Consumption tax

Applying VAT/GST to cross-border trade in services and intangibles: OECD invites comments on the emerging concepts on place of taxation


In February 2006 the OECD launched a project aimed at providing guidance for governments on applying Value Added Taxes or Goods and Services Tax to cross-border trade.


The current lack of international “rules of the game” leads to uncertainties, unintended double taxation or unintended double non-taxation, which can be harmful for the development of international trade, in turn affecting both businesses and governments.


The OECD is therefore developing the International VAT/GST Guidelines. The immediate focus of the guidelines will be on services and intangibles, with trade in goods being dealt with later.


In this context, OECD countries have agreed on two fundamental principles for charging VAT/GST on internationally traded services and intangibles:


• For consumption tax purposes internationally traded services and intangibles should be taxed according to the rules of the jurisdiction of consumption* ;

• The burden of value added taxes themselves should not lie on taxable businesses except where explicitly provided for in legislation.


The transcription of these fundamental principles into concrete guidelines requires a clearer definition of the meaning of “jurisdiction of consumption”.


Work on developing such a definition is being undertaken jointly by OECD member countries, selected non-OECD economies and business representatives.


Although they seek to obtain a similar result – taxation of consumption in the jurisdiction where it takes place - tax laws are based on different approaches in different countries.


As a first step, the aim is to establish a number of common basic principles on which consistent taxation rules can be based.


This paper submitted for public consultation provides a number of relatively simple business scenarios and suggests how the “jurisdiction of consumption” might be determined. It takes a step by step approach, building from very simple scenarios and then progressively adding elements of complexity. Later papers will consider cases that are more complex.


This document is published for consultation with all parties with an interest in the application of VAT/GST on internationally traded services and intangibles. It is not intended to be part of the International VAT/GST Guidelines themselves but to allow for interested parties to contribute to the debate, to collect relevant information and to help the OECD develop its thinking in this area.


This document does not necessarily reflect the views of either the OECD or of its member countries.


Please forward any comments you wish to make to and by 30 April 2008.



* Luxembourg expressed a reservation on this principle


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