation vs indirect taxation

• Direct taxes (corporation tax, payroll tax, private income tax etc)

– Tax base erosion: cutting on the base of the taxable amount, corporations have
designed tax friendly structures, businesses establish in tax havens for tax reasons,
topic on which a business tries to lower the tax base on which amount of profit they
have to pay tax, CIT has the flow that when you move stuff around you get different
results, you can’t play with consumer tax in a similar way, consumption takes place
at a consumption, you see a tendency towards more indirect taxes from a global
perspective

– (Harmful) tax competition: this competition happens between countries, some

countries attract more businesses because they have more favorable tax regimes
than other countries, CIT used to go down -> race to the bottom it is called, it’s not
conceivable in a consumption tax, because would not easily go to another country to
consume

– Economic crisis: less revenues from direct taxes (income based)

• Indirect taxes (turnover taxes -> excise, VAT)

 – Efficiency – consumption provides for a broader and more stable tax base

– Less tax competition

– Efficiency in levying and in collection (from consumers)

– Robust in view of aging society

No gov. relies on a single tax, different taxes are used to collect gov. revenues, why? What happens
with income of private individuals when society is in an economic downturn? They cannot make
money, so there is no income, they cannot find a job or get fired or get paid less, their income
decreases, and the gov. might help them financially, so the tax revenues would decrease. In terms of
an aging society the society gets older and older. When people retire also less kids gets born and less
income is generated, so various factors may impact the tax. In the old days they used to have
window taxes, having a window was a sign of wealth. When gov. introduced window taxes, people
started putting bricks and closing windows to avoid paying taxes. Why would you have a tax mix as a
gov.? Because you want to have a stable income for the government. One would never ideally invest
in only one thing, you would diversify, and it is the same kind of comparison with taxes as well. What
other reasons could you have as a gov. to levy taxes apart from collecting money. Why do we levy
environmental taxes? Trying to influence certain behavior by punishing or by subsidizing, like excise
duty on cigarettes or alcohol. If you want to have a tax mix you need to have different sources to tax,
like windows, pollution, and you need to decide who you want to tax. Consumers pay the tax
eventually, but governments receive the money from defined tax subjects in law. People who are
liable to pay the government are not the same people who actually bear the burden of the tax
(consumers), because they eventually pay from their pockets. People do not really feel the pain of
paying taxes when consuming as when they have to bear it from their income and the gov. has
somebody to go after when there is a situation of fraud, tax subject are easier to find when they are
defined as businesses than if individuals had to give the tax to the gov. With payroll tax for example
which is a direct tax it is easier to go after to employers than to go after the employees, this is very
important to think about when designing a tax.

In a direct tax a person that feels the pain of the tax is the same person who is liable towards the
government for paying the tax. With indirect tax the consumer will bear the tax but the company is
liable towards the government. This is the summary but in real life it’s complicated.
Indirect taxes are everywhere, the only country that is not working with VAT is the US, working with
a special sales tax.

Some indirect tax trends

• Shift from direct tax to indirect tax: it is a trend that is happening across the globe, we have
just identified the difficulties and challenges, countries act upon those challenges, so there’s
a shift to indirect taxes, more effort to introducing indirect taxes in countries that did not
have these taxes, indirect tax rates increase slightly over the years, when you introduce a
new tax you have to go slowly, the EU average is now 21/22. It will be more than 5 % in
countries that introduced it, they will increase it later on but slowly, you do not need to feel
the pain of paying the tax. When you need to file a return of PIT and if you have to pay
10.000 euros of taxes – that is more difficult!

• More countries to introduce indirect taxes

• Rates tend to increase

• Double taxation & double non-taxation

– Global initiatives  OECD VAT/GST guidelines

• Governance, risk and control: businesses and tax authorities spend more time on managing
and require businesses to manage their tax, how they deal with taxes and how they ensure
that tax is sufficiently paid and how you use technology that way with for example digital
reporting

• Transparancy & fair share: this is not an indirect tax trend

Taxing consumption

Consumption tax (is intended to tax consumption) is a big part of indirect tax, but they’re not
synonyms. What would you do if you would want to try to levy consumption taxes? That is the main
question right now. If we would have a bottle of wine and we buy the bottle and then someone
drinks the wine, wine bottles are made from glass. If you look at it from a consumption perspective,
if you drop the bottle and it breaks you would not be able to consume anymore, how do you deal
with this issue in the consumption tax? A government needs to define consumption.
You need to move from the conceptual idea of consumption to a model in which you can tax
something you can manage and control efficiently. Private consumption is a very broad concept. You
need to look at expenditures by private persons, because you cannot consume the broken bottle of
wine but you have purchased. Do we want to tax all expenditures of private individuals? No, we
would want to tax the taxable transactions. If you buy something from a friend or a neighbor, C2C
transactions (consumer to consumer) are expenditures but are not taxable transactions, also for
efficiency reasons governments do not want to bother to tax those expenditures. In terms of
consumption if your neighbor has knitted a sweater and you wear it, then this is consumption, but
you do not want to tax this as a gov. Definition of C2C depends on the definition of B, what a
business defines as, and then that excludes the C2C, so who is seen as a business? The internet
makes C2C very easy nowadays.

General vs specific

• General taxes on consumption

– All goods and services (GST = goods and services tax)

• Specific taxes on consumption

– Generally goods only

– Excises (e.g. alcoholic beverages, tobacco, gasoline) -> on very specific products

Difference between general taxes and specific consumption taxes.

Government level of taxation (global perspective)

• Federal taxes vs state taxes

• Federal taxation: (harmonized) EU VAT

• State taxation: US sales tax

• Taxation at multiple levels: Brasil

• Key issue in federal systems: revenue allocation

When designing consumption tax systems you have to keep in mind a way a country is structured
governmentally. Single state vs multiple states. Single level vs multiple levels of gov. You need to
make choices. EU VAT is harmonized for the most part. From a gov. perspective there are much
more elements that play a role than you might consider at first. Depending on whether you are a
federal state of a single state you may have attributed taxing powers to different levels, to states
(that form a national state together) or to the federal state.

