Cambridge University Press
978-0-521-85112-1 - Value added tax : a comparative approach - by Alan Schenk and Oliver Oldman
Frontmatter/Prelims

VALUE ADDED TAX

This book integrates legal, economic, and administrative materials about value added tax. Its principal purpose is to provide comprehensive teaching tools – laws, cases, analytical exercises, and questions drawn from the experience of countries and organizations around the world. It also serves as a resource for tax practitioners and government officials that must grapple with issues under their VAT or their prospective VAT. The comparative presentation of this volume offers an analysis of policy issues relating to tax structure and tax base as well as insights into how cases arising out of VAT disputes have been resolved. In the new edition, the authors have expanded the coverage to include new VAT-related developments in Europe, Asia, Africa, and Australia. A new chapter on financial services has been added as well as an analysis of significant new cases.

Alan Schenk teaches VAT at Wayne State University and has taught VAT at other universities such as Harvard University, the University of Michigan, and the University of San Diego. For the past eight years, Professor Schenk has served as Technical Advisor for the International Monetary Fund, drafting and reviewing legislative proposals for sales and value added tax for several countries in Africa and for emerging economies of Eastern Europe. He is the author of four books and has published many articles on VAT including several involving the taxation of financial services.

Oliver Oldman is Learned Hand Professor of Law, Emeritus, at the Harvard Law School. For twenty-five years until July 1989, he was the Director of the School’s International Tax Program. He has been a member of the Law School Faculty since 1955 when he began directing the Tax Program’s training activities and was appointed Professor of Law in 1961. He began teaching about value added taxes in his Comparative Tax Policy course in the 1960s and offered his first separate course on the value added tax in 1979. He has taught the course continuously at Harvard Law School since then. Professor Schenk has been a frequent guest lecturer.

Value Added Tax

A COMPARATIVE APPROACH

Alan Schenk
Professor of Law
Wayne State University

Oliver Oldman
Learned Hand Professor of Law Emeritus
Harvard Law School

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First published 2007

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Library of Congress Cataloging in Publication Data

Schenk, Alan.
Value added tax : a comparative approach / Alan Schenk, Oliver Oldman. – [Rev. ed.].
p. cm.
Includes bibliographical references and index.
ISBN-13: 978-0-521-85112-1 (hardback)
ISBN-10: 0-521-85112-2 (hardback)
ISBN-13: 978-0-521-61656-0 (pbk.)
ISBN-10: 0-521-61656-5 (pbk.)
1. Value-added tax – Law and legislation. 2. Spending tax – Law and legislation. 3.
Taxation of articles of consumption – Law and legislation. I. Oldman, Oliver. II. Title.
K4573.S337 2006
343.05^′5 – dc22 2006008216

