VAT Law Research Articles

A Little Light on Transaction Fees under UK VAT Law

In this article, the author discusses the judgment of the UK Court of Appeal on the right to deduct VAT on professional fees incurred in the framework of the takeover of BAA, which represents one of the numerous clashes between the principle of neutrality and formalism. The author also speculates on the outcome of the judicial proceedings had the facts been slightly different.

Impact of Transfer Pricing Adjustments for VAT and Customs Law Purposes

The author considers whether transfer pricing adjustments of any kind (primary, corresponding and/or secondary adjustments) for income tax purposes have an impact on the taxable amount for VAT or customs value. This issue is analysed under both international law in force in Poland and under Polish domestic law.

VAT Fraud & Triangulation

Missing trader intra-community (MTIC) fraud has received a lot of domestic enforcement attention. True cross border enforcement (joint or coordinated multi-Member State audit) has been limited. There are signs that this is changing as the Member States become more aggressive in their search for revenue. Along with this shift in enforcement focus, triangulation analysis has moved from being an interesting aspect of the MTIC fraud structure to the central element in a larger understanding of how a fraudster thinks and how he carries out his fraud. We are coming to understand that triangulations are not only the mechanism of how the fraud is carried out; they are a cloak of invisibility that the fraudster casts upon his fraud to hide it from the authorities. Germany for example, is currently engaged in a multi-billion euro fraud investigation involving the triangulation of consumer goods and CO2 certificates. The Augsburg District Court is overseeing the investigation. The Augsburg investigation is not only uncovering triangulations that “hide the goods,” but it is also uncovering sophisticated payment platforms that “hide the money transfers.” The intent of these structures is to make the fraud fully invisible to the authorities (goods and funds) until after the trader has disappeared. The breadth of the German investigation is breathtaking, but with the Mutual Assistance for the Recovery of Claims (MARC) Directive, in effect as of January 1, 2012, this kind of comprehensive multi-jurisdictional MTIC investigation may be becoming the new norm. If so, triangulations will most certainly be at its core. This paper focuses on the developing law. It explains triangulation, triangulation simplification, and then considers several recent court decisions where fraudsters manipulated the VAT system with triangular trades. The cases illustrate both the enforcement problems with triangular trades, and highlight how the courts’ examination of triangular frauds is leading to significant developments in the VAT law. Three cases are drawn from the Court of Justice of the European Union (CJEU), and three are from national courts.

The influence of international accounting standards in the field of VAT: a recent ECJ judgment and its impact on VAT practice

The influence of international accounting standards (IAS), now known as IFRS (International Financial Reporting Standards), on the question whether certain operations fall within the scope of VAT may be surprising at first sight. Indeed, they are supposedly two distinct disciplines, two autonomous sets of rules with diverging scopes: IFRS apply primarily to consolidated accounts of publicly traded companies, while VAT applies to taxable persons undertaking economic activities. Until recently, this assumption seemed uncontroversial as far as the tax and accounting community was concerned—to such a degree that the question of a possible influence of IFRS on VAT did not even occur. Nevertheless, a recent decision of the European Court of Justice (ECJ) dated 16 February 2012 stirred up trouble between these two sets of rules. In this ruling the ECJ developed an argument, based on IAS 17, concerning leasing agreements, to render an operation which would usually be analysed as a supply of services, as a supply of goods under the VAT Directive. Is it possible that this is a stand-alone case, which we could call a ‘glitch’ or a ‘case-law mishap’? Or is it the beginning of a new trend, where VAT practitioners will systematically search IFRS to find a practical solution to a harmonised interpretation of VAT at the European level, based on an economic approach as opposed to a more legal approach, as it currently stands? The aims of this article are to analyse the aforementioned ruling, to assess the consequences of a generalised application of the IFRS rules in VAT law, and, finally, to show the intrinsic limits of such an approach. To better understand the importance of this ruling and its potential application to IFRS, this article also provides a reminder of the VAT harmonisation process and its difficulties, and outlines the importance of the connection between the VAT declaration process and the accounting principles of LuxGAAP.

What looks like a duck is a duck: economic purpose and legal reality in EU VAT law

What looks like a duck is a duck: economic purpose and legal reality in EU VAT law

Horton's lesson: Australia's struggle with ‘truth in drafting’

The Federal Court of Australia has ruled that the Australian GST legislation was ‘drafted in a way which in many respects differs from comparable legislation in other jurisdictions'. Some of the differences are illustrated in the Australian decision of Travelex Ltd v Commissioner of Taxation, which is a useful case study of the Australian legislature's approach to the fundamental concepts in a value-added tax of (a) exemption of financial supplies, (b) exported services and (c) the conditions for input tax relief. While the Australian choice of drafting seems to have been deliberate, one is left with the question ‘is that what the legislature meant?’ The Australian experience contains lessons for jurisdictions that might consider adopting a value-added tax or changing existing provisions dealing with cross border transactions, financial services or input tax relief—other countries' VAT law does not always mean what it says and say what it means. It also illustrates that, in seeking to improve legislation by being different and modern in language, you might end up being different in substance. Staying with the old, cumbersome language can give more clarity of meaning—strange but true!

Is There “Supply of Service” after Termination of Lease Agreement under Korean VAT Law? ―A Review on a 2003 Korean Supreme Court Decision―

Is There “Supply of Service” after Termination of Lease Agreement under Korean VAT Law? ―A Review on a 2003 Korean Supreme Court Decision―

Recent Tax Law Amendments

This note addresses a range of tax law amendments applicable as of 1 January 2012, including corporate tax law changes, new accounting standards, the introduction of REITs, as well as modifications to personal income tax, VAT and real estate law.