Consumption

• Business consumption vs private consumption

If Google buys a laptop, is that a transaction that should be taxable with consumption tax? Why
should Google pay consumption tax when it’s a business, consumption tax was created for private
consumption tax. At least we would expect a mechanism which relieves businesses from the
consumption tax. This is a B2B transaction, it does not make sense to tax, but basically in all
consumption we tax but we also have a deduction to ensure that Google does not pay consumption
tax (bear the burden of that tax) at the end. It pays tax to the shop where it buys the laptop from,
pays 100 consumption tax and then gets it back from gov. (100), so balance = 0. Why would
countries have chosen for this stupid model then and why do we not simply say that we do not
charge consumption tax in a B2B transaction? This is an example of creating efficiency, stability in a
tax. In orde to keep the tax efficient in most countries the shops will charge VAT, in terms of
crediting the tax then the tax authorities are in control and not the shops. It’s better to control this.
Conceptually it does not make any sense because we only want the tax consumption, and we do that
buy relieving businesses from the burden.

• VAT/GST’s are designed to tax private consumption

– Legislative intent

• Art. 1(2) EU VAT Directive: “general tax on consumption”

• Australian Executive Summary to the Explanatory Memorandum: “tax on

private consumption in Australia”

– Case law

• ECJ 24 November 1996, Case C-317/94, Elida Gibbs: “intended to tax only
the final consumer”

• Supreme Court of New Zealand, Glenharrow Holdings Ltd. v. Commissioners

of Inland Revenue: “tax on final consumption”

Taxing consumption

Taxable person (paying tax to government) -> businesses

vs

Final consumer (carrying tax burden) -> private consumers

Justification for taxing consumption

• Generally unclear on the basis of (draft) legislation

Social balancing argument, ability to pay, we want to achieve a situation that people who make
more money contribute more such as in income tax? But that is more difficult with consumption tax,
is it as relatable to the ability to pay as income tax? No, but there are ability to pay elements in
necessity goods such as food and the other luxury goods and services that are at a higher tax rate.

1. Justification = final consumption

– taxing the benefit one has from consumption (expenditure), which is an indicator of
the economically relevant activity of a person

2. Justification = consumption expenditure as an indicator of the ability to pay

Single stage taxation

Do we want to tax each and every business or selective businesses or only a certain type of
businesses? We see historically that in a simple value chain like here on the slide, if we introduce a
single stage tax only tax the manufacturer or the wholesaler of the retailer. You do not see this often
globally, especially nowadays, what are the differences between wholesalers and retailers for
example, you would have to define these words again.

This is a single stage tax, you only choose to tax the retailer.
(Retail) sales tax – US example

• Typical state sales tax

– Aims to exclude B2B transactions

– Exemption for items bought for resale

– ‘Physical ingredient rule’

• Certain goods are exempt or taxed at a reduced rate

– E.g. food for preparation and consumption at home and prescribed medication

• Sales tax to be paid to state at least quarterly

– Some states provide a discount upon payment of collected tax

Multiple/all stage taxation

All stage taxation system is the leading taxation system. This is all stage taxation in which you tax all
of the stages in the value chain. If you do not introduce a refund mechanism than the manufacturer
would not be able to deduct the tax and raise its price to the wholesaler with the tax in the price
included, that is tax on tax. And it goes on to the retailer this way etc. If I would be Apple I would go
for direct sales instead of to retailers, because if the consumer prices stay the same than Apple could
lower the prices or the prices and the profit could stay the same. Otherwise there would be
distortion in economic context.

All stage taxation

• Gross receipt taxes (GRT) (bruto ontvangst belasting)

• Value added taxes (VAT) (belasting toegevoegde waarde): VAT system with a tax credit
method/ deduction of input is the leading system

– Addition method

– Subtraction method

– Tax credit method / deduction of input VAT * EU, Australia, Malaysia etc. Sometimes
the name is different it can be called GST (but it’s just VAT) -> Australia. Because
when they started the introduction of tax, in most instances people do not respond
very enthusiastically so the gov. has to sell this tax to the people which is not so
popular (totally new branded tax which seems different than VAT because VAT had a
negative impact -> UK).

* E.g. EU VAT, but also Australia, Canada, New Zealand and Singapore where it is called a
Goods and Services Tax (GST)

Gross Receipt Tax (GRT) – US example

• 8 US states

– Arizona, Delaware, Hawaii, Kentucky, New Mexico, Ohio, Texas and Washington

• Different names:

– Transaction Privilege Tax (TPT), Commercial Activities Tax (CAT), GRT and Business
and Occupations Tax

• Apply statutory rate to total in-state revenue

– Broad base and generally low rate

• Key advantage: simplicity

• Key disadvantage: tax cascading

Addition VAT

• All elements of turnover are taxed insofar they have not been taxed at previous stages of the
distribution chain

• Single rate only

– may be a disdvantage from a policy point of view

• Applied nowhere on a national level

– Israel applies it to the financial services sector

– Michigan (US) applied a modified addition VAT from 1976-2007

Subtraction VAT – Japan only

• Exemption with credit: export supplies

• Certain exemptions without credit apply

– E.g. medical services, certain real estate transactions, insurance, certain financial
services, specified social welfare services

• Simplified rules for SME’s for deduction in case of taxed and exempt without credit supplies

– Fixed credit rates: manufacturing (70%), wholesalers (90%), retail (80%), services
(50%), other (60%)

In terms of legal technique, we have private consumption – expenditures and then taxable
transaction, but if we look at that from a legal technique perspective, how do we define taxable
transactions typically? Supplies of goods and services for consideration, but the difference between
C2C and B2C is that in order to come to taxation as such, it should be supplies of goods and services
for consideration by taxable persons (so not a neighbor, friend or stranger). For consideration =
onder bezwarende titel (tegen betaling, tegenprestaties over en weer).