ISBN-13 978-0-521-85112-1 hardback
ISBN-10 0-521-85112-2 hardback

ISBN-13 978-0-521-61656-0 paperback
ISBN-10 0-521-61656-5 paperback

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the persistence or accuracy of URLs for external or
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To
Jared, Ethan, Daniel, Jordan & Rae
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Sumi & Robyn
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List of Tables, Figures, and Charts			page xxiii
List of Cases			xxv
Preface to the Revised Edition			xxxiii
1		SURVEY OF TAXES ON CONSUMPTION AND INCOME, AND INTRODUCTION TO VALUE ADDED TAX	1
		I. Introduction	1
		II. Development of Taxes on Consumption – A Brief Review of History	2
		III. Direct and Indirect Taxes on an Income or Consumption Base	5
		A. Direct and Indirect Taxes	5
		B. Income and Consumption Base for Tax	8
		IV. Tax Structures in Developed and Developing Economies	13
		V. Broadening the Base of a Tax System	16
		VI. The Value Added Tax	16
		VII. The Proliferation of VATs	17
		VIII. Glossary of VAT Terms	19
		IX. Outline of Issues Pertaining to Consumption Taxes	23
		X. Discussion Questions	24
		APPENDIX A: DEVELOPMENT TAXATION	25
		I. Introduction	25
		II. The Reform of Indirect Taxation	27
		III. Taxing Imports	27
		IV. Taxing Exports	28
2		FORMS OF CONSUMPTION-BASED TAXES AND ALTERING THE TAX BASE	30
		I. Forms of Consumption-Based Taxes	30
		A. Introduction	30
		B. Consumption-Based Direct Tax on Individuals	30
		C. Single and Multistage Sales Taxes	33
		II. Overview of the Value Added Tax	33
		A. In General	33
		B. Jurisdictional Reach of the Tax	35
		C. Inclusion of VAT in Tax Base	35
		D. Inclusion of Capital Goods in Tax Base	36
		III. Methods of Calculating VAT Liability	38
		A. Credit-Invoice VAT	38
		B. Credit-Subtraction VAT That Does Not Rely on VAT Invoices	41
		C. Sales-Subtraction VAT	42
		D. Addition-Method VAT	43
		IV. Methods of Altering the Tax Base	46
		A. Entity Exemptions	48
		B. Zero Rating	50
		C. Transaction Exemption	52
		D. Alteration of Base by Granting or Denying Credits	54
		E. Multiple Rates	54
		V. Discussion Questions	55
3		VARIETIES OF VAT IN USE	58
		I. Introduction	58
		II. European Union: A Mature VAT Resistant to Change	59
		A. VAT in the European Community	59
		B. European Court of Justice	63
		C. Application of the EU Sixth VAT Directive	64
		1. History and proposal for recodification	64
		2. When is a tax on consumption not a turnover tax or VAT in violation of the sixth directive?	64
		III. Japanese Consumption Tax	67
		1. Credit-subtraction VAT without invoices	67
		2. Movement toward invoice-method VAT	68
		IV. New Zealand Goods and Services Tax	69
		A. Broad Tax Base	69
		B. Taxation of Government Services	69
		C. Taxation of Casualty and Other Nonlife Insurance	70
		D. Global Reach of the New Zealand GST	70
		V. African Experience Expanding Base to Tax Financial Services	71
		VI. Commonlaw and Civil Law Approaches	71
4.		REGISTRATION, TAXPAYER, AND TAXABLE BUSINESS ACTIVITY	73
		I. Introduction	73
		II. Registration	73
		A. In General	73
		B. Mandatory Registration	74
		1. General rules	74
		2. Promoters of public entertainment	75
		3. Registration regardless of turnover	76
		C. Registration Threshold and the Small Business Exemption	77
		1. In general	77
		2. What is the business?	80
		3. Splitting a business and the related person rules	81
		4. Severing value from the business	84
		D. Voluntary Registration	86
		E. Cancellation of Registration	87
		F. Transition to Registration and Cancellation of Registration	88
		G. Registration of Branches and Group of Companies	88
		H. Electronic Commerce	89
		I. Telecommunication Services	91
		III. Person Liable for Tax	93
		A. General Principles	93
		B. Person Treated as Seller	94
		1. In general	94
		2. Electronic commerce and telecommunication services rendered by nonresidents	95
		3. Auctions	96
		4. Other sales by nonowners	96
		5. Local government services	97
		C. Tax Collectible from Third Persons	98
		IV. Business Activity Subject to VAT	98
		A. Taxable Activity	98
		B. Personal Sales	102
		C. When Does a Business Begin?	106
		D. Employee Not Engaged in Taxable Activity	108
		V. Discussion Questions	109
5		TAXABLE SUPPLIES OF GOODS AND SERVICES, AND TAX INVOICES	111
		I. Introduction	111
		II. Sales of Goods and Services	111
		A. What Is a Sale or Supply?	112
		1. Nonsupplies or supplies other than in the course of taxable activity	113
		2. Sales for consideration	116
		3. Transactions or transfers deemed to be supplies for VAT purposes	122
		a. Cease to conduct taxable transactions	122
		b. Diversion of business assets to personal or employee use	123
		c. Change in the use of goods or services	124
		d. Repossession of goods sold in a taxable transaction	124
		B. Goods or Services	124
		C. Supply of Goods	125
		D. Supply of Services	126
		E. What Is “the” Supply for VAT Purposes? – Single, Mixed, and Composite Supplies	130
		F. Vouchers	137
		III. The Tax or VAT Invoice	138
		A. Role of VAT Invoice	138
		B. Who Receives VAT Invoices?	139
		C. Contents of Required VAT Invoices	139
		D. Waiver of Required VAT Invoices	140
		IV. Discussion Questions	140
6		THE TAX CREDIT MECHANISM	141
		I. Tax Credit for Purchases	141
		A. Basic Input Tax Credit Rules	141
		1. Allowance of credit – general rules	141
		2. Credit for input VAT on capital goods	143
		3. Conditions to claim credit for input VAT	144
		4. Credit denied on purchases for exempt and other nontaxable transactions	149
		B. Impact of Subsidies on Allowable Input Credits	158
		C. Pre-opening Expenses and Posteconomic Activity	159
		D. De Minimis Rule	161
		E. Transactions Involving Shares and Debt	161
		F. Bad Debts	166
		II. Treatment of Excess Input Credits – Carry Forward, Offset, or Refund	167
		III. Impact of Change from Exempt to Taxable Status	171
		IV. Used Property	172
		A. Business-to-Business Sales of Used Property	172
		B. Sales of Used Property in Nontaxable Transactions	172
		V. Postsale Price Adjustments and Refunds	175
		A. In General	175
		B. Returns and Allowances – Credit and Debit Notes	175
		C. Postsale Rebate by Pre-retail Registered Business to Final Consumer	176
		VI. Casual Sales by Consumers	176
		VII. Japan’s System to Calculate Input Credits	177
		VIII. Calculation of Tax Liability and Special Schemes	178
		IX. Discussion Questions	179
7		INTRODUCTION TO CROSS-BORDER ASPECTS OF VAT	180
		I. Introduction to International Trade	180
		II. Vocabulary of Interjurisdictional (Cross-Border) Aspects of VAT	181
		III. Taxonomy of Broad-Based Sales Taxes on International Trade	181
		IV. Origin Versus Destination Principle	182
		A. In General	182
		B. Double Taxation of Consumer-to-Consumer Imports	184
		V. Place of Supply Rules in International Trade	188
		A. Basic Rules on the Place of a Supply of Goods and Services	188
		B. Recent Developments in the EU on the Place of Supply	195
		C. Territorial Versus Global Reach of a VAT	195
		VI. Imports	202
		A. Imports of Goods	202
		B. Imports of Services	203
		VII. Exports	205
		A. Exports of Goods	205
		B. Exports of Services	205
