First OECD Global Forum on VAT

October 2, 2013

Why an OECD forum?

The Organization for Economic Co-operation and Development (OECD) holds forums that enable non-OECD economies to discuss areas of the organization’s work.

The first Global Forum on value-added tax (VAT), held in Paris on 7-8 November 2012, brought together academics, representatives of businesses and international organizations, as well as delegates from more than 85 countries to explore key policy trends and their impact on tax administrations and businesses.

EY was glad to attend and take part in the discussion. This is the largest governmental level meeting on VAT and goods and services tax (GST) ever organized worldwide. This historic event illustrates the growing importance of VAT and ST and its recognition by governments worldwide.

The first Global Forum on VAT

The forum addressed the following topics:

  • Implementation of VAT from a global perspective: this session set the scene by providing an overview of current policy and administrative developments in the implementation of VAT, in both emerging and developed economies. It also explored the European Union (EU) experience of operating VAT in a regional trading bloc.
  • Applying VAT to international trade — the challenge of economic globalization: this session explored the challenges to the principle of “taxation at destination.” This is the standard for applying VAT in an international context where exports are zero-rated and imports are taxed in the importing country at the VAT rate applicable to domestic production. This principle creates particular challenges with the growing international trade in services and intangibles, as these items are not subject to border controls
  • The OECD International VAT/GST Guidelines: panelists discussed the ongoing work on the development of the OECD International VAT/GST Guidelines, which are intended to become an internationally agreed standard for a consistent VAT treatment of cross-border trade. The presentation focused on VAT neutrality in an international context and the allocation of taxing rights on international trade in services and intangibles.
  • Designing efficient and equitable VAT systems: as VAT is a major source of government revenue, the design of VAT regimes can potentially have a significant impact on a country’s economic performance. In this context, the main drivers discussed in this session were the tax base (revenue and economic effects of broadening VAT bases), the rate structure (single rate versus reduced rates), the determination of an appropriate registration threshold and, more generally, the distributional impact of VAT, while also bearing in mind the political obstacles to eliminating reduced rates and exemptions.
  • Managing VAT administration and compliance: this session explored the possibility of measuring VAT compliance costs (as VAT is regarded as the most burdensome of all taxes for businesses) and different approaches to tackling VAT fraud and avoidance. The key question addressed was whether it is possible to develop an effective strategy against VAT fraud and avoidance without imposing excessive administrative burdens and compliance costs on businesses.

Business representation

Although the Global Forum on VAT is a meeting at the governmental level, businesses were given the opportunity to participate and to report on their concerns about dealing with VAT. The business representatives who were invited to make presentations clearly pointed out that their main concern in conducting cross-border trade is the neutrality of VAT (i.e., that it should not be a burden on businesses).

They believe this neutrality can be achieved only through the widespread application of the destination principle and efficient VAT refund mechanisms. Business representatives also reported to governments that VAT has now become a major driver for investment decisions, and that VAT can even turn out to be a barrier to investing in some countries.

Conclusion

The Global Forum concluded that there is a strong need for internationally agreed upon principles on VAT. It decided its key objective should be to build the largest worldwide consensus on the OECD International VAT/GST Guidelines as the future international standard for applying VAT to cross-border trade.

The goal is to minimize the risks of double taxation and unintended non-taxation. The OECD International VAT/GST Guidelines should be completed by 2014 and will be presented for endorsement by the Global Forum on VAT at its next meeting, expected to be held in early 2014.

EY will continue to actively support and contribute to the work of the OECD in this important area of indirect tax policy, and we will report on progress and developments as they evolve. Meanwhile, incentives would be withdrawn for 11 industries deemed to be unfavorable for the climate and environment, either because they use too much energy, rely on human labor or have low value addition.

These include hydroponic vegetable cultivation, forestation, organic fertilizers, animal feed or animal-feed mix, baked-dry plants and silos, and deep-sea fishing. Light industries such as textiles and garments, carpets, shoes, bags and sporting goods (among many others) are also excluded.

The full version of this article is published in EY´s Global Tax Policy and Controversy Briefing, issue 12 (PDF, 7.39 MB)

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