Example of what we discussed before, how do we exclude on balance B2B taxation? The Google
example. If we want to relieve the retailer than the retailer needs to get back the tax it has paid to
the wholesaler (20), so the tax received by the government is 40 and that equals the tax on private
consumption. Advantage for gov. to tax B2B as well, tapping tax through the supply chain (from each
tax payer), if there’s a fraudulent tax payer than you do not lose out on all the money, it would be
only one part of the whole supply chain.
Structure of a consumption tax / VAT

1. Who

2. What

3. Where

4. How much (taxable amount / rate)

5. Exemptions

6. Liability

7. When

8. Deduction of input VAT (depends on system)

9. Administrative obligations

We are going to look at the building blocks we would need in order to build a consumption tax
system or even just any tax. Let’s assume we lease a home, we have the owner of the home and
leases the home to us and there is a window tax that needs to get paid, there are two potential tax
payers, we would need to define in the windows tax law who would need to pay the tax. And what
do we need to tax, we would need to define what is a window. In a CIT business income has to be
taxed but what should be included for example? Define where and what is the taxable amount and
the rate. Imagine if you live in Spain and you move to the NL and you buy an online game, which
country should get the taxing rights? You may have to use exemptions, we do not want to levy
windows on every 2 windows of the house for example. Who should be liable and should you make
somebody else liable, if the person living in the house does not pay windows tax maybe we can tax it
from the owner. When does it need to get paid, each year/every first of the month? Tax crediting is
number 8. And how is the filing of returns or objections? It is the structure of any tax actually.
Always go back to these basics!
She is a resident in Canady, she lives in the NL now, she purchased the ticket when she was in
Germany and the carousel is in Germany and she used a US credit card, we have 5 potential
countries which may claim taxing rights to this transaction, there’s no global consumption tax so
each of these countries have their own rules. What would conceptually be the best country to
allocate the taxing rights to? This is a service that she consumes physically in France. The place of
residence of the business that sold her the tickets (the carousal works through this company to sell
online tickets) and this company is in the UK. She purchased the tickets from a UK company. What is
the complexity here? From a gov. perspective, if we represent the French gov., the UK company
should be the tax payer because it sold the ticket to the consumer, and pay French VAT. Double
taxation would mean if the UK wants VAT and France wants French VAT. If there’s double non-
taxation and UK would not tax and point to France and vise versa. The latter does not occur very
often.

Some general difficulties in consumption taxes in any jurisdiction you would encounter these
questions and problems, topics and issues are the same

• Scope of taxable person concept (who is a taxable person -> specifically in this digital area
C2C this is an important questions)

– E.g. government bodies

• Goods vs services (jurisdictions have different rules for goods and services, is 3d printing a
good or a service?)

• Increasing importance of internet / e-commerce

• Financial services (for example Islamic banking, it focuses on the supply of goods model)

• Abusive practises

Scope of taxable person concept

Example: government bodies, how do we deal with gov. bodies? The government does a lot of stuff
like picking up the trash and selling passports. The government asks for a payment of a passport, is
this an expenditure? Yes, so conceptually we need to think of a way of dealing with this, you end
with the questions of how to deal with government bodies. The government is a taxable person,
should it be taxed for the sale of passports? Many countries did not want to achieve this, they did
not want to levy taxes on government goods and services. You could think of many solutions such as
exempting the sale of passports or exclude government bodies from taxable person concept
straightaway so that there is no tax. In the EU typically we exclude gov. bodies from being taxable
persons. IN AUS the sales are not subject to tax but gov. bodies are taxable persons and gov. bodies
can get VAT back on purchases.

Sale of passport:

• taxable?

• exempt?

• deduction of input VAT (depending on system)?

Difference between supplies of goods and services. The question is what defines a good and what
defines a service? Various countries treat intangible service differently than in the EU. Book vs. e-
book -> depending on how the definition is and how you attach preferential rates, would you treat
them alike or differently? Would we consider an e-book the same as a physical book? EU
perspective: rules were changed by member states, they should be allowed to apply equal
treatment.

If you are a consumer in Japan and I buy certain music from a provider, if I purchase that locally we
have local tax, you could buy it from spotify for local tax but if you buy it from the US, what are the
problems you would encounter? What are the problems the gov of country X would encounter?
From a neutrality and competition perspective, if you do not want your local entrepreneurs to lose
businesses you will need to find a way to apply equal treatment. Either spotify is more expensive
than apple or if they apply the same price than apple’s profit would be higher because they do not
have to pay tax in the example. The solution to this problem to get equal treatment: charge same tax
to the us firm. We need to apply tax in a similar way but how, because how can country x ensure
that apple pays the same tax in country x? The purchasers of the services would have to be obliged
to the gov (reverse charge mechanism) consumers gets the obligation to pay the tax to the gov. This
would not be effective, more effective is that Apple needs to register in country X for taxes and you
will have to go only after Apple as country X. The issue is that companies do not want to go to those
countries to register. How do you enforce that and ensure that businesses from the US/China or
somewhere else follow those rules? What % is actually going to be a good taxpayer? One of the
great solutions: legislation allows if the tech companies do not pay the taxes they shut down their
websites, than they cannot generate businesses (turkey). Big businesses are relatively easy to catch
but the difficulty lies in the small businesses, they’re more difficult to go after. Governments have
accepted an 80/20 rule -> you can only adapt rules for 80% of the market and the other 20% also
needs to follow the rules but the gov. accepts that the 20% does not follow the rules, it may seem
unfair.

Each consumption tax system is dealing with how to treat financial services.

Who
We need to define who we will have as a taxable person, who will be the taxpayer for example the
window tax in our example? There are some basic elements you would see typically across the
globe, they may use different definitions but the concept is quite similar.

• Taxable person vs non-taxable person

• Typical (EU VAT originated) elements:

– Any person: Because it’s a consumption tax you want to ensure that the definition of
taxable person is as neutral as possible. No difference between any legal format,
because you want to tax the consumption no matter the legal form. That is different
in CIT (you only want to tax legal entities) in PIT only private individuals.

– Independent: A business independent from its people involved such as staff or

owners, only the persons that are independent can be taxes to exclude staff for
example.

– Economic activities: You need to run a business, only then consumption tax should
apply. (not friends and neighbors selling stuff to each other).

• Sometimes dependent on tax registration (that is very easy, you are a taxable person if you
are registered for taxes but it also means that people who do not register are not taxable
and they need to design rules when to register and when not to register. You don’t get born
with a consumption tax registration, there is a revenue threshold in many countries that if
you have this amount of revenue you become a taxable person and you register and below
that you do not have to register because you are not a taxable person.)

• Group taxation regimes: Different than the group taxation in CIT, this one is specifically for
consumption tax. Designed to simplify taxation for businesses and for tax administration.

What are we going to tax? We need to define the taxable events that lead to tax liability. In a
window tax that would be having a window and then you would have the issue of defining a window
(with or without glass). A very important additional taxable event: if we want to buy really rare
sneakers we could go to a local shop -> it would be taxable. Order the sneakers online from an
online dutch company -> sales would be taxable. What if you would go to a different website and
order the shoes from the US? What are the choices in terms of equal treatment for the government?
US ships the sneakers to the NL, from a consumption point of view it should be paid in the NL. You
need o find a way to create a taxable event when good enter in your country, in consumption taxes
there’s an additional taxable event: import is a separate taxable event. It is to achieve tax neutrality
and equal competition. We care about the local economy and all countries want to assure a level
playing field between foreign companies and local companies. In terms of sovereignty, you also want
to be charge of your own country concerning the VAT. We need the taxable event of import to fix
that.