		VIII. Telecommunications, Electronically Supplied Services, and E-Commerce	209
		A. Introduction	209
		B. Place of Supply of Services Involving Telecommunications, Electronically Supplied Services, and E-Commerce	210
		1. Telecommunications services	210
		2. Radio, television, and electronically supplied services	212
		3. Electronic commerce	216
		IX. International Transportation Services	219
		X. Proposals to Fund Relief of Disaster Victims or Poverty with an International Tax	220
		A. Introduction	220
		B. Professor Kaneko’s Proposal to Fund Disaster Relief with an International Humanitarian Tax	220
		C. Proposals by President Chirac and Others to Fund Poverty Relief Efforts, the Fight against AIDs, or Development Projects with a Dedicated Tax	222
		XI. Discussion Questions	223
8		TIMING AND VALUATION RULES	224
		I. The Timing Rules	224
		A. Accrual, Invoice, and Cash Methods – in General	224
		1. Imports	226
		2. Accrual method	227
		3. Invoice method	234
		4. Cash method	235
		B. Effects of Length of Taxable Period	236
		1. Taxable period – in general	236
		2. Variations in length of period	237
		3. Time to file returns and pay tax	238
		4. Cash-flow effects	238
		C. Special Rules for Certain Sales	239
		1. Installment or deferred payment sales	239
		2. Goods diverted to personal use	241
		3. Other special cases	241
		II. Transition Rules	241
		A. Introduction	241
		B. Transition Rules Applicable to Repealed Sales Tax	242
		C. Timing Differences between Sales Tax and VAT and Supplies Straddling the VAT Effective Date	243
		D. Pre-effective Date Contracts Not Specifying VAT	246
		III. Valuation Rules	246
		A. Taxable Amount or Value of a Supply – General Rule	246
		B. Sales Free of Charge or for a Nominal Charge	251
		C. Discounts, Rebates, and Price Allowances	252
		D. Pledged Goods and Repossessions	254
		E. Postsale Adjustments	254
		F. Related Party Transactions	256
		G. Margin Schemes	257
		H. Sales to Door-to-Door Sellers and Similar Independent Contractors	258
		I. Self-Supply Transactions	259
		J. Taxable Amount – Imports	260
		1. General rule	260
		2. Imports placed in a bonded warehouse	260
		3. Imports of previously exported articles	261
		4. Imports from unregistered persons	261
		IV. Discussion Questions	262
9		ZERO RATING AND EXEMPTIONS AND GOVERNMENT ENTITIES AND NONPROFIT ORGANIZATIONS	263
		I. Introduction	263
		II. Zero-Rated Sales	263
		A. In General	263
		B. Zero-Rated Exports	266
		C. Authority to Zero Rate Other Transactions	267
		III. Exempt Sales	268
		IV. Allocation of a Single Price between Supplies with Different Tax Consequences	279
		V. A-B-C Transactions	280
		VI. Governmental Entities and Nonprofit Organizations	282
		A. Introduction	282
		B. Various Approaches to the Taxation of Governments and NPOs	285
		C. Taxation in New Zealand	289
		D. Taxation in the European Union	290
		VII. Special Treatment for Diplomats, Embassies, and International Organizations	298
		VIII. Discussion Questions	299
10		GAMBLING AND FINANCIAL SERVICES (OTHER THAN INSURANCE)	301
		I. General Introduction	301
		II. Gambling, Lotteries, and Other Games of Chance	301
		III. Financial Services Involving Money and Financial Products (Other than Insurance)	304
		A. Introduction	304
		B. Variety of Transactions Involving Financial Services	305
		C. Financial Intermediation Services	306
		D. Principles to Guide the Taxation of Financial Services	313
		E. Interest Paid on Credit Sales to Consumers	314
		F. Exemption for Financial Intermediation Services as Implemented in the EU	314
		1. Introduction	314
		2. Exemption for financial services in the EU followed elsewhere	315
		3. Effects of exemption at an intermediate or retail stage	317
		G. Vertical Integration and Outsourcing	317
		H. Input Tax Credits and the Allocation of the Credits Between Taxable and Exempt Activities	324
		1. Introduction	324
		2. Methods of allocating disallowed credits	325
		3. Credit denied for VAT on purchases by consumers: credit when purchase is made for investment	327
		I. Departures from EU in the Taxation of Financial Services	327
		1. Introduction	327
		2. Israel and Argentina	328
		3. South Africa	329
		4. Singapore, New Zealand, and Australia	331
		a. Singapore’s zero rating of financial services rendered to taxable customers	331
		b. New Zealand zero rates some financial services rendered by financial service providers	331
		c. Australia’s treatment of financial services	333
		5. Italy’s subtraction-method IRAP imposed at the subnational level	335
		IV. Proposals to Tax Financial Intermediation Services	335
		A. Introduction	335
		B. Canadian Flirtation with Taxation of Intermediation Services	335
		C. Proposals in the United States	336
		D. The Poddar–English Proposal	337
		E. Zee’s Modified Reverse-Charging Approach	339
		V. Discussion Questions	341
11		INSURANCE	343
		I. Introduction	343
		A. International Insurance Services	344
		B. Domestic Insurance Services	344
		II. Broad-Based Tax on Casualty Insurance	345
		III. Exemption for Insurance Other than Life Insurance	346
		IV. New Zealand Taxation of Insurance	348
		A. Application of the N.Z. Taxation of Casualty Insurance to Policyholders in Business	351
		B. Application of the N.Z. Taxation of Casualty Insurance to Policyholders Who Are Consumers	353
		C. Are Warranties “Insurance” in New Zealand?	354
		V. Australia’s Taxation of Insurance	355
		VI. A U.S. Proposal – The Nunn–Domenici USA Tax System	356
		VII. Discussion Questions	356
12		INTERJURISDICTIONAL ASPECTS OF VAT IN FEDERAL COUNTRIES AND COMMON MARKETS	358
		I. Introduction	358
		II. EU’s Commitment to Intra-Union Borderless Trade	361
		A. Introduction	361
		B. Selected Provisions of the Treaty Establishing the European Community	362
		C. Timetable to Move Toward a Definitive VAT Regime	364
		D. EU Required Exchange of Tax Information	364
		III. EU Member States Limited to One VAT	365
		Letter to the President of the European Court of Justice Concerning the Italian IRAP and the European VAT	367
		IV. EU Commitment to an Origin VAT: Its Problems and Proposals	373
		1. In general and early proposals	373
		2. The Keen and Smith VIVAT for intra-EU trade	374
		V. Canadian VATs and the Bird/Gendron Dual VAT	376
		A. Introduction	376
		B. Variety of Canadian Sales and Value Added Taxes	376
		C. Bird and Gendron Dual VAT Proposal	378
		D. Application of Dual VAT Concept to the EU	380
		VI. Brazil and the Varsano “Little Boat Model”	381
		A. Brazil’s Tax Structure in General	381
		B. Varsano’s “Little Boat Model”	382
		C. McLure’s CVAT Modification of Varsano Proposal	384
		D. Comparison of the Features of the CVAT, VIVAT, and Dual VAT Proposals	388
		VII. Subnational VATs in India	390
		A. Enacted State-Level VATs	390
		B. Prepaid VAT Proposed for India by Poddar and Hutton	392
		VIII. Origin-Based Business Value Tax (BVT) to Finance Subnational Government	393
		IX. Reform of Subnational Taxes in the United States	395
		A. Coexistence of Federal VAT and State Retail Sales Tax	397
		B. Subnational VATs in Use and Proposed for the United States	398
		1. Michigan single business tax	400
		2. West Virginia’s proposed single business tax	401
