Value-Added Tax

Value-added tax (VAT) has become the most common tax on consumption worldwide. In this chapter, the conceptual and practical framework of this tax is explained. This chapter also analyses several key concepts of VAT, for example, the concept of goods and services, VAT-registered persons, complete and incomplete exemptions, VAT-registered base, VAT rates, VAT deduction, and payment and reimburse/credit of VAT. Furthermore, the rules governing the location of operations for VAT are also explained in detail, as well as rules for exports and imports and the specific rules of the European Union. The rules for the transaction of goods in the EU are also discussed, namely intra-community transactions and the acquisitions rule for B2B and B2C, together with the rule when the buyer is subject to incomplete VAT exemption or is a public entity that is exempt from VAT. In addition, the specific rules for electricity and gas are analyzed (which are considered for VAT purposes as being a good) and also the rules for selling goods online. “Triangular” and “false triangular” operations are also examined in detail. The rules for services in the EU are also examined, namely: the two main rules and the exceptions (with the exception always prevailing, if applicable); the exception for services regarding real estate, events, catering, and transport; the exception for services such as consulting, legal, financial, telecom, or advertising; and the exception for the intra-community transport of goods. Finally, VAT fraud is analyzed, as well as the VAT revenue gap and the issue of VAT and inequality. Several examples and exercises are provided in this chapter.