Another question is if we require the company to pay it or a private individual consumer?

What is the transaction that the US business is carrying out/doing? From a legal perspective what
does the US business do? It’s a sale, there’s a transaction, you deliver the sneakers for the consumer
to own the sneakers, the US company is supplying a good. The problem if we would put US tax on
the sneakers is double taxation -> we would need to come up with a mechanism whereby the export
of the goods is exempt or 0% rated. -> These two are not the same thing.

Within the EU we do not use the borders for taxation purposes.

If we run a vineyard and sell wine to a person, what would we do in terms of taxing rights? Which
country should be able to tax these transactions, the supply of this wine? In country Y the
consumption takes place. It should only be country Y tax from a global point of view, how do we deal
with that? In certain occasions country x would also claim taxing rights (not in an ideal world) and
then there would be double taxation.

Where – tax sovereignty

• International (tax) law: limitation of state’s tax sovereignty

– link with taxed person/economic activity or transaction should be connected to the

state

• Taxation of consumption by a state

– Either a link with the subject of the tax burden (consumer), or

– A link with the object of the tax burden (the consumption)

Where – principles of allocation of taxing rights

• Origin principle: tax in country of origin (country x)

– (generally) country of supplier

 • Destination principle: tax in country of destination (country y)

– (generally) country of customer

If you look at it from a principle perspective, if you step away a bit from the goal of taxing
consumption, for cross-border trade there are 2 principles:

1. Origin principle
2. Destination principle

Destination principle is the leading principle for the vast majority of the cases, because it meets
the consumption goals the best. However, in consumption taxation depending on certain
situation the origin principle is sometimes applies. Why would that be a driver to apply the origin
principle? To make sure the VAT is paid, because you may not know what happens on the other
side of the transaction. If you use resources of your country and you only export, you do not pay
any tax in your country. It would give the country more money if you simply tax all the
transactions. Origin principle is applied sometimes for tax efficiency in B2C type of transactions,
taxes get paid in the country of business and the and the business does not have to do
everything abroad and the private individual does not have to do anything, principle to apply for
tax efficiency reasons. Getting a piece of the tax pie is also a reason. But from a conceptual point
of view there is no reason to apply the origin principle.

 Week 4

(Price * amount) * tax rate = total tax.

The arm’s length principle: come up with a commercial market price as if it would be a transaction
between non-related parties if the transacting parties are related to each other, for the calculation
of taxation this is fair. This is the working field of going from an agreed price to what should be the
price in a non-related situation. From a consumption tax perspective, we would see that the
principle is not really present, it’s a key item in direct taxation but not so much in indirect taxation.
Why does it not play such a big role in consumption tax? We have chosen to tax the consumption by
expenditures, you should not be forced to pay more tax than the expenditure.

Exemptions

• Exemption = no taxation in respect of taxable transaction

• Generally in VAT systems

 – Exemptions with credit (‘zero rate’) -> 0% transacties

• Mostly export of goods / international trade

– Exemptions without credit -> vrijstellingen

• Public interest, e.g. medical services,education, cultural services, postal

services, non-profit services

• Difficult to tax, e.g. financial services, betting, real estate

Exemptions exist because of policy reasons, tax relief reason, exemption only means that the VAT on
your supply is removed, if exemption is used -> business ic not charging VAT to the costumer.
Typically applied on transaction and not on the level of the tax subject (taxpayer), we want to relive
tax on certain transactions. For example medical services are exempt usually. In a lot of countries
education is exempt. The other end of the spectrum is input side of the businesses (buying), there
you could make a policy choice. If you exempt you allow the VAT to be recoverable that is an
exemption with credit, if you do not allow a refund on VAT that is an exemption without credit.

When you look at exports of goods you would exemption with credit, if you do not allow that then
the consumption tax would be part of the overall price on the sneakers -> tax on tax, the tax would
be moved to the consumer not charged as a tax but it would be tax part pf the pricing, only way of
solving that is allowing exemption with credit.

A is Nike US, B is Footlocker US and C is the consumer. Without credit Nike would tax to footlocker
and footlocker would sell with tax included to consumer. We solve this with a credit.
Why we would not apply a credit mechanism, you do not charge the tax to consumers but the supply
of medical equipment increases the cost base of the hospital, here you can argue whether you
would not allow credit to the hospital, if your goal is to lower the price of medical care then you
would allow exemptions, but around the globe we have said that this is a choice of governments a
policy choice. Input VAT is then a cost to the business.

Liability = choice of who needs to pay a tax. If you buy a bread from the bakery the bakery, would we
liable to pay the tax, but on certain occasions it would not be handy to do that. Then the liability
would get shifted to the consumer.
Shifted liability from supplier to customer.

Assumption: somebody in UK gives legal advice to someone in France, France needs the taxing rights
(B2B, consumption in France) who would be liable to pay the VAT normally? We have introduced the
concept of shifting the liability so the French business needs to pay the French tax instead of the Uk
business having to pay the French tax -> for efficiency reasons we use reverse charge. Tax liability
shifted from supplier to costumer.

Mechanism of deducting (or crediting) VAT is relieving businesses from VAT.

Deduction of input VAT (depends on system)

• The deduction system is meant to relieve the trader entirely of the burden of the VAT
payable or paid in the course of all his economic activities, provided that such activities are
themselves, in principle, subject to VAT

– E.g. ECJ 14 February 1985, Case 268/83, Rompelman, ECJ 15 January 1998, Case C-
37/95, Ghent Coal Terminal and ECJ 8 June 2000, Case C-98/98 Midland Bank

Deduction of input VAT (depends on system)

• Taxed transactions only

 – 100% deduction of input VAT

• Exempt without credit transactions only

– no deduction of input VAT at all

• Taxed and exempt without credit transactions

– partial recovery of input VAT

– several methods

• turnover based

• actual use

• fixed recovery ratios (e.g. Singapore)

The common issue is the same but it depends on what choice the government has made.

The final building block is what we will not focus on in this course, the administrative obligations,
vital in terms of businesses and governments dealing with this.

