Principles of Value Added Tax - A European Perspective

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9780952044215: Principles of Value Added Tax - A European Perspective
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This book puts the theory of value added tax (VAT) into the context of the European single market. In so doing, it introduces senior financial officers and tax practitioners, who may already be familiar with the principles of direct taxation, to VAT. It also provides VAT specialists who, until now, may have concentrated on the VAT system within their own Member State, with a pan-European perspective. Thus it serves a practical, as well as theoretical, purpose. In view of the importance of the European single market to the majority of U.S. (and other) multinationals, it is essential that tax practitioners understand the need for coordinated VAT planning across Europe and for its integration into the mainstream of commercial decision-making. By providing tax practitioners with a strategic overview of the current European VAT system, this book will enable management to achieve this. It also highlights possible future developments which every multinational will need to take into account in defining its strategy for this important market.

The principles of VAT planning within Europe will have a wider application and will be relevant to other VAT/Goods & Services Taxes outside Europe. Furthermore, Chapter 10 in outlining the key issues surrounding a subtraction VAT will equip U.S. practitioners to take part in the growing debate on the desirability of introducing some form of consumption tax.

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From the Publisher:

Foreword - In little more than a quarter of a century, VAT has grown from a European tax oddity into a fiscal fashion that looks set to conquer the globe. Consumption taxes have traditionally held little attraction for academics and other commentators, alongside the siren songs of income taxes, company levies and imposts on savings. As a consequence, the global spread of VAT and its implications are not widely understood. Yet, as Adrian Ogley's magisterial account of VAT shows, this is a tax that you neglect at your peril. For a long time, taxes on consumption seemed to be regarded as akin to an Act of God - unpredictable, unpleasant but essentially unavoidable. This is no longer true, as demonstrated by the burgeoning VAT advice industry. But the message has yet to reach many of those groaning under the fiscal and compliance burdens of VAT. Yet VAT is a key ingredient in the global shift of the tax burden from income and capital to consumption. Not that things are that simple. Adrian Ogley suggests that there is something of the lemming in Finance Ministers' rush to introduce VAT. Its basic principles are easily obscured by the complexities forced on politicians by the pressures of lobbies and interest groups, a process that makes VAT much less suited to the needs of developing and emerging economies than its rapid spread would suggest. Nor is there always a clear vision of the needs of the tax itself. It works best when allowed to shift the whole burden of the tax forward to the final consumer. However, technical difficulties and political opportunism combine to frustrate this beneficial effect of the tax, by setting aside very significant sectors of economic activity as areas where the deduction of VAT is 'blocked', and the transparent forward shifting of the burden is stopped in its tracks. The result is a cascade tax that is hard for the final consumer to see and impossible for businesses like banks and insurance companies to deduct. The only visible response is the blossoming avoidance industry, growing fat on fees from companies eager to restructure in 'VAT efficient' ways. Nevertheless, according to the advocates of VAT, its attractions are legion. They argue that VAT can bear tax rates much higher than simple sales taxes with tolerable levels of avoidance and evasion. It is substantially self-policing, they say, and covers services as well as goods. It is capable of coping with the complexities of trading blocs like the European Union, with its borderless trading and relentless push towards the sunlit uplands of the Euro. These oft-quoted advantages of VAT must be taken with a pinch of salt. As I have seen both as Director General for Indirect Taxation in the European Commission and as VAT Commissioner in the UK's Customs and Excise, practice and theory seldom match. The robustness of VAT in the face of determined attempts to commit fraud is more of a myth than pundits are prepared to admit, and the European Union is now having to come to terms with continent-wide and still probably under-estimated phenomena of evasion. The self-policing nature of the tax soon breaks down as it crosses borders and creeps into areas undermined by exemptions, exceptions and special schemes. Taxation of services, simple in principle, can be a nightmare in practice, especially where cross-border supplies of intellectual services are concerned. The European Union has found to its cost that the realities of tax politics - rates, exemptions, and sheer ingrained habit on the part of voting taxpayers - make the slightest reform a marathon, both in duration and in effort. And finally globalisation, the watchword of the international trading community, spells still more challenges for VAT. The tax was conceived and first implemented in the aftermath of the Second World War, when production and supply, of both goods and services, were firmly rooted in physical locations. The notion of 'place' is still an essential feature of the tax, since it determines so many features of the tax. Yet commerce is not only global as we enter the twenty-first century, it is increasingly dematerialised. The Internet shows how transactions can happen anywhere and nowhere, while electronic commerce more generally defies the old notions of time and space as it roams the globe (where, for example, would you say a purveyor of telephone 'call-back' services actually plies his trade?). How can VAT meet these challenges without turning into a draconian and repressive regime that throttles trade by forcing it into old-fashioned concepts of buying and selling? As these arguments show, VAT is at the heart of a lively debate about tax policy. Nobody who runs a business these days, and no concerned taxpayer keen to understand the issues, can afford to ignore VAT. Adrian Ogley has therefore done us all a service with his clear exposition of the principles of the tax and his discussion of the way it works (or fails to work) in practice. He deals admirably with the international aspects of the tax, and is not afraid to mince his words in commenting on the poverty of national and international debate about the wider policy issues that the tax raises. It is perhaps fitting that this book was written in the United Kingdom, where the printed word is one of the few commodities that escapes VAT, through the UK's idiosyncratic but beneficial use of the zero rate. Buy it before the Chancellor changes his mind. Peter WILMOTT, Brussels, Tel: 32-2-6474263

