This volume seeks tofill these gaps, acting as a helpful reference forpolicy-makers tasked with redesigning VAT rules forfinancial services, and foracademics and practitioners when providi
Trang 1Robert F van Brederode
Richard Krever Editors
VAT and Financial Services
Comparative Law and Economic
Perspectives
Trang 2VAT and Financial Services
Trang 3Robert F van Brederode
Richard Krever
Editors
VAT and Financial Services
Comparative Law and Economic Perspectives
123
Trang 4Robert F van Brederode
Crowe Horwath LLP
Atlanta, GA
USA
Richard KreverMonash Business SchoolMonash UniversityMelbourne, VICAustralia
ISBN 978-981-10-3463-3 ISBN 978-981-10-3465-7 (eBook)
DOI 10.1007/978-981-10-3465-7
Library of Congress Control Number: 2016963325
© Springer Nature Singapore Pte Ltd 2017
This work is subject to copyright All rights are reserved by the Publisher, whether the whole or part
recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission
or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc in this
the relevant protective laws and regulations and therefore free for general use.
The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made The publisher remains neutral with regard to
Printed on acid-free paper
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The registered company is Springer Nature Singapore Pte Ltd.
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Trang 5For over half a century, countries have struggled to reconcile the principles anddesign of a VAT or GST system and the unique features offinancial supplies.
A VAT taxes the value of transactions, which is relatively straightforward whereexplicit fees are charged, but intriguingly difficult where implicit fees are charged as
is the case with some types offinancial services At the same time, the VAT hasmechanisms to remove tax from business-to-business transactions involving nofinal consumption but these, too, are difficult to apply to some types of financialservices The fundamental design features of the tax also appear problematic interms of the goal of removing tax from pure savings in the form of financialinstruments Relievingfinancial services from the tax altogether runs counter to thecharacter of the VAT as a broad-based tax levied on allfinal consumption Equally
at odds with the design principle of the VAT is imposing a limited tax onbusiness-to-business transactions along the supply chain or imposing a limited tax
on pure savings No VAT or GST systems have yet achieved these objectivesconsistently
Financial services constitute an important and large economic sector and theapplication of VAT tofinancial services is particularly complex and has given rise
to a multitude of problems and selective solutions At the same time, financialservices are becoming increasingly globalized The growth of cross-border tradeand investment has led tofinancial service providers providing global services toentire company groups Consumers, too, have access to cross-border services frominternet gambling to investment and personal banking facilities With the increasingnumber of free trade agreements, there is pressure on governments to simplifyoversight regulation to allow foreignfinancial service providers such as banks andinsurance companies access to their markets This will exacerbate difficulties arisingfrom inconsistent treatment offinancial services across different VAT regimes.The difficulties of taxing financial services are well known among specialistacademics and policy-makers; absent is an overview of the problems and possiblesolutions in a single, comparative study Missing, too, is a study combining theoryand practice that financial institutions and their advisors can use to plan globaloperations and develop advocacy positions for reform in their home and operational
v
Trang 6jurisdictions This volume seeks tofill these gaps, acting as a helpful reference forpolicy-makers tasked with (re)designing VAT rules forfinancial services, and foracademics and practitioners when providing insight and counsel on how VAT isapplied to different types offinancial services.
The volume provides an overview of the VAT treatment offinancial supplies inthe European Union, covering 27 jurisdictions that apply variations of the tradi-tional VAT under a common EU-mandated umbrella, as well as a selection ofcountries applying modern VATs with remarkably divergent approaches to thetreatment offinancial supplies
This volume is divided into four parts Part I provides the general introduction tothis study Itfirst lays out the scope of and defines the purpose of the collaborativeresearch It then demonstrates the consequences of, and problems associated with,partial taxation of financial services, as is the practice in most jurisdictions.Since VAT is aimed at taxing personal consumption, it is essential to determine thenature of consumption and define this concept, and the second chapter offers twotheoretical approaches, which yield different tax bases Parts II–IV deal with theapplication of VAT to different types offinancial services Part II focuses on loanintermediary services, starting with a theoretical chapter, followed by treatises onhow VAT is applied to such services in nine jurisdictions: Argentina, Australia,Brazil, Canada, China, the European Union, Israel, New Zealand, and South Africa.Part III deals withfinancial investments, again starting with a theoretical chapter,followed by two jurisdictional chapters, covering the European Union, and SouthAfrica In addition, there are chapters explaining the intricacies of VAT as it relates
to cost-sharing arrangements and crowdfunding Part IV focuses on financialpooling services: one chapter is dedicated to gambling and three jurisdictionalchapters cover the VAT treatment of insurance services in Australia, the EuropeanUnion and Singapore
To facilitate comparisons between the approaches of the selected jurisdictions,all authors followed guidelines as to the topics to be covered in each chapter Thechapters do not mirror one another in terms of structure, however, which reflects thevery different taxation approaches used in different jurisdictions