		3. New Hampshire business enterprise tax	403
		C. Streamlined Sales and Use Tax	404
		D. Ainsworth’s Digital VAT	405
		X. Discussion Questions	406
13		REAL PROPERTY	408
		I. Introduction	408
		II. Array of VAT Treatment of Real (or Immovable) Property	408
		III. EU Approach to the Taxation of Real (or Immovable) Property	411
		A. In General	411
		B. Exemption for Leasing and Terminating a Lease	412
		1. What is a “lease” or “letting” of immovable property?	412
		2. Disposition or transfer of a lease	417
		C. Mixed Business–Personal Use	425
		D. Tax-Motivated Transactions	428
		IV. Proposals for the Taxation of Real Property	429
		V. Discussion Questions	431
14		PROPOSALS FOR U.S. TAX ON CONSUMPTION	433
		I. Introduction	433
		II. President Bush’s Advisory Panel on Tax Reform	435
		A. Introduction	435
		B. Value Added Tax Considered	436
		C. The Growth and Investment Tax Plan	437
		III. Gibbons and Graetz VATs Replacing Most Income Tax	440
		IV. The USA Tax System: Coordinated Consumption-Based Individual and Business Taxes	442
		A. Introduction	442
		B. The Business Tax	443
		C. The Income Tax	445
		V. The Flat Tax	448
		A. Hall-Rabushka Flat Tax	449
		B. Shelby Flat Tax	449
		VI. National Retail Sales Tax	451
		A. Introduction	451
		B. The Chambliss Bill	452
		1. Basic framework and scope of the tax base	452
		2. Special treatment for government entities and nonprofit organizations	453
		3. RST credits	454
		4. Rebate to low-income households	455
		5. Taxation of financial intermediation services	455
		6. Timing rules	456
		7. State authority to collect tax and federal support	456
		VII. Elective Flat Rate Income Taxes	457
		VIII. Discussion Question	458
APPENDIXES			459
	Appendix A VATs Worldwide		459
	Appendix B Commonwealth of New Vatopia Value Added Tax Act		463
		Part I. Preliminary	463
		Part II. Administration	463
		Part III. Imposition of Tax	463
		Part IV. Registration	463
		Part V. Tax Period, Returns, and Calculation of Tax Payable	464
		Part VI. Payment, Collection and Recovery	464
		Part VII. Refund of Tax and Tax Relief	464
		Part VIII. Assessments	464
		Part IX. Objections and Appeals	464
		Part X. Representatives and Special Cases of Taxable Persons	464
		Part XI. Records and Investigation Powers	465
		Part XII. Offences and Penalties	465
		Division I: Criminal Offences	465
		Division II: Civil Penalties	465
		Part XIII. Miscellaneous	465
SCHEDULES			465
BILL FOR AN ACT TO PROVIDE FOR THE IMPOSITION AND COLLECTION OF VALUE ADDED TAX			466
		Part I. Preliminary	466
		1. Short Title and Commencement	466
		2. Interpretation	466
		3. Meaning of “Fair Market Value”	470
		4. Meaning of “Supply”	471
		5. Taxable Activity	473
		6. Meaning of “Taxable Person”	473
		Part II. Administration	473
		7. Powers and Duties of Commissioner	473
		8. Secrecy	474
		Part III. Imposition of Tax	475
		9. Imposition of Tax and Persons Liable	475
		10. Time of Supply	475
		11. Time of Import	476
		12. Place of Supply	476
		13. Value of Supply	477
		14. Value of Import	478
		15. Zero Rating	479
		16. Exempt Supply	479
		17. Exempt Import	479
		18. Import Declaration and Payment of Tax for Importation of Goods	479
		19. Import Declaration and Payment of Tax for Importation of Services	480
		Part IV. Registration	481
		20. Registration	481
		21. Registration Procedure	482
		22. Cancellation of Registration	483
		Part V. Tax Period, Returns, and Calculation of Tax Payable	484
		23. Tax Period	484
		24. Returns	484
		25. Extension of Time	485
		26. Calculation of Tax Payable for Tax Period	485
		27. Input Tax Deduction	485
		28. Input Tax Deduction Allocation and Disallowance Rules	487
		29. Postsale Adjustments	488
		30. Bad Debt	489
		31. Interest on Unpaid Tax	490
		32. Tax Invoices and Sales Invoices	490
		33. Tax Credit and Debit Notes	491
		Part VI. Payment, Collection, and Recovery	491
		34. Due Date for Payment of Tax	491
		35. Allocation of Payments among Tax, Interest, and Penalties	492
		36. Recovery of Tax as Debt Due	492
		37. Recovery of Tax from Persons Leaving Vatopia	493
		38. Security	493
		39. Preferential Claim to Assets	493
		40. Seizure of Goods and Vehicles	494
		41. Distress Proceedings	495
		42. Recovery of Tax from Recipient of Supply	495
		43. Recovery of Tax from Third Parties	496
		44. Duties of Receivers	496
		Part VII. Refund of Tax and Tax Relief	497
		45. Carry Forward of Excess Deductions and Refund of Tax	497
		46. Interest on Overpayment	499
		47. Others Eligible for Tax Refund	499
		Part VIII. Assessments	500
		48. Assessments	500
		49. General Provisions Relating to Assessments	501
		Part IX. Objections and Appeals	501
		50. Objections	501
		51. Appeal to Commissioner of Appeals	502
		52. Appeal to High Court	503
		53. Burden of Proof	503
		Part X. Special Cases	503
		54. Persons Acting in a Representative Capacity	503
		55. Power to Appoint Representatives	504
		56. Branches	504
		57. Bodies of Persons (Other than Incorporated Companies)	505
		58. Death or Insolvency of Taxable Person; Mortgagee in Possession	505
		59. Trustee	505
		Part XI. Records and Investigation Powers	506
		60. Meaning of “Records”	506
		61. Record-keeping	506
		62. Access to Records, Computers, Goods, and Vehicles	506
		63. Records Not in Vatopian Language	507
		64. Notice to Obtain Information or Evidence	507
		Part XII. Offences and Penalties	508
		Division I: Criminal Offenses	508
		65. Power to Bring Criminal Charges	508
		66. Time Limits for Proceedings to Be Taken	508
		67. Tax Evasion	508
		68. False or Misleading Statements	508
		69. Obstructing Taxation Officers	509
		70. Offences by Taxation Officers	509
		71. Offences by Companies, Aiders, and Abetters	509
		72. General Penalty	510
		73. Compounding of Offences	510
		Division II: Civil Penalties	510
		74. General Provisions	510
		75. Penalty for Making False or Misleading Statements	511
		76. Recovery or Remission of Penalties	511
		77. Temporary Closure of Business Premises	511
		Part XIII. Miscellaneous	512
		78. VAT Registration Number	512
		79. Forms and Notices; Authentication of Documents	512
		80. Service of Notices	513
		81. Tax-Inclusive Pricing	513
		82. Schemes for Obtaining Tax Benefits	513
		83. Currency Conversion	514
		84. International Agreements	514
		85. Registration of Certain Goods Prohibited in Certain Circumstances	514
		86. Auctioneer and Agent	515
		87. Regulations	515
		88. Variation of Consideration on a Change in Rate	516
		89. Application of Increased or Reduced Rate	516
		90. Orders to Amend Schedules or Change Amounts or Tax Rate	517
		91. Repeal of Laws and Interpretation	517
		92. Transitional	517
		Schedule I
		Zero-Rated Supplies for Purposes of Section 15	519
		Schedule II
		Exempt Supplies for Purposes of Section 16	521
		Schedule III
		Exempt Imports for Purposes of Section 17	523
		Schedule IV
		Tax Invoices, Tax Credit Notes, and Tax Debit Notes for Purposes of Sections 32 and 33	523
		Schedule V
		Registration Threshold, Interest Rates, and Other Amounts for Purposes of Various Sections of the Act	524
		Schedule VI
		Repeal of Laws and Interpretation for Purposes of Section 91	524
Index			525