Lecture 3 Indirect Tax in Cross-Border Situations: Basic underlying principles

& instruments of EU legislation
Agenda

1. History of EU VAT law

2. Sources of VAT law and legal acts

3. Interaction EU VAT law

4. Underlying (unwritten) principles

Common market founded on famous "four freedoms“: free movement of persons, services, goods
and capital

Customs union - Abolished quotas and customs duties between the Member States

• EEC Treaty provided a.o.:

• Common market - four freedoms: free movement of persons, services, goods and
capital

• Customs union

• Commission to consider harmonizing ITX

• 1967 – First and Second Directive (what & how)

• 1970 – Own Resources

• 1977 – Sixth Directive (uniform taxable basis)

• 1993 – Internal market

Abolition fiscal frontiers, ‘transitional system’

• 2007 – Recast VAT Directive

Changes by means of Directives and Regulations

Primary law

• EU treaties, principally:

• Treaty on European Union (TEU; Maastricht, 1993)

• Treaty on Functioning of the European Union (TFEU; Rome, 1958)

• Charter of fundamental rights

Secondary law

• Decisions taken by the institutions entitled under the treaties. Among which:

• The Council

• The European Commission (Commission)

• The Court of Justice of the European Union (ECJ)

The Council

• Main task is to lay down and implement legislation

• Binding acts drafted with European Parliament are:

• Regulations – general application, binding in its entirety, direct applicability

• Directives – binding as to result, choice of form and methods, unconditional and

sufficiently precise provisions have direct effect (note: ‘may’ and ‘must’ provisions)

• Decisions – individual application, binding in its entirety, direct applicability

• Provides recommendations, e.g. guidelines(non-binding)

The European Commission

• Exclusive right of initiative

 • Supervisory function, executes policy of the Council

• A.o. may launch infringement procedure against Member States

• Provides recommendations, e.g. explanatory notes (non-binding)

The Court of Justice of the European Union (ECJ)

• Ensures the interpretation and application of the Treaty

• E.g. Preliminary rulings (binding for all Member States –explaining the law as it
always has been), infringement procedures launched by the Commission

• Assisted by Advocates General which submit opinions to the Court (non-binding proposals)

National law

• Transposition of Directives in national law (within a certain time limit)

Interaction EU VAT law

• Secondary law to be in line with Primary law

• Primacy of Union law over ordinary national laws

ECJ, 5 February 1963, Case 26/62, Van Gend & Loos, and 15 July 1964, Case 6/64, Costa v. ENEL

• Concepts of Union law; not left to the discretion of Member States

e.g. what is leasing of property?

• Reconciliatory interpretation of national law

Limitation of sovereign rights

National law to be interpreted in confirmatory with a Directive

• Direct vertical effect of directives if provision is unconditional and sufficiently precise

ECJ, 24 July 1982, Case 8/81, Becker

• No reverse direct effect of directives

ECJ, 8 October 1987, Case 80/86, Kolpinghuis

 • No horizontal effect of directives (even if unconditional and sufficiently precise)

ECJ, 8 October 1987, Case C- 91/12, Faccini Dori

Direct vertical effect of Primary law (but first check national Law with secondary law)

Underlying (unwritten) principles

• Part of the fundamental EU rights

• Lengthy series of principles for VAT among which:

• The destination principle

• The origin principle

• Principle of legal certainty

• Principle of prohibiting double taxation

• Principle of prohibition of abuse of rights

• Principle of neutrality

• Principle of economic reality

Principle of neutrality

• Internal neutrality (related to national aspects)

• Legal neutrality – the equal must be treated equally, VAT must be exactly
proportional to the price

• Competition neutrality – tax must not distort competition

• Economic neutrality – taxes should not damage economic interest (by price
increase)

Principle of neutrality has multiple dimensions

Equal treatment of taxable persons, transactions, goods & services local and abroad

Competition neutrality – cascading tax would be distorting (tax burden would depend on extent of
vertical or horizontal integration)
Principle of neutrality

• External neutrality (related to international aspects)

• Tax on consumption should be taxed where consumption takes place

• Tax on importation should not exceed internal tax and refund on exportation cannot
be more that levied

Principle of economic reality

• ‘The factual economic state of affairs as they take place between parties’

• As a starting point the legal reality (e.g. contractual relationships) dictates the appropriate
VAT treatment

• More interaction between legal reality and economic reality

Lecture 4: Scope of VAT – who

Structure of EU VAT (EU VAT is a consumption tax)

1. Who

2. What

3. Where

4. How much (taxable amount / rate)

5. Exemptions

6. Liability

7. When

8. Deduction of input VAT

9. Administrative obligations

Agenda

1. Concept of taxable person

2. Any person

3. Independent

4. Economic activities

5. Holding companies

6. VAT grouping

7. Public bodies
Taxing consumption

Taxable person (paying tax to government) -> art. 9 VAT Directive defined

vs

Final consumer (carrying tax burden)

Concept of taxable person

• ‘Taxable person’ is an independent concept of Union law

– ECJ 4 December 1990, Case C-186/89, Van Tiem: ECJ is a court on EU level that needs
to interpret questions that arise from EU perspective.

VAT Directive is blueprint EU directive, there is a blueprint rule at European level but
national governments all need to look at this blueprint VAT directive and implement it to
national law and that will be the local VAT local, all the local VAT laws should be in line with
the VAT Directive, because in the EU we have a single market concept and VAT should not be
distortive in that market, should not be an obstacle for EU market trade. All the important
rules are the same in every country to have an equal playing field, key concept in EU vat is
that a meaning of a word such as taxable person is a EU VAT meaning which should have the
same meaning in all the countries, you cannot be a taxable person in Spain and not be a
taxable person in Germany. It must be applied in the same world in the whole EU. In the
design the dynamic is that everything must be applied equally in the EU

• Taxable person  very wide scope

– ECJ 29 April 2004, Case C-137/02, Faxworld

The concept of taxable person has a very wide scope. You need to interpret the term taxable person
quite widely, the idea behind that is that we want to tax consumption, if we want to tax
consumption the government goes to the level of businesses, we want to be able to tax (not from
friends or neighbors) but widen the scope.

• Economic activity  very wide scope

– ECJ 26 March 1987, Case 235/85, Commission v Netherlands

Any person
 • Neutrality of legal form

Art. 9 VAT Directive -> we have this element of any person because we want to achieve neutrality,
catch all businesses, independent of the legal form. If two private individuals run a partnerships, like
a joint venture than the joint venture would be the taxable person.