The bibliography is organized separately for each chapter and found directlyfollowing each individual chapter A register of case law is also organized bychapter and found in consolidated form after Part IV
This volume is current with literature and case law through September 2016.The editors are grateful to Peter Mellor for his invaluable assistance with thepreparation of this manuscript for the publisher We would also like to extend ourgratitude to Crowe Horwath LLP for sponsoring the conference which gave rise tothis volume, held at the Monash University Centre in Prato, Italy, allowing theauthors to present and discuss thefirst versions of their respective contributions
Trang 7Part I Establishing the VAT and Financial Supplies Benchmarks
1 Theories of Consumption and the Consequences of Partial
Taxation of Financial Services 3
Robert F van Brederode and Richard Krever 1.1 The Concept of Consumption 4
1.2 The Consequences of Partial Taxation of Financial Services 7
1.2.1 Mixed and Composite Supplies 8
1.2.2 Change of Use 9
1.2.3 Sale of Used Business Assets 9
1.2.4 Input Tax Allocation 10
1.3 The Challenge 11
References 11
Part II Loans and Intermediary Services 2 Taxing Loan Intermediary Services: Theory and Design Considerations 15
Robert F van Brederode and Richard Krever 2.1 Introduction 15
2.2 Characterizing Loan Principal, Interest and Loan Intermediary Services for VAT Purposes 16
2.2.1 Loan Principal 16
2.2.2 Interest 16
2.2.3 Loan Intermediary Services 18
2.3 Alternative Methods of Taxing Financial Services 20
2.3.1 Treating Financial Services as Exempt Supplies 20
2.3.2 Recharacterizing Loans as Ordinary Business Supplies 22
2.3.3 Limited Input Tax Credits for Financial Loan Service Suppliers 23
vii
Trang 82.3.4 Zero-Rating 24
2.3.5 Addition Method 25
2.3.6 Subtraction Method 26
2.3.7 Cash Flow Method 26
2.3.8 Modified Reverse Charge 29
2.4 Summary, Conclusions, and Policy Objectives 31
References 32
3 Loan Intermediary Services: Argentina 35
Guillermo Teijeiro 3.1 General Description 36
3.1.1 Legal Framework 36
3.1.2 VAT Scope: Financial Supplies—Loan Intermediary Services 36
3.1.3 Tax Point 37
3.1.4 Place of Supply or Equivalent 37
3.1.5 Chargeable Amount: Valuation 38
3.1.6 Tax Rate 39
3.1.7 Exempt Supplies or Equivalent 39
3.1.8 Deduction and Recovery of Input Tax 40
3.1.9 State, Provincial or Local Indirect Taxes 41
3.2 Account Fees 42
3.3 ATM Fees 42
3.4 Credit Card Purchase Surcharges 42
3.5 Facilitators of Loans 43
3.6 Finance Leases 43
3.6.1 Tax Point 44
3.6.2 Special Exemption 44
3.6.3 Leasing of Motor Vehicles 44
3.6.4 VAT Financing 45
3.6.5 Optional Regime to Offset Output VAT in Advance 45
3.6.6 Leasing Contracts on Real Estate 46
3.6.7 Leaseback Transactions 47
3.7 Non-financial Services that Might Be Deemed to be Financial 48
3.7.1 Safe Deposit Boxes 48
3.7.2 Implicit and Explicit Loans in the Course of Business 48
3.8 Gross Income Tax 49
References 49
Trang 94 Loan Intermediary Services: Australia 51
Richard Krever and Jonathan Teoh 4.1 Introduction 51
4.2 What Are Financial Supplies? 53
4.2.1 The Definition of Financial Supplies 53
4.2.2 Credit Card Surcharges 56
4.3 Recovery of Input Tax by Financial Suppliers 57
4.3.1 The General Apportionment Rule 57
4.3.2 The de Minimis Exception to Apportionment 57
4.3.3 The‘Acquisition Supply’ 58
4.3.4 Borrowing-Related Costs 60
4.4 Reduced Input Tax Credits 61
4.5 Imported Services Provided to Enterprises Making Financial Supplies 63
4.6 Exported Financial Supplies 63
4.7 Reform Recommendations 64
References 64
5 Loan Intermediary Services: Brazil 67
Flavio Rubinstein 5.1 Introduction 68
5.2 Federal VAT Taxation of Financial Services 72
5.2.1 Federal Taxation of Gross Revenues: PIS and COFINS 72
5.2.2 PIS and COFINS Levies on Financial Institutions 73
5.2.3 PIS and COFINS Levies for Non-financial Institutions 75
5.2.4 Inbound and Outbound Financial Services 78
5.3 Sub-national VAT Taxation of Financial Services 78
5.3.1 National Framework 78
5.3.2 National Rules for the Taxation of Financial Services 81
References 86
6 Loan Intermediary Services: Canada 87
Simon Thang 6.1 Overview 87
6.2 Lending in General 88
6.2.1 Introduction 88
6.2.2 Exclusions from‘Financial Service’ 92
6.2.3 ‘Arranging For’ Financial Services 95
6.2.4 Credit Card Surcharges 98
6.2.5 Loans in the Course of Business 99
6.2.6 De Minimis Financial Institutions 101
Trang 106.2.7 Input Tax Credits 103
6.3 Self-assessment Requirements 105
6.4 Special Attribution Method for Provincial Tax 107
Reference 108
7 Loan Intermediary Services: China 109
Na Li and Richard Krever 7.1 Introduction 109
7.2 Scope of Loan Intermediary Services in China 111
7.3 The Former Business Tax Regime 112
7.4 The Current VAT Regime 114
7.4.1 Explicit Loans 115
7.4.2 Implicit Loans 116
7.4.3 Timing Issues 118
7.4.4 A Lost Opportunity 119
7.5 Exported Loan Intermediary Services 119
7.6 Tax Administration 120
7.7 Summary 121
References 121
8 Loan Intermediary Services: European Union 123
Joachim Englisch 8.1 Legal Framework 123
8.2 Treatment of Financial Sector Loan Intermediary Services 125
8.2.1 General Approach: Exemption Without Credit 125
8.2.2 Scope of the Exemption in the Case of Core Lending Activities 127
8.2.3 Exemption of Ancillary Activities 130
8.2.4 Services Related to Credit Cards 131
8.2.5 Exemption of Outsourced Activities 132
8.2.6 Apportionment Formula for Input Tax Credits 134
8.3 Direct Loans in the Course of Business 135
8.3.1 Treatment as a Separate or Merely Ancillary Supply 135
8.3.2 Apportionment Formula for Input Tax Credits 137
References 137
9 Loan Intermediary Services: Israel 139
David Goldman 9.1 Introduction 139
9.2 The Case for Imposing Wage and Profit Tax on Financial Institutions 141
9.3 The Financial Institution Classification 143
9.3.1 The Legal Definition 143
9.3.2 Commercial Banks 143
Trang 119.3.3 Insurer 144
9.3.4 A Category of Persons Designated by the Minister of Finance 145
9.3.5 Classification According to Section 58 147
9.3.6 In Conclusion 150
9.4 The Application of VAT 150
9.5 The Application of Wage and Profit Tax 152
9.5.1 Wage Tax 152
9.5.2 Profit Tax 154
9.5.3 Cross-Border Distortions 155
9.6 Conclusion 156