Fax: 32-2-6472153

From the Author:

PREFACE - This book is intended to introduce senior financial officers and tax practitioners, who may already be familiar with the principles of direct taxation, to value added tax (VAT). It is also intended to provide VAT specialists who, until now, may have concentrated on the VAT regime within their own Member State, with a pan-European perspective.

Although VAT is a relatively new form of taxation, introduced in France in the 1950s, it has won many converts. Indeed, 27 out of the 29 countries that are members of the OECD have introduced VAT in one form or another, with the U.S. and Australia the only exceptions. In the United States, there is a growing debate as to the desirability of introducing some form of consumption tax. VAT is now too important a tax to ignore.

This book outlines the theory of VAT and puts it into the context of the European single market, ensuring that it serves a practical, as well as theoretical, purpose. In view of the economic importance of this market to the majority of U.S.(and other) multinationals, it is essential that tax practitioners understand the need for co-ordinated VAT planning across Europe and for its integration into the mainstream of commercial decision-making. By providing tax practitioners with a strategic overview of the current European VAT regime, this book will enable management to develop a pan-European approach to VAT planning. It also highlights possible future developments that every multinational will need to take into account in defining its strategy for this important market.

The principles of VAT planning within Europe will have a wider application and will be relevant to other VAT/Goods & Services Taxes (GST) outside Europe. Furthermore, Chapter 10 in outlining the key issues surrounding a subtraction VAT will equip U.S. practitioners to take part in the growing debate on the desirability of introducing some form of consumption tax. The conclusion puts the widespread adoption of VAT into the context of an increasingly global economy while, at the same time, questioning whether economic theory in relation to fiscal policy has managed to keep pace with the rapid developments in the global economy.

The author, Adrian Ogley BA FCA, was previously the Head of Tax with a major UK-based multinational and was, until May 1997, Deputy Head of Tax at the Confederation of British Industry, where he had responsibility for indirect taxation. His practical experience, combined with his familiarity with the policy issues associated with VAT, make him ideally qualified to explain the tax from a broad commercial perspective. The "Principles of Value Added Tax - a European Perspective" serves as a companion volume on indirect tax, to the author's highly acclaimed " Principles of International Tax - a Multinational Perspective" also published by Interfisc Publishing, which deals with direct taxes. This book represents a synthesis of a wide range of commentators', academics' and practitioners' views, which the author has sought to distill.

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Ogley, Adrian
Published by Interfisc Publishing (1998)
ISBN 10: 0952044218 ISBN 13: 9780952044215
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