Nama : Annisa Sabrina

NIM : 11000122130261
Kelas :L
Mata Kuliah : Hukum Bisnis
Dosen Pengampu : Irawati, S.H., M.H., Umaira Hayuning Anggayasti, S.H., M.Kn.

The European Tax Law: A Brief of Introduction

● The “European Tax Law” is a set of regulations issued by the EU institution and
designed to provide the control of tax matters over the tax legislations of the Member
States.
● Indeed, if Member States have the power to
1. regulate the fiscal phenomenon
2. to introduce taxes
3. to modify their discipline, and
4. to ensure the implementation of the tax rules,
the EU plays a completely different role
● In fact the whole of the European fiscal regulations essentially meets the logic of the
market integration on the basis of the principles of the trading free competition
regardless to the nationality or the residence

VAT Basics Worldwide

● VAT is a tax consumption known worldwide since it is adopted by 150 countries.

● VAT accounts for the 20% world tax revenue and target 4 billion people (generating
hundred of billions of dollars)
● It was first developed in Europe (France) and then spread worldwide

VAT Basics in Europe

● What is Value Added Tax (VAT)?

VAT is a European tax. VAT is a turnover tax with a distinction between goods and
services, and this principle applies throughout the EU
● VAT is proportional to the price of the goods and services no matter how many
transactions take place before the tax is actually charged on the consumer. VAT is
charged on every transactions on the price of the goods/services sold and after the
deduction of the amount of it borne by the cost components

The History of VAT

● One of the primary aims of the program for the realizations of the common market, as
laid down in the Treaty of Rome establishing the European Economic Community,
was definitely identified in the harmonization of the tax laws of the Member States
with regard to taxation on the amount of business.
 ● It is also noted that the EU legislature has felt the need to reorganize the whole matter
by adopting the Directive of 11/28/2006 no. 2006/112/EC (in force since 01/01/2007),
which assumes great importance as it replaces some 33 previous Directives, becoming
today the reference text on value added tax in the European framework.

Summarizing what started above we can say that starting from 1967:
1) Common market demands for a harmonized turnover tax
2) Intra-eu commerce should be seamless and tax must not be hindrance to this goal
3) Taxations must be neutral, irrespective of the number of transactions the parties
entered into
4) A multiple stage-turnover tax matches all these requirements

Why tax consumption and not income in order to ensure an effective common market?
1) Consumption is a less mobile tax base (if compared to income)
2) Consumption is less volatile in case of fluctuations of the economic cycle
3) Consumption is a more reliable benchmark for the ability to pay an individual (as
indicator of his/her wealth)
4) Consumption taxation does not affect investment decisions
5) Consumption taxation targets only the final consumer, leaving business unaffected:
this facilitate business decisions and efficiency of the production

VAT Taxable Persons

● A VAT taxable person is anyone who independently carries on, in any place, an
economic activity, whatever the purpose/result of the activity
● Cases of activity may include: commercial, industrial. trades, real estate, agricultural,
etc
● Illegal activities falls outside the scope of the directive when proceedings are against
the law, so VAT clearly does not apply

How Does VAT Work For Goods?

● Goods sold within an EU member state - VAT is charged by the supplier eg an Italian
seller to an Italian purchaser
● Goods moving from one member state to another member state to VAT registered
business - the supplier does not charge VAT, and the acquirer accounts for VAT by
“reverse charge”, ie. It happens between an Italian seller and a German Purchaser
● Goods leaving one member state for another member state to a non-VAT registered
person - VAT is charged by the supplier of the goods eg French seller to German
purchaser not in business
● Goods leaving the EU (export) to countries such as America, Australia, Asia etc - no
VAT charged is charged by the supplier. Tax may be payable in the country of
destination eg Italian seller to Indonesian purchaser
 ● Goods entering the EU (import) from countries such as America, Australia, Asia etc -
VAT is due at the point of import eg. Indonesia seller to UK purchaser. Note also that
import may be payable. Unlike VAT paid by a business purchaser, custom duties are
not recoverable and represent a cost.

How Does VAT Work For Services?