References 157
10 Loan Intermediary Services: New Zealand 159
Marie Pallot and Thomas Allen 10.1 Introduction 159
10.2 History of New Zealand’s GST Treatment of Financial Services 160
10.3 GST Treatment of Loan Intermediary Services Under New Zealand’s Goods and Services Tax Act 161
10.4 The Scope of the Exempt Treatment of Loan Intermediary Services 163
10.5 Business-to-Business Zero-Rating of Loan Intermediary Services 165
10.6 Imported Services and the Reverse Charge 167
11 Loan Intermediary Services: South Africa 169
Alwyn de Koker and Gerhard Badenhorst 11.1 Introduction 170
11.2 The Legal Framework 171
11.2.1 Loan Intermediation 176
11.2.2 Finance Leases and Rentals 177
11.2.3 Fees and Charges 178
11.2.4 Ancillary Activities 179
11.2.5 Outsourced Activities 180
11.2.6 Apportionment for Loan Intermediaries 180
11.2.7 Reverse Charges 183
11.2.8 Direct Loan Services 184
11.2.9 Apportionment for Input Tax—Direct Loan Services 185
Trang 12Part III Financial Investments
12 VAT and Financial Investments 189
Richard Krever 12.1 Introduction 189
12.2 Acquiring and Issuing Investments 190
12.3 Investments by Unregistered Individuals 191
12.4 Enterprises and Investments 193
12.5 Establishing a Benchmark 196
References 197
13 VAT and Cost Sharing in the EU 199
Ine Lejeune, Joost Vermeer and Simon Cornielje 13.1 Introduction 199
13.2 Impact of VAT in the Financial Services Industry 200
13.3 Cost Sharing or Cost Allocation as a Taxable Supply 201
13.3.1 Supply 202
13.3.2 For Consideration 203
13.3.3 Reciprocal Performance and Cost Allocation 204
13.3.4 Conclusion 207
13.4 Cost Sharing Provisions in the VAT Directive 207
13.4.1 VAT Grouping 207
13.4.2 Cost Sharing Exemption 209
13.4.3 Cost Sharing Exemption Implemented in the Various Countries 217
13.5 Specific Examples of Cost Sharing Out of Scope of VAT in Certain Member States 218
13.5.1 The Netherlands 218
13.5.2 Belgium 218
13.6 Conclusions and Policy Recommendations 220
13.6.1 Clear and Definitive Guidance Required on Cost Sharing Exemption 220
13.6.2 Cross-Border VAT Grouping 221
13.6.3 Review of the Treatment of Financial Services 221
References 222
14 A VAT/GST Perspective on Crowdfunding 223
Sebastian Pfeiffer 14.1 Introduction 223
14.2 Non-financial Return Models 225
14.2.1 General Remarks 225
14.2.2 Donation-Based Crowdfunding 226
14.2.3 Reward-Based Crowdfunding 226
14.3 Financial Return Models 227
14.3.1 General Remarks 227
Trang 1314.3.2 Equity Models 228
14.3.3 Lending Models 229
14.4 Jurisdictional Examples 229
14.4.1 EU Perspective 229
14.4.2 South African Perspective 239
14.4.3 Australian Perspective 243
14.4.4 Canadian Perspective 246
14.4.5 New Zealand Perspective 249
14.5 Summary and Conclusions 252
References 254
15 Financial Investments: European Union 257
Joachim Englisch 15.1 Legal Framework and Overview 257
15.2 Equity Instruments 259
15.2.1 Instruments Covered by the Exemption 259
15.2.2 Equity Instruments: Exempt Supplies v Out-of-Scope Activities 261
15.2.3 Derogations from the Exemption 266
15.2.4 Input VAT Deduction 267
15.2.5 Other Transactions‘in’ Equity Interests 269
15.3 Debt and Hybrid Instruments 270
15.3.1 Investments Covered by Exemptions 270
15.3.2 Debt and Hybrid Instruments: Exempt Supplies v Out-of-Scope Activities 272
15.4 Derivatives 274
15.4.1 Scope of Analysis 274
15.4.2 Lack of Guidance at EU Level 275
15.4.3 Creation of the Derivatives Contract: A Taxable Event? 276
15.4.4 Terminating or Settling a Derivatives Position: A Taxable Event? 280
15.4.5 Scope of Relevant Exemptions 281
15.4.6 Input VAT Deduction 287
15.5 Collective Investment Vehicles 288
15.5.1 Exempt Supplies v Out-of-Scope Investments 289
15.5.2 Scope of the Exemption for Trade in CIV Units 289
15.5.3 Exemption of the Management of Special Investment Funds 291
15.5.4 Input VAT Deduction 292
15.6 Portfolio Management and Other Ancillary Services 293
15.7 Input VAT Deduction of the Investor 296
15.7.1 Overview and Summary 296
15.7.2 Incidental Financial Transactions and Deductible Pro Rata 297
Trang 1415.7.3 Pro Rata Calculation in Case of Out-of-Scope
Investment Activities 297
References 298
16 Financial Investments: South Africa 301
Alwyn de Koker and Gerhard Badenhorst 16.1 Shares 302
16.2 Securities Lending 305
16.3 Debentures and Debts 306
16.4 Collective Investment Schemes 309
16.5 Derivatives 310
16.6 Long-Term Insurance Policies 311
16.7 Ancillary Services 312
16.8 Input Tax 313
Part IV Financial Pooling Services: Insurance and Gambling 17 GST and Insurance: Australia 319
Richard Krever and Jonathan Teoh 17.1 Introduction 319
17.2 Unregistered Persons 320
17.2.1 In-Kind Settlements 321
17.2.2 Cash Settlements 322
17.2.3 Subrogation, Excess (or‘Deductible’) Amounts and Ex Gratia Payments 324
17.3 Registered Persons 325
17.3.1 Registered Persons: The Initial System 326
17.3.2 Registered Persons: The Current System 327
17.3.3 Insurance Provided Through Independent Agents 330
17.4 Reinsurance (Domestic Reinsurer) 332
17.5 Compulsory Third-Party Insurance 332
17.6 Cross-Border Insurance 333
17.6.1 Offshore Insurers 333
17.6.2 Registered Suppliers Providing Insurance for Offshore Risks 334
17.7 Life Insurance and Health Insurance 334
References 335
18 VAT and Insurance: The European Union 337
Marta Papis-Almansa 18.1 Introduction 337
18.2 EU Exemption Model 339
18.3 Purpose of the Exemption for Insurance 341
18.4 The Scope of the Exemption: Interpretative Difficulties 342
18.5 The‘Essentials of an Insurance Transaction’: The CPP Decision and a Block Insurance Policy 344
Trang 1518.6 The Nature of a Service Is Decisive: Commission v Greece
and Road Assistance Services 347
18.7 A Contractual Relationship: Skandia and Administrative Services 348
18.8 Agents and Brokers Being‘No More Than Intermediaries’: Taksatorringen and Damage Assessment 349
18.9 Outsourced Activities with No Risk Assumption Are Outside the Scope of Exemption: Arthur Andersen and Back-Office Services 351
18.10 Indirect Contractual Relationship: Beheer and Services of Sub-agents 352
18.11 (Re)strict(ive) Interpretation: Swiss Re and Transfer of a Portfolio of Reinsurance Contracts 353
