Relations Between the Principle of Neutrality and Elements of Value Added Tax Structure

The principal of neutrality is a key principle of the European Union (EU) Value Added Tax (VAT) system. The concept of tax neutrality has a number of dimensions and meanings. The purpose of the article is to examine whether the principle of neutrality shapes the main elements of VAT structure, what concepts of tax neutrality are proper to shape each of those elements, and how the principle of neutrality affects each of those elements. The method adopted for the examination is a doctrinal method – analysis of the VAT Directive provisions (using a formal-dogmatic approach supported by analysing selected judgements of the Court of Justice of the EU) but without those that concern special rules. The study showed that the basic elements of the VAT structure such as the subject of taxation, object of taxation, tax basis, tax rates, exemptions, and conditions of payment are shaped in different manner and extent by the principle of neutrality. Tax neutrality in its basic sense (marked N1) has the strongest influence on basis of taxation (improper amount of the basis disallows shifting the tax forward onto the customer and regaining output tax to relieve the taxable person entirely from the burden of the VAT) and obviously it influences the right to deduct input tax likewise in the tax period (term of refund). Tax neutrality in another sense (marked N2) by demanding equal treatment, affects such VAT elements as subject and object of taxation, exemptions and rates. Tax neutrality in the broadest sense (N3), as a term consisting of N1 and N2, concerns all the elements of VAT.