List of Tables, Figures, and Charts

Chapter 1
	Table 1	Turnover Tax Nonintegrated and Vertically Integrated Business	page 4
	Table 2	Improved Turnover Tax Nonintegrated and Vertically Integrated Business	5
	Figure 1	Income and Product Flows Under Income and Consumption Tax Bases	11
	Table 3	Flows of Factor Payments to Households and Tax Bases of Firms	12
	Table 4	Select OECD Countries – 2002	13
	Table 5	U.S. Federal Tax Receipts as Percentage of GDP	14
	Table 6	Total Taxes as % of GDP	14
	Table 7	Total Tax on Goods and Services as Percentage of GDP (the date in parenthesis is the date VAT was introduced or became effective)	15

Chapter 2
	Table 1	Gross Domestic Product and Personal Consumption Data for 2004 (in billions)	37
	Table 2	Output Tax/Input Credits (Net VAT)	40
	Table 3	Output Tax/Input Credits (Net CT liability)	41
	Table 4	Taxable Sales (Purchases allowable as deductions)	42
	Table 5	Taxable Sales (Expenses for VAT purposes)	43
	Table 6	Wages, Interest, and Rent Expenses	44
	Table 7	Data Set	44
	Table 7	Calculation of Base under Gross Product, Income, and Consumption VAT	45
	Table 8	Illustration of Car Rental Firm Renting Only for Personal Consumption	46
	Table 9	Possible Sales Tax Bases and Tax Payments (10% rate)	47
	Table 10	Adapted from “The Value-Added Tax in Developing Countries”	53

Chapter 4
	Table 1	Illustration of the Problem of Small Business Under a Credit-Method VAT	80