18.12 ‘Re-invoicing’ of the Exact Cost of Insurance Is Exempt: BGŻ Leasing and Insurance Provided Together with Leasing 354
18.13 Substance Over Form: Mapfre and Extended Warranties 356
18.14 An Impact of the Commission’s Proposal on the Existing Case Law: Aspiro and Claim Settlement Activities 359
18.15 Conclusions 361
References 363
19 GST and Insurance: Singapore 365
Soo How Koh and Rushan Lee 19.1 Introduction 365
19.2 Life Insurance 366
19.3 General Insurance 368
19.4 Agents, Broking and Intermediary Services 368
19.5 Reinsurance 369
19.6 Deemed Input Tax on Cash Payments 369
19.6.1 Recovery of Part or Whole of Cash Payment 370
19.6.2 Ex Gratia 370
19.7 Input Tax on Motor Vehicle Expenses 370
19.8 Input Tax Recovery Formula 371
References 372
20 VAT and Gambling 373
Fabiola Annacondia and Laura Mattes Alonso 20.1 Introduction 373
20.2 Definitions 375
20.3 How to Impose VAT on Gambling Transactions: Exemption v Taxation 377
20.3.1 EU VAT System 377
20.3.2 Modern VAT Systems 381
Trang 1620.4 Gambling Services Provided Through the Internet 386
20.4.1 The Rise of Online Gambling 386
20.4.2 How Should VAT Be Imposed on e-Gambling Transactions? 389
20.5 Conclusions 394
References 397
Table of Case Law 399
Trang 17About the Editors
Robert F van Brederode (LL.B., Utrecht University, 1982; LL.M., UtrechtUniversity, 1985; Ph.D Tax law, Amsterdam University, 1993) is the nationalpractice leader global VAT/GST of Crowe Horwath LLP, USA; and chair of CroweHorwath International’s Indirect Tax Steering Committee Previously, he was, interalia, a partner at PwC, leading the Netherlands VAT & Customs practice; adjunctprofessor at New York University, School of Law, Graduate Tax Program; pro-fessor of tax law at the Erasmus University, School of Economics; and assistantprofessor at Maastricht University, School of Law Robert is the author of dozens ofjournal articles and book chapters on tax law, and the author/editor of eight books,amongst others Systems of General Sales Taxation: Theory, Policy, and Practice(2009), Immovable Property under VAT: A Comparative Global Analysis (2011),Science, Technology and Taxation (2012), and (with Richard Krever) LegalInterpretation of Tax Law (2014) He is a frequent speaker at international con-ferences and seminars Under the pen name Robert Fredericks he also published anovel, The Enemy Within
Richard Krever is Professor and Director of the Taxation Law and Policy Group
in the Monash Business School, Monash University and an International Fellow atOxford University Richard has provided technical assistance with the design anddrafting of VAT laws for countries in Africa, the Caribbean, Asia and Oceaniaunder the auspices of international organizations such as the IMF, World Bank andAsian Development Bank, as well as national aid agencies His appointmentsinclude secondments to the IMF, Australian Treasury and Australian Taxation
Office, with teaching appointments at universities in Australia, the United States,Canada, the Netherlands, Italy and Austria as well as two chairs in Australia.Richard is the author of more than 100 articles in academic and professionaljournals and an author, contributor or editor to many books on VAT and GST
xvii
Trang 18Thomas Allen is a Senior Policy Analyst at Inland Revenue, New Zealand Heholds a Bachelor of Laws and a Bachelor of Management Studies majoring ineconomics (with Honours) from the University of Waikato He has worked atInland Revenue’s policy division for 5 years and has specialized in Goods andServices Tax (GST) for 3 years He has worked on a range of tax policy issues,including the application of GST on cross-border services and intangibles
Fabiola Annacondia is Manager of the VAT & Topicals Knowledge Group atIBFD and Editor of IBFD’s International VAT Monitor (Journal) and EU VATCompass (Book)
She has a postgraduate degree in International Tax Law from BarcelonaUniversity and a postgraduate degree in Tax Law from the Argentine SocialMuseum University, Argentina She worked as afiscal auditor (tax inspector) for 11years with the Argentine tax authorities and taught Indirect Taxation at BuenosAires University, Argentina
Fabiola joined IBFD as a country specialist for Latin America in 2000 Since
2001, she has worked for IBFD’s VAT Knowledge Group She lectures, presentsand publishes regularly on a wide variety of VAT-related topics In recent years shehas presented, as OECD expert, at various OECD events around the world
Gerhard Badenhorst (B.Com., University of Johannesburg; B.Com Hons,University of Johannesburg; M.Com., University of Johannesburg; CA(SA) H DipTax (cum laude), University of Johannesburg) is a Tax Executive at the law firmENSafrica where he heads up the indirect tax department He is a member of theSouth African Institute of Chartered Accountants and of the South African Institute
of Tax Professionals He is also a member of the VAT sub-committee of the SouthAfrican Institute of Chartered Accountants and an ad hoc member of the VATsub-committee of the Davis Tax Committee
Gerhard has been specializing in VAT since it was implemented in South Africa
in 1991, and he assisted various industries with the implementation of VAT inNamibia and Botswana when VAT was implemented in those countries He advisesnational and multinational corporations in a wide range of industries includingfinancial services, mining, manufacturing, construction as well as nonprofit orga-nizations
Gerhard is a guest lecturer on the VAT modules of the Masters Tax courses atPretoria University and the University of the Witwatersrand
Simon Cornieljegraduated from Maastricht University Law School in 2006 andthen joined the Indirect Taxes/VAT practice at PwC in Amsterdam Currently,Simon serves on the senior management team of the Financial Services VAT team
He advises a broad range of (inter)national clients in the Financial Services industry
Trang 19with a focus on clients in Banking, Capital Markets and Insurance In addition,Simon is a Ph.D candidate and lecturer in Indirect Taxes at Tilburg University.His Ph.D thesis is on mergers and acquisitions in European VAT Simon is aregular contributor to national and international specialist tax journals.