• Entity

– “de facto independence” of a company

• ECJ 27 January 2000, Case C-23/98, Heerma

– A combination that as such participates in a market

• Own name

• Supplies to third parties

– Group of companies ≠ entity

• ECJ 20 June 1991, Case C-60/90, Polysar

Independent

• Art. 10 VAT Directive

• Excludes from the tax:

– (natural?) persons bound to an employer by:

• a contract of employment, or

• any other legal ties creating the relationship of employer and employee as
regards working conditions, remuneration and the employer’s liability

– ECJ 6 November 2003, Joined cases C-78-80/02, Maria Karageorgou

Economic activity

• Art. 9(1) VAT Directive

• ‘Taxable person’ shall mean any person who, independently, carries out in any place any
economic activity, whatever the purpose or results of that activity
 • Any activity of producers, traders or persons supplying services, including mining and
agricultural activities and activities of the professions, shall be regarded as ‘economic
activity’

• Whatever the purpose or results of that activity

• No profit or aim for profit required  seeking for revenue

• Continuity / permanency / not on an occassional basis

• [Direct, permanent and necessary extension of the taxable activity]

• Carried out in any place

Economic activity – occasional activities

• Art. 12 VAT Directive (‘may’-clause)

 • Member States may regard a taxable person anyone who carries out, on an occasional basis,
a transaction as referred to in Art. 9(1) 2nd paragraph VAT Directive, in particular:

– supply, before first occupation, of a building or parts of a building and the land on
which the building stands

– supply of building land

Economic activities – side activities

Exploitation of (in)tangible property

• Art. 9(1), 3rd sentence, VAT Directive

• The exploitation of tangible or intangible property for the purposes of obtaining income
thereform on a continuous basis shall in particular be regarded as an economic activity
Illegal activities – (no) economic activity

• (Illegal) sale of fake perfume

– Economic activity
 – ECJ 28 May 1998, Case C-3/97, Goodwin/Unstead

• Illegal sale of drugs

– Total prohibition – no economic activity

– ECJ 5 July 1988, Case 269/86, Mol (hard drugs)

– ECJ 5 July 1988, Case 289/86, Happy Family (soft drugs)

• Illegal sale of drugs and rent of space

– Only lease of table – economic activity

– ECJ 29 June 1999, Case C-158/98, Coffeeshop Siberië

VAT grouping

• Art. 11 VAT Directive

– Persons

– Established in the territory of a Member State

– Legally independent

– Financially, economically and organizationally closely linked

• VAT group = single taxable person

– Ratio legis

– administrative simplification

– combat of abuse (e.g. splitting up of one undertaking among several taxable persons
so that each may benefit from an SME scheme)
VAT grouping – consequences (2)

• Single taxable person

– No separate VAT returns

– Single VAT identification number

• ECJ 22 May 2008, Case C-162/07, Ampliscientifica

• Joint and several liability rules

– Depending on national legislation

VAT grouping – persons

• Communication European Commission 2009

– persons = taxable persons

– derogation from the definition of “taxable person” and thus should be interpreted
restrictively

– Persons ≠ taxable persons

– Wording of Art. 11 VAT Directive – no other conditions

– Context of Art. 11 VAT Directive – broadening / narrowing scope

– Not contrary to objectives of VAT grouping

– ECJ 9 April 2013, Case C-85/11, Commission v Ireland

VAT grouping – territorial restriction

• Communication European Commission 2009

– Head offices and fixed establishments within the territory of a Member State may be
included in a VAT group
 – Foreign fixed establishments and head offices may not

– Not contrary to FCE Bank as that case did not involve a VAT group

• Taxable services between head office (country A) and fixed establishment included in a VAT
group (country B)

– ECJ 17 September 2014, C-7/13, Skandia America Corporation

• Freedom of establishment?

– Art. 49 TFEU

VAT grouping – three links

• Communication European Commission 2009

– Financial link

• >50% participation in capital or in voting rights, or reference to a franchise

contract (‘control’ is key)

– Economic link

• principal activity of group members is of the same nature, or

• activities of group members are complementary or interdependent, or

• one member of the group carries out activities which are wholly or
substantially to the benefit of the other members

– Organizational link

• existence of a shared / partially shared management structure

• Concepts of Union law

– ECJ 25 April 2013, Case C-480/10, Commission v Sweden

• Currently different interpretation of three links between Member States

• Commission implicitly takes the view that each of the three links must be tested separately

Public bodies – economic activity

• One of the difficult areas in consumption taxes

• First test: economic activity

• Allocation of 3G licenses

– Activity could not, by its very nature, be carried

out by economic operators

– No participation in the exploitation of property

ECJ 17 October 2006, Case C-284/04, T-Mobile Austria and others

Public bodies – acting as such

 • Art. 13 VAT Directive

• Public body ≠ taxable person

– Public body

– Activities engaged in ‘as a public authority’

– Distortion of competition

ECJ 17 October 1989, Cases 231/87 & 129/88, Carpaneto Piacentino

Public bodies – taxable person

• Art. 13 VAT Directive

• Public bodies are regarded as taxable persons in respect of the activities listed in Annex I,
unless they are negligible

1. Telecommunications services;

2. supply of water, gas, electricity and thermal energy;

3. transport of goods;

4. port and airport services;

5. passenger transport;

6. supply of new goods manufactured for sale;

7. certain transactions in respect of agricultural products;

8. organisation of trade fairs and exhibitions;

9. warehousing; cont’d

Cont’d

1. activities of commercial publicity bodies;

2. activities of travel agents;

3. running of staff shops, cooperatives and industrial canteens and similar

institutions;

4. activities carried out by radio and television bodies in so far as these are not
exempt pursuant to Art.132(1)(q) VAT Directive

Public bodies – VAT compensation schemes

• Tendency to ‘in-source’ public body activities due to lack of input VAT deduction

• Solution outside the VAT system: VAT compensation schemes

– Denmark / Finland / France / the Netherlands / Portugal / Sweden / United Kingdom

• Non-EU countries have also implemented such schemes

– Canada / Norway
Week 3 Taxable transactions
Structure of EU VAT

1. Who

2. What – taxable transactions

3. Where

4. How much (taxable amount / rate)

5. Exemptions

6. Liability

7. When

8. Deduction of input VAT

9. Administrative obligations

EU VAT = consumption tax

What transactions would you subject to tax?