Chapter 6
	Figure 1	Excess Input VATs	168

Chapter 7
	Table 1	Options for the Taxation of Domestic and International Trade	182
	Table 2	Example of Destination and Origin Principles	184

Chapter 9
	Table 1	Wholesale Stage/Retail Stage Zero Rating Scale	264
	Table 2	Wholesale Stage/Retail Stage Exemption Scale	269

Chapter 10
	Table 1	Percent Value Added Tax with Financial Intermediaries Excluded from the Tax Base	311

Chapter 11
	Table 1	Ideal Casualty Insurance Co. Pro Forma Profit Statement for VAT Purposes for the Year Ending December 31, 2005	350
	Table 2	VAT Return Ideal Casualty Insurance Co. for the Year 2005	351
	Table 3	New Zealand Casualty Insurance Co. Pro Forma Profit Statement for GST Purposes for the Year Ending December 31, 2005	352
	Table 4	GST Return New Zealand Casualty Co. for the Year 2005	353

Chapter 12
	Chart 1	A Corporation Sale to Domestic B Corporation	375
	Chart 2	A Corporation Intraprovince Sale to B Corporation	379
	Chart 3	A Corporation Intrastate Sale to B Corporation	385

Chapter 13
	Chart 1	Summary of Tax Treatment of Real Property under the Model Act	430

List of Cases

Cases listed by name of the taxpayer or, for action by the European Commission, the country. Highlighted cases are main textual cases.