Joachim Englischhas studied law at the universities of Saarbruecken, Salamanca,and Cologne In 2007, he was granted a tenured position as Professor for Tax Lawand Public Law at the University of Augsburg In 2010, he moved to MuensterUniversity to become the Managing Director of the institute for tax law there.Joachim serves as a visiting professor for LL.M courses on international andEuropean tax law at several European universities He regularly supervises Ph.D.candidates and he is also a member of several international doctoral committees.His main research interests are European and international tax law covering both,direct and indirect taxation, as well as constitutional aspects of tax law Joachim haspublished and lectured extensively on a broad range of topics related to Europeantaxation, including the harmonized system of VAT and excise taxation He serves
as appointed member of VAT expert groups with the OECD and with the EUCommission, and advises national governments
David Goldmanis senior partner at D Potchebutzky Law Offices in Tel Aviv,Israel David specializes in handling the multitude implications of the various TaxLaws (including income tax, international taxation, customs, value added tax,purchase tax, and betterment taxation) and supports his clients in various stages
of their business activities His clients include multinational corporations, trusts andfamilies He advises his clients on all facets of business and tax issues, including taxplanning and legal opinions, drafting legal and commercial documents, represen-tation before governmental authorities, achieving pre-rulings and settlements withthe various tax authorities, litigation, and other legal matters
Prior to joining D Potchebutzky, David served as an Assistant District Attorney
in the State’s Advocate in Tel Aviv, representing the various Tax Authorities in theIsraeli courts
Over the past 20 years, David has lectured on varied and complex tax issues atdifferent academic institutions, including the Law Faculty at the Hebrew Universityand the School of Business Administration at the College of Management Davidalso lectured at the Israel Bar Association and the Institute of CPAs
David authors a recurring column (‘Comments on Fiscal Judicial Decisions’) inthe‘Accounting’ magazine, which was awarded by the Institute of CPAs in Israel,and comments on various tax issues for a dailyfinancial newspaper
David is a member of various Tax Committees of the Israel Bar Association andhas served as the Chair of the Indirect Tax Committee
David is a graduate of Hebrew University from which he received a Bachelor ofArts in Accounting and Economics (1994), a Bachelor of Laws (1995) and Master
of Laws (1999)
Trang 20Soo How Kohis a partner with PricewaterhouseCoopers, specializing in Goods andServices Tax (GST) and he leads the PwC Indirect Taxes network in Asia Pacific.Soo How spent a number of years working overseas on corporate income tax andGST matters In Singapore, Soo How has over 20 years of experience in GST, andwas a member of the team in the Inland Revenue Authority of Singapore that wasresponsible for the implementation of the GST system in 1994 He was an AssistantComptroller of GST with the primary responsibility to set up the GST auditfunction and develop policy as well as operational rules His policy and imple-mentation experience has led him to be involved in discussions with policy-makers
on indirect tax reforms in countries such as China, Malaysia, and India
As an advisor, Soo How has wide GST advisory experience in the areas ofbusiness restructuring, supply chain transformation, cross-border transactions andprocesses review and controls
Known for his pragmatic approach and sound advice, Soo How has been named
as one of the leading indirect tax advisers by International Tax Review since 2011
He was recently re-appointed for a second term as a member of the GST Board ofReview by the Minister of Finance
Soo How lectures at the Tax Academy of Singapore and is a regular contributor
to media and journals and speaker at indirect tax conferences in Singapore andoverseas
Soo How is an Accredited Tax Advisor (GST) with the Singapore Institute ofAccredited Tax Professionals
Alwyn de Koker (B.Com., University of Cape Town; M.Com., University ofWitwatersrand; CA (SA) H Dip Tax Law, University of Witwatersrand) isProfessor Emeritus of Tax Law in the School of Accountancy at the University
of the Witwatersrand, Johannesburg He is a member of the Public Accountants’and Auditors’ Board in South Africa and a member of the South African Institute ofChartered Accountants
Alwyn is also Adjunct Professor in the LL.M International Tax Programmepresented by the Thomas Jefferson School of Law at Thomas Jefferson University
in San Diego, United States of America, and serves as a member of the Board ofAcademic Advisors to the School of Law He was formerly an Honorary Professor
in the School of Law at St Thomas University, Miami, USA
He is an Executive Board member of the Royal Society of Fellows and anAdvisory Board member of the Royal Society of Fellows Law Review
Alwyn is the Programme Co-ordinator of the M.Com (Taxation) presented bythe School of Accountancy at the University of the Witwatersrand and has deliveredpapers on international tax at various conferences worldwide He has also publishedextensively and is the author, amongst others, of the definitive works Silke onInternational Tax, Silke on South African Income Tax, the Silke Tax Yearbook, aswell as co-author of Value-Added Tax in South Africa published by LexisNexis.Alwyn is also a director of GenTrust SA in Switzerland
Trang 21Rushan Lee is Senior Manager in PwC Singapore specializing in Goods andServices Tax She has over 10 years of experience in GST which involves providingGST compliance and advisory services to clients across different industries Herexperience and diverse client portfolio, including businesses in thefinancial ser-vices sector, enables her to provide practical guidance to businesses on how tomanage their GST risks and comply with GST rules Apart from advising onSingapore GST, she also assisted clients directly with Malaysian GST implemen-tation projects.