Agenda – Taxable transactions

1. Introduction

2. Supplies of goods

3. Intra-Community acquisitions of goods

4. Supplies of services

5. Importation of goods

6. Composite supplies

7. (Not) for consideration

Taxable transactions – Art. 2 VAT Directive

Transactions subject to tax

a) Supply of goods for consideration within the territory of a Member State by a taxable person
acting as such

b) The intra-Community acquisition of goods for consideration within the territory of a

Member State

c) Supply of services for consideration within the territory of a Member State by a taxable
person acting as such etc.

d) The importation of goods

Importance of distinction between supply of goods and services

• Place of supply
 • Exemptions

• Rate

• Liability

• Moment of chargeable event

Tangible property - movable/immovable

• Supply/lease movable property  VAT

• Supply/lease immovable property  in principle VAT exempt (Art. 135(1)(j), (k) & (l) VAT
Directive)

• Capital goods adjustment scheme: 5 years (capital goods) or extension to 20 years

(immovable property) (Art. 187 VAT Directive)

• National real estate transfer taxes (RETT)

• Immovable property

• concept of Union law

• No need for structures to be inseverably fixed to or in the ground

• Structures cannot be easily dismantled or easily moved

• 8 persons, 10 days  immovable property

• ECJ 16 January 2003, Case C-315/00, Maierhofer

Supply of goods - ‘may’ clauses

• Art. 15(2) VAT Directive

 • Member States may regard as tangible property:

a. certain interests in immovable property;

b. rights in rem giving the holder thereof a right of use over immovable property;

c. shares or interests equivalent to shares giving the holder thereof de jure or de facto
rights of ownership or possession over immovable property or part thereof

Supply of goods – transfer

• Art. 14(1) VAT Directive

– the transfer of the right to dispose of tangible property as owner

– Concept of Union law

– ECJ 8 February 1990, Case C-320/88, SAFE

– (National) civil law is not decisive

• Transfer of the right to dispose of tangible property as owner

• Twofold test

– de jure (on the basis of the contract) – one party should actually empower the other
party to dispose of the property as if he were the owner of that property

• relevant whether the purchaser at any time obtains the right to decide in
what way the goods must be used or to what end

– de facto (on the basis of physical powers)

Mandatory supplies of goods

• Art. 14(2) VAT Directive

a. Transfer by order made by a public authority

b. Hire purchase and sale on deferred terms

c. Commission agents
Hire purchase and sale on deferred terms

• Art. 14(2)(b) VAT Directive

• Civil law

– Transfer of ownership at the time of payment of last installment

• VAT

– Neutrality: transfer of right to dispose of tangible property as owner

– Supply of goods at the time the tangible property is received

– VAT becomes due at once in respect of all installments

– Transfer of legal ownership at the time of payment of last installment ≠ supply of

goods for VAT purposes
Application of goods for private use

• Art. 16 VAT Directive

• Mandatory supply of goods for consideration

– Application by a taxable person of goods forming part of his business assets for

• his private use, or

• for that of his staff, or

• their disposal free of charge or,

• more generally, their application for purposes other than those of his
business

– where the VAT on those goods or the component parts thereof was wholly or partly
deductible.

• Not samples or gifts of small value

Optional supplies of goods

• Art. 18 VAT Directive

• Supply of goods for consideration

a. Self-construction of (movable or immovable) goods in order to reduce the burden of

VAT by a taxable person that is not entitled to (full) deduction of input VAT (internal
supply)

b. Application of goods for the purposes of a non-taxable area of activity

c. Retention of goods when economic activity ends

Intra-Community supplies of own goods

• Art. 17 VAT Directive

• Transfer of goods forming part of a taxable person’s business assets

– E.g. transfer of goods from MS 1 warehouse to MS 2 warehouse

– Deemed (intra-Community) supply of goods

– Exempt with right to deduct / zero-rate

• Intra-Community acquisition in Member State of arrival of the goods (Art. 20 VAT Directive)

IC supplies of own goods – exceptions

• Art. 17(2)(a)-(h) VAT Directive, e.g.

(g) temporary use of goods within the territory of the Member State in which dispatch or
transport of the goods ends, for the purposes of the supply of services by the taxable person
established within the Member State in which dispatch or transport of the goods began
 • Conditions no longer met, transfer is deemed to take place at the time when conditions
cease to be met

– Art. 17(3) VAT Directive

Supplies of services

• What is the definition of a service?

• Art. 24(1) VAT Directive

– any transaction which does not constitute a supply of goods

– Art. 25 VAT Directive

– the assignment of intangible property, whether or not the subject of a document

establishing title;

– the obligation to refrain from an act, or to tolerate an act or situation;

– the performance of services in pursuance of an order made by or in the name of a

public authority or in pursuance of the law

Private use of goods and of services

• Art. 26(1) VAT Directive

• Mandatory supply of services

a. use of goods forming part of the assets of a business

• for the private use of a taxable person, or

• of his staff or

• more generally, for purposes other than those of his business,

• where the VAT on such goods was wholly or partly deductible

b. supply of services carried out free of charge by a taxable person

• for his private use, or

• for that of his staff or

• more generally, for purposes other than those of his business

• Member States may derogate from this provision, unless distortion of competition (Art.
26(2) VAT Directive)
Optional supply of services - internal supply

• Art. 27 VAT Directive

• The supply by a taxable person of a service for the purposes of his business, where the VAT
on such a service, were it supplied by another taxable person, would not be wholly
deductible

• Aim is to prevent distortions of competition that are due to business without a right to full
deduction of input VAT “in sourcing” certain activities
Opinion of Advocate General Trstenjak of 9 December 2008, Case C-572/07, Tellmer Property, para
36: In determining the essential features of a composite supply there are two opposing aims.

Composite supplies - ECJ case law examples

• Lease of dwelling (exempt) + parking space (VAT) = single supply of services (VAT exempt
lease of dwelling)
ECJ 13 July 1989, Case 173/88, Morten Henriksen

• Supply of food and beverages + service in restaurant = single supply of services

ECJ 2 May 1996, Case C-231/94, Faaborg-Gelting Linien

• Supply of goods (mail order) + transport of goods = single supply of goods

ECJ 3 July 2001, Case C-380/99, Bertelsmann

 • Credit card services + lost keys service = single supply of services
ECJ 25 February 1999, Case C-349/96, Card Protection Plan

Happy Meal = 1 prestatie

1 supply of goods and 1 supply of services according to Hof Amsterdam 5 juni 1996, nr. 94/4854,  V-N
1996, p. 4313.