Addidas New Zealand Ltd v. Collector of Customs	page 260
Alan Ridley v. Commissioners of Custom and Excise	104
Edmond Michael Alexander v. The Commissioners of Customs and Excise	152
Apple and Pear Development Council v. Commissioners of Customs and Excise	119
Argos Distributors Ltd v. Customs and Excise Commissioners	250
Armbrecht, Finanzamt Uelzen v.	425
Arthur Andersen & Co. Accountants, Staatssecretaris van Financien v.	347
ASBL Office des Produits Wallons v. Belgium State	158
Assurandor-Societet, acting on behalf of Taksatorringen v. Skatteministeriet	347
Atlantic Smoke Shops, Ltd. v. Conlon, [1943] A.C. 550, at 551	6
Atlas Marketing v. Commissioners of Customs and Excise	100
Aubrett Holdings Ltd. v. H.M. The Queen	102
Aukland Institute of Studies Ltd v. Commissioner of Inland Revenue	240
A-Z Electrical v. The Commissioners of Customs & Excise	235
Banca Popolare di Cremona v. Agenzia Entrate Ufficio Cremona	366
Barclays Bank PLC v. The Commissioners	318
BAZ Bausystem AG v. Finanzamt Munchen fur Korperschaften	251
Bay Ferries Ltd. v. The Queen	157
Bebenhams Retail plc v. Revenue and Customs	132
Gunter Berkholz v. Finanzamt Hamburg-Mitte-Altstadt	191
Beynon (Dr.) and Partners v. Customs and Excise Commissioners BLP Group plc v. Customs and Excise Commissioners	113
The Boots Company plc v. Commissioners of Customs & Excise	253
British Airways plc v. Commissioners of Customs and Excise	145
British Telecommunications plc, Commissioners of Customs and Excise v.	133
Cablelink Limited, Cablelink Waterford Limited and Galway Cable Vision, DA Mac Carthaigh, Inspector of Taxes v.	133
Canadian Airlines International Ltd v. The Commissioners of Customs and Excise	134
Cantor Fitzgerald International v. Commissioners of Customs and Excise	418
Card Protection Plan Ltd v. Customs and Excise Commissioners	131
(Careda SA) Federacion nacional de operadores de maquinas recreativas y de azar, (Femara) and Asociacion Espanola de empresarios de maquinas recreativas, (Facomare) v. Administracion General del Estado	365
Carlton Lodge Club v. Customs and Excise Commissioners	112
Carpaneto Piacentino (Comune di) and Others v. Ufficio Provinciale Imposta Sul Valore Aggiunto di Piacenza (Provincial VAT Office, Piacenza)	291
Case 38,253 (Hoge Road, Netherlands)	165
Case N23 (N.Z. 1991)	267
Case N46 (N.Z. 1991)	267
Case P22 (N.Z. 1992)	267
Case T2 (N.Z. 1997)	103
Case T35 (N.Z. 1996)	145
Chef on the Run Franchise Division Ltd. v. The Queen	266
Ch’elle Properties (NZ) Ltd v. Commissioner of Inland Revenue	225
College of Estate Management v. Customs and Excise Commissioners	133
Colour Offset Ltd, Customs and Excise Commissioners v.	265
Complete Cuisine & Fine Foods to Go (1988) Ltd. v. The Queen	266
Containers Ltd v. Customs and Excise Commissioners	133
Cooperatieve Aadappelenbewarplaats G.A., Staatssecretaris van Financiën v.	117
Co-operative Retail Services Ltd v. Commissioners of Customs and Excise	255
CSR Ltd. v. Hornsby Shire Council	112
d’Ambrumenil (Peter) and Dispute Resolution Services Ltd v. Commissioners of Customs & Excise	275
Debenhams Retail plc v. Revenue and Customs Commissioners	132
Debouche (Etienne) v. Inspecteur der Invoerrechten en Accijnzen	171
Empire Stores Ltd v. Commissioners of Customs and Excise	252
Faxworld Worgrundungsgesellschaft Peter Hunninghausen und Wolfgang Klein Gbr, Finanzamt Offenback am Main-Land v.	145
Fazenda Publica and Solisnor-Estaleiros Navais SA	65
FDR Ltd, Customs and Excise Commissioners v.	321
Fine Art Developments plc v. Customs and Excise Commissioners	259
ISt internationale Sprach- und Studienreisen GmbH, Finanzamt Heidelberg v.	258
First National Bank of Chicago, Commissioners of Customs and Excise v.	249
Fonden Marselisborg Lystbadehavn v. Skatteministeriet	413
Förvaltnings AB Stenholmen v. Riksskatteverket	175
French Republic, Commission of the European Communities v. (Case C-40/00)	154
French Republic, Commission of the European Communities v. (Case C-429/97)	170
Gabalfrisa SL and Others v. Agencia Estatel de Administración Tributaria, joined cases	160
Gaston Schul Douane-Expediteur BV, Staatssecretaris van Financïen v.	184
Ghent Coal Terminal NV, Belgium v.	160
Germany, Re VAT on Postal Transport: EC Commission v. Germany	294
Germany (Federal Republic of), Commission of the European Communities v. (Case C-287/00)	276
Germany (Federal Republic of), Commission of the European Communities v. (Case C-427/98)	138
GIL Insurance Ltd and Others v. Commissioners of Customs and Excise	66
Gold Star Publications Ltd v. Commissioners of Customs and Excise	259
Goods and Services Tax (Reference re)	7
Greenall
Glassborow and Another, Commissioners of Customs and Excise v.	84
Gulf Harbour Development Ltd, Commissioner of Inland Revenue v.	317
Ha and anor v. State of New South Wales & ors; Walter Hammond & Associates v. State of New South Wales & ors	7
Halifax plc, Leeds Permanent Development Services Ltd, County Wide Property	100
Halifax plc and others v. Customs and Excise Commissioners	429
Hans V. Hundt-Eßwein, Case C-25/03, Finanzamt Bergisch Gladbach v.	149
Haydon-Baillie (W. G.) v. Commissioners of Customs and Excise	61
Hellenic Republic, Commission of the European Communities v.
Hotel Scandic Gasaback AB (Scandic’) v. Riksskatteverket	256
Howard v. The Commissioners of Customs and Excise	142
Huddersfield Higher Education Corporation (University of) v. Commissioners of Customs and Excise	142
Ian Flockton Developments Ltd v. Commissioners of Customs and Excise	151
Intercommunale voor zeewaterontzilting (Inzo), in liquidation v. Belgian State	106
International Bible Students Association v. Commissioners of Customs and Excise	279
Investments Ltd v. Commissioners of Customs & Excise, Case C-255/02	180
I/S Fini H v. Skatteministeriet (Danish Ministry of Taxation)
Italian Republic, Commission of the European Communities v. (Case C-78/00)	170
Italian Republic, Commission of the European Communities v. [1990]	170
Itel Containers Int’l Corp. v. Huddleston	223
Kandawala v. The Queen	266
KapHag Renditefonds 35 Spreecenter Berlin-Hellersdorf 3. Tranche GbR v. Finanzamt Charlottenburg	162
Keeping Newcastle Warm Ltd v. Commissioners of Customs & Excise	159
Kingcrest Associates Ltd, Montecello Ltd v. Commissioners of Customs & Excise	297
Köhler, Antje v. Finanzamt Dusseldorf-Nord
KPMG Peat Marwick McLintock v. The Commissioners of Customs and Excise	155
Kommanditgesellschaft in Firma KG HJ Glawe Spiel-und Unterhaltungs-gerate Augstellungsges MbH & Co v. Finanzamt Hamburg-Barmbek-Uhlenhorst	302
Kretztechnik AG v. Finanzamt Linz	162
Edith Linneweber, Finanzamt Gladbeck v.; and Finanzamt Herne-West v. Savvas Akritidis	302
Lubbock Fine & Co. v. Commissioner of Customs and Excise	417
Luxembourg (Grand Duchy of), Commission of the European Communities v. (Case C-90/05)	170
Lipjes (D.), Staatssecretaris van Financiën v.	190
Maierhofer (Rudolf) v. Finanzamt Augsburg-Land	413
Maritime Life Assurance Company (The) v. HM The Queen	348
Mazet (SA Etablissements Louis) et autres v. Ministere d’Economie, Finances, et de l’Industrie	146
Mohr (Jurgen) v. Finanzamt Bad Segeberg	128
Marner and Marner, Commissioners of Customs and Excise v.	83
Marshall v. C & E Commissioners, 1975 VATTR 98	86
Mirror Group plc v. Commissioners of Customs & Excise	418
Mitchell Verification Services Group Inc. v. HM The Queen	348
MKG-Kraftfahrzeuge-Factoring GmbH, Finanzamt Groβ-Gerau v.	315
Montgomery (Jane) Ltd, Customs and Excise Commissioners v.	85
Moonrakers Guest House Ltd., Customs & Excise Commissioners v.	229
Multi-Choice (U) Ltd. v. Uganda Revenue Authority	204
Muys’ en DeWinter’s Bouw – en Aannemingsbedrijf BV v. Staatssecretaris van Financien	119
National Bellas Hess, Inc. v. Department of Revenue of Illinois	404
National Educare Forum v. Commissioner, South African Revenue Service	98
National Society for the Prevention of Cruelty to Children (The) v. Customs and Excise Commissioners	99
Naturally Yours Cosmetics Ltd v. Customs and Excise	251
NDP Co. Ltd v. The Commissioners of Customs and Excise	119
Notaries and Bailiffs (Re): EC Commission v. Netherlands	94
Oliver, Customs and Excise Commissioners v.	112
O’Meara v. Commissioner of Taxation, [2003] FCA 217	7
Open University v. The Commissioners	277
Optigen Ltd, Fulcrum Electronics Ltd and Bond House Systems Ltd v. Commissioners of Customs & Excise	142
Pelleted Casehardening Salts Ltd v. The Commissioners of Customs and Excise	146
Pennystar Ltd., Customs & Excise Commissioners v.	144
Polysar Investments Netherlands BV v. Inspecteur der Invverrechten en Accijnzen, Arnham	165
Portland College v. The Commissioners of Customs and Excise	264
Potters Lodge Restaurant Ltd v. Commissioners of Customs and Excise	119
Primback Ltd, Customs and Excise Commissioners v.	253
Professional Footballers’ Association (Enterprises) Ltd, Customs and Excise Commissioners v.	133
Prokofiew (No. 1), R. v.	142
Quill Corp. v. North Dakota	404
Recaudadores de Tributos de la Zona Primera y Segunda, Ayuntamiento de Sevilla v.	294
Robertson v. The Queen	206
Rogers v. The Commissioners of Customs and Excise	279
Rompelman & Another v. Minister van Financiën	106
Royal Academy of Music v. The Commissioners of Customs and Excise	292
Scottish Solicitors’ Discipline Tribunal v. The Commissioners of Customs & Excise	100
Seeling (Wolfgang) v. Finanzamt Starnberg	428
Shipping and Forwarding Enterprise Safe BV (Safe Rekencentrum BV), Staatssecretaris van Financien (Secretary of State for Finance) v.	412
Sinclair Collis Ltd v. Commissioners of Customs and Excise	413
Solieveld (H.) and J.E. van den Hout-van Eijnsbergen v. Staatssecretaris van Financiën	275
Solisnor-Estaleiros Navais SA, Case 130/96, [1997] ECR I-5053	65
Spain (Kingdom of), Commission of the European Communities v. (Case C-204/03)	159
Sparekassernes Datacenter (SDC) v. Skatteministeriet	318
Stirling v. The Commissioners of Customs and Excise	103
Sutter Salmon Club Ltd. v. Her Majesty The Queen	113
Suzuki New Zealand Ltd v. CIR	355
Telewest Communications plc and anor. v. Customs and Excise Commissioners	132
Temco Europe SA, Belgium State v.	417
Terra Baubedarf-Handel GmbH v. Finanzamt Osterholz-Scharmbeck	144
Tolsma v. Inspecteur der Omzetbelasting	120
Trinity Mirror plc (formerly Mirror Group Newspapers Ltd) v. Customs and Excise Commissioners	112
Trustco Mortgage Co. v. The Queen	305
Tulliasiamies (In) and Antti Siilin	262
Turner v. Commissioners of Customs and Excise	144
Turpin v. Burgess	266
UFD Limited v. The Commissioners of Customs and Excise	269
United Biscuits (UK) Ltd. v. The Commissioners of Customs and Excise	264
United Kingdom of Great Britain and Northern Ireland, Commission of the European Communities v. (Case C-33/02)	171
United Kingdom of Great Britain and Northern Ireland, Commission of the European Communities v. (Case C-353/85)
Unterpertinger (Margarete) v. Pensionsversicherungsanstalt der Arbeiter	276
Velker International Oil Company Ltd NV, Staatssecretaris van Financïen v.	280
Wairakei Court Ltd v. Commissioner of Inland Revenue	150
Wellington Private Hospital Ltd, Customs and Excise Commissioners v.	133
Westminster, Lord Mayor and Citizens of the City of v. Commissioners of Customs and Excise	293
Wilson & Horton Ltd v. Commissioner of Inland Revenue	198
Wisselink and others v. Staatssecretaris van Financien, Case 94/88 [1988] ECR 2671, I-5053	66
Yoga for Health Foundation v. Customs and Excise Commissioners	272
Zinn and Another, Customs and Excise Commissioners v.	414
Zita Modes SARL v. Administration de l-enregistrement et des domains	115
Zurich Insurance Company v. H.M. Revenue and Customs	194