Rushan is an Accredited Tax Advisor (GST) with the Singapore Institute ofAccredited Tax Professionals She was seconded to PwC Netherlands in 2013 andhas a working knowledge of European VAT
Ine Lejeuneis responsible for building and leading the tax policy, dispute resolutionand tax litigation practice at Law Square, an independent lawfirm in Belgium She is amember of the EU Commission’s VAT Expert Group since 2012, was ‘Belgian Taxman
2009’ and was elected ‘5th Global Most Influential Tax Expert’ by Tax Business in
2006, while also being recognized as‘1st Indirect Tax Expert’
Ine has extensive experience in advising clients in thefinancial services sector,and also acted as project leader of the‘Study to increase the understanding of theeconomic effects of the VAT exemption for financial and insurance services’,prepared for the European Commission
Apart from providing tax advice, Ine’s practice is focused on litigation anddispute resolution services She has assisted with tax disputes and procedures beforenational courts (Belgium, Italy, Poland, Spain, the Netherlands, Croatia, Romania,the UK, Ireland, and Lithuania) and the Court of Justice of the European Union Inthis context, Ine assists clients with tax audits and settlements negotiations, as well
as with developing a litigation strategy on the basis of national legislation, EU lawand the case law of the Court of Justice of the European Union and of the EuropeanCourt of Human Rights She has successfully filed complaints with the EuropeanCommission resulting in infraction procedures and changes in national legislationresolving litigation cases
Over a period of 30 years, Ine has gained extensive experience in the area of taxpolicy, serving both private sector and public sector clients She served as theGlobal Relationship Partner at PwC for the EU Institutions and is responsible formore than 36 studies on VAT/customs and excise provided to the EU, individual
EU Member States, the UAE, the Gulf Cooperation Council, China and India.Ine is a frequent speaker with the OECD, the Tax Executive Institute (TEI),PwC, universities, industry associations and conference organizers From 1996 to
2004 she lectured at Antwerp University (UFSIA) and since 2010 she is lecturerand member of the Faculty of the Vienna University of Economics and Business(Wirtschaftsuniversität Wien) in the LLM International Tax Law on Global Trends
in VAT/GST; and guest lecturer and voluntary scientific collaborator at VrijeUniversiteit Brussel (VUB)
Trang 22Na Liis Post-doctoral Researcher and Lecturer at East China University of PoliticalScience and Law (Shanghai) In addition, she is an attorney, licensed to practise inChina and the US (New York State), focusing on cross-border investment andinternational taxation Na obtained an LL.B from Fudan University (Shanghai) in
2001, an LL.M in taxation from Boston University in 2009, and a Ph.D fromVienna University of Economics and Business (WU) in 2015
Laura Mattes Alonso is working as a VAT specialist at the IBFD, Amsterdam.Educated in ESADE Law School (Spain), Cornell Law School (USA) and QueenMary, University of London (UK), she has always shown a pronounced interest inSpanish and International taxation courses, which she has complemented with adeep knowledge in regulation and working offinancial markets After joining theBarcelona Bar Association in 2011, she worked for 2 years as a tax advisor for thelawfirm Gómez-Acebo & Pombo running her own stand-alone files
In 2014, and afterfinishing her LLM in Banking and Finance in the UK (withDistinction), she joined the VAT Knowledge Group at the IBFD where she iscombining her functions as a VAT specialist and co-editor of the publication VAT
in Europe with client research and publications of articles and white papers
Marie Pallotis a lawyer and policy manager with the New Zealand Inland RevenueDepartment where she advises the government on a range of tax issues with apredominant focus on GST policy Over many years she has overseen GST policychange in relation to some key areas including the treatment offinancial services,questions of fraud or avoidance and the area of cross-border trade in goods, servicesand other intangibles She is the current chair of the OECD’s Working Party 9 onConsumption Taxes which has been responsible for producing the internationalguidelines relating to VAT/GST and cross-border services and intangibles as part
of the OECD’s wider Base Erosion and Profit Shifting work
Marta Papis-Almansa is a lawyer, teacher, and researcher at Lund University,Sweden whose interests include European Union law, European and internationaltax law and comparative tax law Currently her research is focused onEuropean VAT In 2016 she defended her doctoral thesis, a comparative study
of the treatment of insurance in European VAT and the treatment of insurance in theGST systems of New Zealand and Australia
Marta holds a master degree in law fromŁódź University in Poland, an LL.M inEuropean and International Tax Law from Lund University in Sweden, and aDoctors of Law from Lund University, Sweden She actively participates innational and international tax law conferences and seminars and is an author ofpublications in international tax law journals
Trang 23Sebastian Pfeiffer(LL.M., WU; Ph.D., WU) works at the VAT unit of the AustrianFederal Ministry of Finance Previously, he was a research and teaching associate atthe Vienna University of Business and Economics (WU) where he still lecturesexternally He holds the Maurice Lauré Prize 2014, the Wolfgang Gassner SciencePrize 2014 and the Austrian Award of Excellence 2014 for his doctoral thesis‘VATGrouping from a European perspective’.
Flavio Rubinstein Rubinstein is Professor of Tax Law and Fiscal Policy atFundação Getúlio Vargas–FGV School of Law (São Paulo, Brazil) In 2014 he was
a visiting professor at University of Melbourne Law School Flavio holds an LL.M.from Harvard Law School and both a Ph.D and a Master of Laws from University
of Sao Paulo He has authored or co-authored several papers and books, and is amember of the Writing Committee of the European international tax law journalRivista Diritto e Pratica Tributaria Internazionale, as well as the Brazilian editor ofIBFD’s Derivatives and Financial Instruments journal Flavio is a partner at Vettori,Rubinstein and Foz Advogados, a lawfirm based in Sao Paulo
Guillermo Teijeiro (LL.B University of La Plata, LL.M Harvard Law School),was previously an associate with Caplin & Drysdale, Washington DC and aVisiting Scholar at Harvard Law School under the auspices of the Harvard TaxFund and the International Tax Program
A founding partner of Teijeiro & Ballone, Guillermo has been a Plenary Member
of IFA Permanent Scientific Committee for the period 2006–2014, and is currently
a member of IFA General Council, IFA Latin American Regional Committee, andAAEF (IFA Argentine Branch) Board and Executive Committee
A Tax Law professor, Guillermo currently teaches International Taxation at theMaster in Taxation, UCA, and CIDTI, Universidad Austral; he is a member of theAcademic Committee of the Master Program in International Taxation, UTDT, andmember of the Tax law Institute of the Argentine Academy of Law
Guillermo has authored and co-authored tax articles and books published inArgentina, Brazil, Bolivia, India, Italy, the Netherlands, Spain, the UK, and the US.Guillermo has lectured extensively on corporate and international tax matters atseveral fora, including IBA, IFA ABA, FORUM, STEP, Institute for InternationalResearch, Insight Information Co., UCM, UNAM, ICDT, IBDF (IFA BrazilianBranch), IBET, UPSC, AAEF (Argentine IFA Branch), and Buenos Aires-basedpublic and private law, economics and business graduate schools
Jonathan Teohis a Senior Lecturer in Taxation in the Monash Business School atMonash University He is the recipient of multiple awards and citations for out-standing teaching from two universities and the Australian government He has
Trang 24taught at leading universities in Australia and Asia Prior to his academicappointment, Jonathan had extensive experience as a tax practitioner specializing inindirect and state taxes.
