If you buy something from across the border, do you have to pay VAT & who is the taxing body for the purchase?Some countries indicate that it should be the place of sale, while others currently think that it should be the country in which the use or consumption of the product or service takes place.
This can lead to a great deal of confusion about who is paying taxes to whom.
It can also lead to unfortunate cases of double-taxation or cases where the confusion leads to lack of taxation completely.
This can be either good or bad for the consumer, depending on whether he is taxed twice or not at all, but it is always bad for the government bodies that are losing income because of confusing or conflicting tax laws.
This exact problem has lead the OECD (the Organisation for Economic Co-operation and Development) to investigate the matter.
The proposed guidelines for international or cross border trade and VAT taxation are specifically targeted at services and intangibles rather than physical goods, however given the tangled web of legislation which makes up the current tax laws, the guidelines are expected to expand to cover tangibles as well.
The proposals are designed to decrease confusion about the application of VAT taxes and allow businesses the peace of mind that will inspire them to invest more freely in across borders & in countries outside their own.
It is expected the economic development that would occur would be universally beneficial.
When there are no internationally agreed-upon rules for the application of VAT taxes, there can be no international agreement about the taxes themselves.
This results in the confusion that the OECD is trying to put an end to with their guidelines for international trade and taxation.
These VAT/GST (goods and services tax) guidelines will draw on input from businesses and many economies, and are supposed to be designed to address these and other problems.
This will make cross border international VATs more regular, and trade more reliable with other countries.
This problem has become a chief focus for the OECD, with progress on the guidelines being watched for eagerly by most of the countries currently participating in the organization itself.
The regulation of these VAT taxes will make supply chain structures and trans-border activity easier to manage for businesses and easier to tax for governments, with double- and non-taxation being removed as problems once the guidelines are expanded to consider material goods as well as services and intangibles.