Value added tax notes pdf VAT is recovered by offsetting it against the output VAT for which the business is required to account to the government, or, if there is an excess, by claiming a repayment from the government. The final consumer does not receive a credit for the VAT paid. The net effect of this is that each supplier in the chain remits tax on the value added, and ultimately the tax is paid by the end consumer.
Value added tax collected at each stage in the supply chain is remitted to the tax authorities of the member state concerned and forms part of that state’s revenue. Cross-border VAT is declared in the same way as domestic VAT, which facilitates the elimination of border controls between member states, saving costs and reducing delays. VAT rates and the separate VAT administration processes resulted in a high administrative and cost burden for cross-border trade. VAT is normally payable in the state where the goods were purchased, regardless of any differences in VAT rates between the two states, and any tax payable on distance sales is collected by the seller. However, there a number of special provisions for particular goods and services. VAT within the EU VAT area, and specifies that VAT rates must be within a certain range. The VAT directive is published in all EU official languages.
Important changes will occur when a subsequent Directive will address the issue on “the place of supply of services” and will be in force on 1 January 2010. VAT had to be introduced together with membership of the EU. In 1977, the Council of the European Communities sought to harmonise the national VAT systems of its member states by issuing the Sixth Directive to provide a uniform basis of assessment and replacing the Second Directive promulgated in 1967. In 2006, the Council sought to improve on the Sixth Directive by recasting it. The Sixth Directive characterised the EU VAT as harmonisation of the member states’ general tax on the consumption of goods and services.
The recast of the Sixth Directive retained all of the legal provisions of the Sixth Directive but also incorporated VAT provisions found in other Directives whilst rearranging the order of the text to make it more readable. In addition, the Recast Directive codified certain other instruments including a Commission decision of 2000 relating to funding of the EU budget from with a percentage of the VAT amounts collected by each Member State. A domestic supply of goods is a taxable transaction where goods are received in exchange for consideration within one member state. Thus, one member state then charges VAT on the goods and allows a corresponding credit upon resale. An intra-Community acquisition of goods is a taxable transaction for consideration crossing two or more member states.
The mechanism for achieving this result is as follows. The exporting member state zero-rates the VAT. The importing member state “reverse charges” the VAT. This means that the importer is required to pay VAT to the importing member state at its rate.