Simon Thang is a lawyer at the tax law firm Thang Tax Law ProfessionalCorporation in Toronto, Canada Simon’s practice focuses on Goods and ServicesTax, Harmonized Sales Tax, Provincial Sales Tax, customs law, and all otherCanadian indirect taxes In addition to advising on indirect tax matters, Simonrepresents clients in appeals and litigation Simon teaches the consumption taxationcourse at Osgoode Hall Law School and frequently writes and presents on relatedtopics Simon graduated from Osgoode Hall Law School and from the LondonSchool of Economics and Political Science, where he received an LL.M in taxation
Joost Vermeer started his career with PwC Amsterdam in 2004 in the IndirectTaxes/VAT practice after graduating from Tilburg University in Tax Law In 2006,Joost participated in a post-master Study Programme in Indirect Tax at the ErasmusUniversity in Rotterdam on ‘X-border VAT grouping’ As from 2006, he has afull-time focus on advising multinationals in the Financial Services sector on VAT.During 2008 and 2009, he joined the Financial Services VAT team of PwCLondon Since then, he has worked on multiple global/pan-European client andpolicy projects around VAT and Financial Services, the latest on the pan-Europeanimpact on the Financial Services Sector of the ECJ Skandia-case Joost isco-leading the Financial Services VAT Team of PwC in Amsterdam andco-heading PwC’s EU Financial Services VAT practice
Trang 25AATA Administrative Appeals Tribunal of Australia
AD Reports of Appellate Division of the Supreme Court of South AfricaADCT Ato das Disposições Constitucionais Transitórias (Brazil)
AFIP Federal Administration of Public Revenues (Argentina)
ANZSIC Australian and New Zealand Standard Industrial Classification
BNB Beslissingen in Belastingzaken (Decisions in Taxation-Netherlands)
CJEU Court of Justice of the European Union
CMN Conselho Monetário Nacional (National Monetary Council-Brazil)
xxv
Trang 26COFINS Contribuição para o Financiamento da Seguridade Social (Brazil)
CSLL Contribuição Social sobre o Lucro Líquido (Brazil)
ECJ European Court of Justice (predecessor of CJEU)
et seq Et sequentia (Latin); and following
Etc Etcetera (Latin); and so forth
F.C.A Federal Court of Appeal (Canada)
FCAFC Full Court of the federal Court of Australia
G.S.T.C Goods and Services Tax Cases (Canada)
i.e Id est (Latin); that is
IBFD International Bureau of Fiscal Documentation
IBGE Instituto Nacional de Geografia e Estatística (Brazil)
ICM Imposto sobre Circulação de Mercadorias (Tax on the Circulation of
Goods-Brazil)
ICMS Imposto sobre Operações relativas à Circulação de Mercadorias e
sobre Prestações de Serviços de Transporte Interestadual e
Intermunicipal e de Comunicação (Brazil)
Trang 27ID Interpretative Decision (Australia)
IOF Imposto sobre Transações Financeiras (Brazil)
IPI Imposto sobre Produtos Industrializados (Brazil)
IStR Internationales Steuerrecht
IVC Imposto de vendas e consignações (Brazil)
LFI Listed Financial Institution (Canada)
MiFID (Directive on) Markets in Financial Instruments (EU)
NIPFD National Institute of Public Finance and Policy
OECD Organisation for Economic Co-operation and Development
RE Recurso Extraordinário (Extraordinary Appeal to the Supreme
Court-Brazil)
REsp Recurso Especial (Special Appeal to the Higher Court of
Appeals-Brazil)
RFB Receita Federal do Brasil (Brazilian Federal Tax Agency)
RMB Renminbi (or Yuan), official currency of China
SAT State Administration of Taxation (China)
SF/DEJUG Delegacia de Julgamento da Secretaria das Finanças (City of São
Paulo’s Tax Agency Ruling Office-Brazil)
Trang 28SLFI Selected Listed Financial Institution (Canada)
STF Supremo Tribunal Federal (Brazil); Supreme Court
STJ Superior Tribunal de Justiça (Brazil); Court of Appeals
TFEU Treaty on the Functioning of the European Union
VATCOM Value-Added Tax Committee (South Africa)
WLD Reports of the Witwatersrand Local Division of the Supreme Court
of South Africa
Trang 29Value Added Tax in its most common design form is levied on the sale of goodsand services at every stage of the supply chain Business procurement is relievedfrom the tax by means of a credit for tax paid on acquisitions against the taxcollected on sales (‘tax from tax’ method) and, thus, a proxy of the value added by abusiness at a given stage in the supply chain is taxed While technically it operates
as a tax on transactions, as a consequence of the credits for taxes on acquisitions,the full burden of the tax is borne only by final consumers This system workssmoothly as long as businesses charge explicit fees for the supply of their goods orservices The system becomes problematic withfinancial supplies, however.For most types of supplies, identification of the value of the goods or servicessupplied is a simple matter of determining the consideration paid for the goods orservices Financial supplies do not fit into the usual mould, however Intangibleassets are often investments or savings for the purchaser, an acquisition that intheory should bear no tax in a consumption tax system Intermediary financialinstitutions often impose no explicit fee for their services, with the cost of servicesimplicitly collected as the differential between interest paid to depositors and thatcharged to borrowers Intermediary pooling agents such as insurance companies orgambling enterprises also collect their fees for services implicitly as the spreadbetween insurance premiums collected and insurance benefits paid out or betsplaced and prizes distributed to winners This book will explore the unique prob-lems raised byfinancial supplies within a conventional VAT or GST system fromboth theoretical and comparative practice perspectives
In more than half a century, not one jurisdiction adopting the tax has been able tofully integratefinancial supplies into the VAT system of output tax on all suppliesand input tax credits on acquisitions by registered enterprises This volume exploresthis phenomenon, looking at howfinancial supplies would be treated in a theoreticalbenchmark VAT and how they are in practice Key jurisdictions around the globewere selected to illustrate the different ways in which the VAT in practice deviatesfrom the benchmark approaches The examples show why variations have beenused in different VAT systems and provide insights into both incremental and, in
xxix
Trang 30some cases, wholesale changes that could be used to integrate financial suppliesinto more robust and more efficient VAT systems.