Reflections on Tax Crediting System Under Ethiopian Law

VAT refers to increase in value of goods and services at each stages of production. Therefore, VAT is basically a tax to be levied on the value added by an organization at each stage of its rendering services or producing goods. The tax is a levy on the final consumption of goods or services and is ultimately borne by the consumer although it is collected at every stage of production or distribution. The Ethiopian VAT law allows tax credit for all taxes paid by the registered person during purchase of goods or receiving services from third parties. In order to get the credit the taxpayer must be registered, the claim must be supported by VAT invoices and the purchase has to be for taxable transactions. In exceptional circumstances, our law has denied a credit for some purchases that has the potential to open up the door for tax abuse. Taxpayers normally get their credits by deducting the amount of credit they have from the amount of tax that they collect from the customers. Recently the introduction of withholding method may force taxpayers to sustain a negative cash float temporarily though.

Conversion of Supplies under EU VAT Law

Eight years after it introduced its remarkable approach of “conversion of supplies”, the Court of Justice of the European Union (ECJ) changed course again. However, the former approach of deviating from reality has already taken root and will form part of the European Commission’s proposal on the VAT treatment of vouchers. The approach even plays a role in one of the cases currently pending before the ECJ. In this article, the author discusses the state of affairs.

VAT Treatment of Transactions in the German Construction Sector

Construction is a complex process involving many parties with different responsibilities. Although the supplies made by all parties are closely related, the VAT treatment of all individual transactions must be assessed separately. Cross-border construction activities become even more complicated and may also give rise to fixed establishments. In this article, the author discusses the VAT aspects of construction projects under German VAT law, and gives a number of examples reflecting the VAT issues that may arise for building contractors.

The Right To Deduct under EU VAT The original conference paper can be accessed at http://www.box.net/shared/s13evqyo0gtc61t4i056.

In this article, the authors discuss the EU VAT law perspective on the right to deduct input VAT relating to taxed, exempt and/or non-taxable transactions. Their analysis starts from the hypothesis that, under EU VAT law, the right to deduct input VAT generally exists if taxable persons use goods and services for productive purposes. Several comments to the authors’ conference paper are contained in Peter Melz, "Activities outside the Scope of VAT and Exempt Activities" in International VAT Monitor 5 (2011).

Abuse of EU VAT Law

In 2006, the Court of Justice of the European Union (ECJ) extended the doctrine of abuse of law to the area of VAT. The doctrine has the effect that, under specific circumstances, the tax authorities must ignore artificial transactions carried out in the framework of VAT-saving schemes. In this article, the author discusses the concepts of “tax advantage” and “tax advantages contrary to the purpose of VAT law”. The author concludes that there is a certain tension between, on the one hand, the principle of abuse of law and, on the other hand, the EU principle of legal certainty and the freedom for businesses to structure their activities so as to limit their tax liabilities.

Intra-Community Supplies of Goods under Polish VAT Law

Until the regime for taxation of trade between EU Member States is replaced by definitive arrangements, based in principle on taxation of supplies of goods or services in the Member State of origin, the transitional VAT regime continues to apply. One of the elements of the current regime is the zero rating of intra-Community supplies of goods. In this article, the authors conclude that, in its efforts to control the application of the zero rate, the Polish legislator applies various conditions that are not compatible with EU law.

Will the VAT Implementation Be Smooth Sailing?

The author analyses the new VAT Law which had been scheduled to be implemented from 1 July 2010 (and which is now postponed to 2011). He discusses the proposed provisions of the new law and the hurdles the law faces at both the federal and provincial level.

Intervention – A Problematic New Concept in EU VAT law

From 1 January 2010, the place-of-supply rules applicable to almost all B2B cross-border services have become much more transparent and the scope of the reverse charge mechanism has been broadened considerably. However, businesses operating under a branch structure are still confronted with the consequences of what is known as the force of attraction, which has now spread over the entire European Union. In this article, the authors explain that a couple of Member States still have their own, deviating ideas about “intervention” by the supplier’s fixed establishment in the customer’s Member State.

Economic Activities under EU VAT Law

On 29 October 2009, the Court of Justice of the European Union (ECJ) delivered a judgment that throws a peculiar light on the interpretation of the concept of economic activities, which is the cornerstone of the system of imposition of VAT. In itself, the underlying issue was quite straightforward. In this article, the author discusses the ECJ’s line of reasoning and indicates that its judgment may mark the starting point of a new interpretation of the concept of economic activities.

Merger of business tax into VAT in China

With effect from 1 January 2009, the scope of a local experiment to allow businesses to deduct VAT in respect of the purchase of equipment was extended to all businesses nationwide. According to the legislative plan, the congress will adopt a VAT Law within five years. In the framework of that reform, one of the main issues is the relationship between VAT and business tax. The final result seems clear: in the future, business tax will merge into VAT.

Abuse of EU VAT law in Part Service

In its judgment in Part Service, the European Court of Justice (ECJ) confirmed that the principle prohibiting abuse of law is intended to ensure, particularly in the field of VAT, that Community legislation is not extended to cover abusive practices by economic operators, that is to say transactions carried out not in the context of their normal commercial activities, but mainly for the purpose of wrongfully obtaining advantages provided for by Community law. In this article, the author discusses the concept of abuse of law and its application in relation to, inter alia, schemes aimed at spreading the burden of non-deductible VAT over a longer period of time, splitting and merger of packages of services and "lease funding".