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RECOMMENDATIONFISCAL AFFAIRS
Recommendation of the Council on the Application of Value Added Tax/Goods and Services Tax to the International Trade in Services and Intangibles[1]
27 September 2016 - C(2016)120

THE COUNCIL,

HAVING REGARD to Article 5 b) of the Convention on the Organisation for Economic Co-operation and Development of 14 December 1960;

CONSIDERING that Value Added Tax (VAT)/Goods and Services Tax (GST) regimes have been implemented by countries around the world and that international trade in goods and services has likewise expanded rapidly in an increasingly globalised economy;

CONSIDERING that most world trade is subject to VAT/GST and that the interaction of VAT/GST regimes can have a major impact in either facilitating or distorting trade;

CONSIDERING that the absence of international VAT/GST coordination creates uncertainty and risks of double taxation and unintended non-taxation, hindering economic growth and business activity and distorting competition;

CONSIDERING that internationally agreed principles are needed on the application of VAT/GST to international trade to minimise the uncertainty and risks of double taxation and unintended non-taxation that result from inconsistencies in the application of VAT/GST in a cross-border context ;

HAVING REGARD to the International VAT/GST Guidelines (hereinafter referred to as “the Guidelines”) approved by the Committee on Fiscal Affairs on 7 July 2015 [CTPA/CFA(2015)57] and endorsed by the high level officials of 104 jurisdictions and international organisations at the third meeting of the OECD Global Forum on VAT on 5-6 November 2015, which set forth common principles for the consistent VAT/GST treatment of the most common types of international transactions, focusing on trade in services and intangibles;

NOTING that these Guidelines build on the generally accepted principles of VAT/GST neutrality and the destination principle for determining the place of taxation;

HAVING REGARD to the 2015 Final Report on Action 1 “Addressing the Tax Challenges of the Digital Economy” of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, which was part of the BEPS package endorsed by the Council on 1 October 2015 [C(2015)125/ADD1] and by the G20 Leaders on 15-16 November 2015 and which includes the principles and collection mechanisms recommended by the Guidelines to address the BEPS risks and broader indirect tax challenges raised by the digital economy;

WELCOMING the inclusive and open consultative process for the development of the Guidelines with the participation of a broad range of stakeholders;

CONSIDERING that the Guidelines have gained worldwide recognition as an important reference point for designing and implementing VAT/GST legislation with a view to minimising the potential for double taxation and unintended non-taxation;

MINDFUL that the Guidelines do not aim at detailed prescriptions for national legislation but provide guidance to jurisdictions in developing legislation with a view to facilitating a coherent application of national VAT/GST systems to international trade, taking into account their specific economic, legal, institutional, cultural and social circumstances and practices;

On the proposal of the Committee on Fiscal Affairs:

I.   AGREES that for the purpose of the present Recommendation the following definitions are used:

Value Added Tax (VAT) refers to any national tax by whatever name or acronym it is known, such as Goods and Services Tax (GST), which embodies the basic features of a value added tax, i.e. a broad-based tax on final consumption collected from, but in principle not borne by, businesses through a staged collection process, whatever method is used for determining the tax liability (e.g. invoice-credit method or subtraction method);

Supplies of intangibles refer to categories of supplies other than supplies of goods or services, such as supplies of intellectual property rights and other intangibles;

The principles of VAT neutrality refer to the basic principles underpinning the neutrality of VAT for businesses, which is a necessary corollary of the basic definition of a VAT as a tax on final consumption that is collected from but in principle not borne by businesses. The concept of tax neutrality in VAT has a number of dimensions, including the absence of discrimination and the elimination of undue tax burdens and disproportionate or inappropriate compliance costs for businesses;

The destination principle refers to the principle whereby, for consumption tax purposes, internationally traded services and intangibles should be taxed according to the rules of the jurisdiction of consumption.

II.   RECOMMENDS that Members and non-Members adhering to this Recommendation (hereafter the “Adherents”) take due account of the Guidelines, which are set out in the Appendix to this Recommendation and form an integral part thereof, when designing and implementing legislation with a view to minimising the potential for double taxation and unintended non-taxation in the application of VAT to the international trade in services and intangibles. To that effect, Adherents should in particular:

i)pursue efforts to implement the principles of VAT neutrality and the principles for determining the place of taxation of cross-border supplies in accordance with the destination principle set forth in the Guidelines when developing VAT legislation;

ii)use the Guidelines as a source of reference when applying the principles of VAT neutrality and the destination principle in practice, with a view to facilitating a coherent application of national VAT legislation to international trade;

III.   INVITES Adherents and the Secretary-General to disseminate this Recommendation widely and utilise it as a tool for knowledge and experience sharing, regional co-operation programmes and dialogues and multilateral discussions on international VAT-related policies;

IV.   INVITES non-Adherents to take due account of and to adhere to this Recommendation;

V.   INVITES Adherents to support efforts for capacity building and assistance notably to developing countries so that they may be able to participate in and enjoy the benefits of these Guidelines;

VI.   INSTRUCTS the Committee on Fiscal Affairs, through the Working Party No. 9 on Consumption Taxes, to:

i)monitor the implementation of the Recommendation and to report to Council no later than five years following its adoption and as appropriate thereafter;