Preface to the Revised Edition

Thanks to our students at Wayne State, Harvard, and Michigan law schools for their contributions to the revision of this book. Thanks to Dean Frank Wu and Wayne State University Law School, and to Georgia Clark, Director of the Wayne Law Library, and her staff for the support that made this revision possible. Thanks to our colleague Richard Ainsworth and the two anonymous readers who made helpful suggestions on how we could improve our first attempt at comparative value added tax. Thanks to Karen Kissinger for her very helpful research assistance. Thanks to our faculty assistants, Olive Hyman and Lise Berg, for their assistance with various aspects of the manuscript. Thanks to John Berger, our editor at Cambridge University Press, and Peggy Rote, Laura Lawrie, and Dianne Scent for their help in the process of converting our manuscript to final text.

The cutoff date for this book generally was March 31, 2006, although we have included some material published after that date. In particular, we included some European Court of Justice cases, including those covering the Italian subnational tax (IRAP) and some VAT-abusive transactions. This book is not intended to be exhaustive. It therefore does not include all significant cases in all countries or even all English-speaking countries. It is designed to illustrate, analyze, and explain the principal theoretical and operating features of value added taxes, including their adoption and implementation.

The European Union is in the process of revising its Sixth Directive that includes the principles that all member countries must adopt as part of their value added taxes. The Recast of the Sixth Directive, to enter into force, must be adopted by the EU Council of Ministers by unanimity. That action was not taken by this date. In some parts of the book, we included references not only to the Sixth Directive in its present form but also to the Recast.