For consideration

• Tit-for-that principle

– legal relationship between supplier and recipient pursuant to which there is

reciprocal performance, the remuneration received by the supplier constituting the
value actually given in return for the service supplied to the recipient
• ECJ 3 March 1994, Case C-16/93, Tolsma: Mr. Tolsma plays a barrel organ on the public
highway (musician)
Transfer of going concern (TOGC)

• Under normal circumstances:

– Separate supplies of goods and / or services

– Consider per supply whether VAT becomes due

• Art. 19 / 29 VAT Directive (‘may’ clause)

– No supplies of goods and / or services take place

– Person to whom the goods are transferred is to be treated as the successor to the
transferor

– Impact on capital goods adjustment scheme (Art. 187 VAT Directive)

• ECJ 27 November 2003, Case C-497/01, Zita Modes

Lecture 4: Where to tax? Place of supply of goods

1. Who

2. What

3. Where

4. How much (taxable amount / rate)

5. Exemptions

6. Liability

7. When

8. Deduction of input VAT

9. Administrative obligations

Agenda

1. Place of supply of goods

a) Supply of goods without transport

b) Supply of goods with transport

c) Exceptions (e.g. distance sales, installation supplies, supplies on board ships,

aircrafts, trains and through distribution systems)

d) Import

2. Place of intra-Community acquisitions

a) Chain transactions

b) VAT simplified triangulation

Supply of goods (recap prior lecture)

Art. 14 VAT Directive

• Transfer of the right to dispose of tangible property as owner

- Place of supply is where taxation takes place for VAT

General rule 1: Supply of goods without transport

Art. 31 VAT Directive

• (…) deemed to be the place where the goods are located at the time when the supply takes
place

• Building in Paris owned by a Moroccan company

General rule 2: Supply of goods with transport

Art. 32 VAT Directive

• (…) where the goods are located at the time when dispatch or transport of the goods to the
customer begins

Art. 32 VAT Directive second subparagraph

• However, if dispatch begins in a third territory or third country (…) deemed to be within the
MS of importation of the goods

E.g. B is a representative of A in IT

General rule 2: Supply of goods with transport

0% VAT rate / exemption with a right to deduct may apply e.g. to:

• Intra-Community supply

• Right to dispose as owner must be transferred

• Goods must be transported / dispatched to other MS

• Goods must leave MS of supplier

• ECJ 27 September 2007, Case C-409/04, Teleos a.o.

 • Export supply

General rule 2: Supply of goods with transport

Art. 17 VAT Directive

• Transfer of own goods to another MS is a fictitious (deemed) intra-Community supply

• Certain supplied not considered as intra-Community supply, e.g.:

• Supply of a service performed in the goods in MS of destination (goods must return)

• Temporary use of the goods in MS of destination for the purposes of the supply of
services

• Exceptions to general rules outlined on the following slides

New rules 1 July 2021

Art. 33 VAT Directive – derogation from Art. 32

• (…) where the goods are located at the time when dispatch or transport of the goods to the
customer ends

Art. 369bVAT Directive: possibility to opt for One-Stop-Shop

Exception: Distance sales – new Article 33

Article 33 VAT Directive

By way of derogation from Article 32:

(a) the place of supply of intra-Community distance sales of goods shall be deemed to be the
place where the goods are located at the time when dispatch or transport of the goods to
the customer ends;

(b) the place of supply of distance sales of goods imported from third territories or third
countries into a Member State other than that in which dispatch or transport of the goods to
 the customer ends, shall be deemed to be the place where the goods are located at the time
when dispatch or transport of the goods to the customer ends;

(c) the place of supply of distance sales of goods imported from third territories or third
countries into the Member State in which dispatch or transport of the goods to the
customer ends shall be deemed to be in that Member State, provided that VAT on those
goods is to be declared under the special scheme of Section 4 of Chapter 6 of Title XII.

Importation

Art. 60 VAT Directive:

• MS within whose territory the goods are located when they enter the community

Art 61 VAT Directive – if under arrangements or situations

• MS within whose territory the goods cease to be covered by arrangements of situations

• ECJ 11 July 2002, Case C-371/99, Liberexim

Intra-Community acquisition

Mirror transaction of intra-Community supply

Art. 40 VAT Directive

• (…) deemed to be the place where dispatch or transport of the goods to the person
acquiring them ends

Art. 21 VAT Directive

• Transfer of own goods to another MS leads to a fictitious (deemed) intra-Community

acquisition
Art. 41 VAT Directive

• Deemed to be within the MS which issued the VAT identification number under which the
goods were acquired, unless VAT has been applied in accordance with Article 40

• Supply and acquisition are separate taxable events.

• Final destination is not always known therefore art. 41 is of importance.

Cross border chain transactions

ABC-transactions:

• Multiple parties

• Sale/purchase of same goods

• Single transfer of goods from supplier to last customer

Problem: assigning intra-Community movement to the supplies

Several undertakings from two or more MS’s successively conclude contracts for the purchase of the
same goods which are then performed by means of a single transfer of goods from the supplier to
the last customer
Goods transported by forwarding agent on K’s instructions.

Two successive supplies give rise to only a single movement of goods – must be regarded as having
followed each other in time

Intra-Community movement can only be ascribed to one of the two successive supplies

EXW

Under specific conditions where person acquiring the goods has obtained right to dispose as owner
in MS of first supply, expressed intention to transport goods to other EU country and presented VAT
number of that country, intra-Community movement ascribed to first supply IF the second person
acquiring the goods has obtained right to dispose as owner in MS of destination

Triangulation
Triangulation is a supply chain involving:

• 3 parties (A, B and C)

• 2 supplies of goods (A to B, and B to C)

• 1 movement of goods (directly from A to C)

Problems arise for the intermediate supplier (B) if the 3 parties are in different countries due to:

• Match between intra-Community supply and acquisition

• Acquisition deemed where dispatch or transport of the goods to the person acquiring them
ends

VAT simplified triangulation

Simplification Art. 42 VAT Directive:

• Under very strict conditions VAT liability is shifted on the supply by B

• Limited to three parties in the chain

• Single movement of goods (A to C)

• B must be a VAT taxable person

• B must not be established (nor, in some cases, registered) in MS C

• C must be VAT registered in MS C

• B must notify C (via the sales invoice) that C is liable to pay the VAT due on
B’s supply

• ECJ 22 April 2010, Case C-536/08 and C-539/08, X and Facet / Facet Trading