● Services provided within a particular EU member state - VAT is due by the provider
of the service e.g. Italian service provider to an Italian customer.
● Services provided to VAT registered businesses in another member state or outside
EU - special rules apply which depend on the nature of the service.
● How is it possible to determine the place where the service is given? For VAT
purposes, the "place of supply" is the place where a supply is deemed to be made, and
this dictates the VAT liability.
● If the place of supply is:
In an EU member state, then VAT is accounted for in that member state.
Outside the EU, no VAT is due. Such supplies are 'outside the scope of EU VAT (but
may of course be within the scope of a turnover tax elsewhere).

So how do we decide where the place of supply is?

● Basic rule for supply of services is that the "place of supply" is where the supplier
belongs.
● Examples of services that fall under this rule:
1. Some management services
2. Clerical/ secretarial
3. Archiving/ maintenance of documents
4. Veterinary services
● Thus an EU business providing clerical services in the EU would charge VAT on the
value of its services to a non EU client eg a French business providing clerical
administration services for an Australian business should charge French VAT.
● The basic rules only apply if the service is not covered by one of the special place of
supply rules.
● Exceptions to the basic rule:
● Services relating to land and property, place of supply is where the land is situated
● Services supplied where performed, place of supply is where the service is physically
carried out. e.g. entertaining, exhibitions, conferences and nd meetings. etc
● Passenger/ Freight transport, place of supply is the country in which the transportation
takes place. e.g. domestic/ international freight transport. Etc
● Service of Intermediaries, place of supply generally is where the customer belongs.
e.g. agents arranging a supply between customer and supplier
● Services covering rights, legal services, accounting services, financial services,
marketing, advertising, supplies of staff, hiring out transport places of supply is where
the business customer belongs.
● Electronic and telecommunication services, place of supply is where the customer
belongs, but further "use and enjoyment rules" may apply. e.g. E-commerce and
broadcasting.

Other Special Rules for VAT in the EU

● Although the same general principles of VAT apply throughout the EU, the
administration of VAT is delegated to the individual states. Therefore there are a
number of national differences in the way in which VAT is administered within the
EU.
● Examples:
Option to tax: Certain member states allow businesses to convert supplies which may
be exempt from VAT into taxable supplies eg. supplies related to real estate, financial
services etc. This allows the supplier to recover VAT on costs incurred.
● Cash accounting scheme: subject to conditions and turnover limits, businesses may
account for VAT only on payments received rather than invoices issued. This avoids
bad debts and helps cash flow.
● Annual accounting scheme: generally VAT returns are submitted monthly or quarterly,
however subject to conditions and turnover limits, businesses may make annual VAT
returns only. Note the rules for VAT returns differ in the member states.
● There are a number of special arrangements within the member states.

The Role Played by The European Court of Justice on VAT Development

● The greatest number of decisions of the ECJ certainly refers to the value added tax,
given the typically European nature of this form of taxation.
● However, it is significant that the Court of Justice in this area shows a trend
characterized essentially by a mere reconnaissance of the existing rules, refusing to
develop general principles to be utilized also for the discipline of other taxes.
Particularly, the attitude of recognition is expressed through the detailed description of
the rules laid down in EU measures of the secondary legislation (especially in the
Directives concerning VAT) and through the clarification by way of interpretation of
the semantic latitude taken by those rules.
● It is true that the case law of ECJ has contributed significantly to single out the
essential features of VAT on the basis of the rules set out in the various Directives: it
was so recognized the legal nature of the tribute as a consumption tax; the qualifying
elements of the VAT discipline have been identified in the general taxation of trading
activities, in the proportionality of the rate, in the character of tax neutrality and in the
multi-step procedure for the taxation of the several operations; the tax assumption has
been determined with regard to the objective elements and to the subjective elements.
● Sometimes, the attitude to the reconnaissance of the existing regulation operated by
the Court of Justice with regard to the VAT is going to be reduced in order to permit
some reconstructions of the legal framework characterized by an evident "creative"
spirit. Thus, in relation to the issue of the possible duplication of taxation on the same
basis, the Court of Justice has defined the principle of prohibition of double taxation,
not finding a specific normative reference (case 5.5.1982, C-15/81, Schul; case
25.2.1988, C- 299/86, Drexl).