At its broadest formulation, the concept offinancial supply covers three tively distinct groups—loan intermediary services, supplies of financial instruments,and pooling intermediary services The first group, loan intermediary services,comprises the services provided byfinancial institutions acting as intermediariesbetween lenders (depositors) and borrowers While direct loans between lendersand borrowers play an important role in modern economies, the majority of debt isstructured through financial intermediaries that are able to pool capital from thewidest group of savers and channel it to the enterprises and consumers drawing ondebt to finance their acquisitions Payment for financial intermediary services isimplicit, drawn from the spread between interest paid to depositors and charged tolenders For that reason, conventional wisdom holds it is difficult to tax financialservices under a transaction-based VAT Although it is possible—and somecountries have chosen this approach in limited circumstances—to simply excludefinancial intermediary services altogether from VAT (often referred to aszero-rating or exempting with credit), given that general consumption taxes areideally broad-based in their scope, i.e., should tax all supplies of goods and ser-vices, exclusion of such an important and large sector of the economy from the taxgoes against the grain of its underlying legal character and violates the principle ofeconomic neutrality
rela-The second group of financial supplies are supplies of instruments—bonds,shares, options, and a host of new and ever-evolving arrangements The intangibleassets supplied in this category offinancial supplies provide the holder with rights
to interests in equity or debt or a combination of the two
The third type offinancial supply, pooling services, is another form of mediary service but within a closed group of participants The service provider inthis case collects funds from a group of participants and manages distribution
inter-of these funds to a limited number inter-of recipients within the group The two key types
of pooling services are insurance services and gambling services In the formercase, the service provider, an insurer, collects premiums for policyholders anddistributes them to the holders who suffer losses In the latter case, the provider, acasino, lottery provider or gambling venue, collects money from gamblers anddistributes it to the lucky members of the group who have chosen the string ofnumbers or color and number combination that identifies a winner
While the three categories of supplies are all‘supplies’, there are fundamentaldifferences in the nature of the underlying supply in each group and marked dif-ferences in their treatment across jurisdictions Some countries, particularly thoseusing the ‘traditional’ VAT model adopted in the EU, classify all three types offinancial supplies as exempt supplies In others, the provision of casualty insurance(property insurance as opposed to life insurance) is treated as a taxable supply, as isthe provision of gambling services in some jurisdictions
This book is divided into four parts Part I provides the theoretical foundation
of the book While, technically, the VAT is a tax imposed on registered enterprisesmaking taxable supplies, it is designed to be a consumption tax, borne by persons
Trang 31making acquisitions forfinal consumption The initial step when designing a lawintended to tax personal consumption is to determine what constitutes consumption.Two different understandings have emerged The first, and broader, view definesconsumption from the perspective of the individual making an expenditure—theapplication of economic resources for any purpose other than savings equates toconsumption The second relies on a societal view based on total consumption in acountry: only when an individual uses real resources from the pool available to allparticipants in the economy does consumption occur A consumption tax based onthefirst view will have a dramatically different scope from a consumption tax based
on the second The two views of consumption yield different tax bases and alsooffer different perspectives of neutrality
The consequences of both views are also illustrated with a consideration of howcurrent VAT rules applying to gambling and insurancefit into the two paradigms.Separately, while there is not universal agreement on the point, generally underboth views of consumption the loan intermediary services provided by financialservice providers should be subject to tax Nevertheless, in almost every case,jurisdictions have followed the traditional VAT precedent of characterizing loanintermediary services (as well as the provision of intangible investment instru-ments) as exempt supplies The partial taxation of exempt supplies, through thedenial of input VAT credits to persons acquiring these services and goods, givesrise to both theoretical and practical problems A number of practical consequencesare reviewed
Part II of this book is devoted to the application of VAT to loan intermediaryservices, starting with a theoretical chapter The most prevalent treatment of loanintermediary services in global VAT treatment is the characterization of the services
as exempt or input taxed supplies It is almost universally recognized that thistreatment is suboptimal in terms of VAT theory and outcomes, leading to com-pounding overtaxation of registered enterprises using the services and undertaxation
of final consumers Developing workable alternatives is a challenge, however.While some jurisdictions have adopted partial solutions for particular types oftaxpayers or transactions—for example, zero-rating some supplies, taxing othersusing additive methods to determine the base, recharacterizing finance leases astaxable supplies, allowing financial institutions some input tax credits—no juris-diction has successfully tackled the full problem The initial chapter in this partreviews the merits and drawbacks of the various alternatives that have been triedand proposed
The next chapters of Part II are focused on the VAT treatment of loan mediary services in nine different jurisdictions: Argentina, Australia, Brazil,Canada, China, the EU, Israel, New Zealand, and South Africa, providing valuableinsight into various policy choices made and their practical consequences.Part III of this book looks at the application of VAT tofinancial investments.The acquisition of investments or services ancillary to the acquisition of servicessuch as legal and accounting services or the provision of investment advice clearlyfalls outside the concept of consumption and in theory should bear no VAT if theVAT is intended to act as a tax onfinal consumption But this outcome is almost
Trang 32inter-never achieved in operating VAT systems as a consequence of persistentlyconfounding practical, conceptual andfiscal considerations.
An initial problem is the difficulty of distinguishing personal consumption andinvestment expenses where services ancillary to the acquisition of investments mayalso have personal consumption elements The opening chapter in this partexamines this issue and considers whether any of the legislative solutions used inother contexts to distinguish personal and nonpersonal expenses in other contextscan be applied to these outgoings It also looks at the practical problems relievinginvestment expenses from VAT would entail, particularly where individual inves-tors are not registered for VAT purposes, and considers other ways of dealing withthese persons such as applying input tax credits to income tax liability Finally, itnotes the political economy aspects of a reform that would deliver most relief tohigher income earners
Two chapters focus respectively on the phenomenon of cost-sharing issues in the
EU and crowdfunding in VAT jurisdictions generally Cost sharing can be a
sig-nificant headache for financial services providers as it is likely to lead to erable input VAT payable on intra-group transactions Particular attention is paid toquantifying the impact of cost sharing in thefinancial services industry in the EUand the extent to which cost sharing leads to taxable transactions on the basis of the
irrecov-EU VAT Directive The related case law of the European Court of Justice isexplored, along with a number of provisions in the EU VAT Directive that dealwith cost sharing, including the VAT grouping option and the cost-sharingexemption The chapter reviews possible means to alleviate the problem ofirrecoverable VAT on (inter-company) cost sharing or cost allocations and putsforward policy recommendations aimed at a more uniform and efficient treatment ofcost sharing throughout the EU
While crowdfunding is not an entirely new phenomenon, in recent times it hasemerged as a genuine alternative to traditionalfinancing structures Initially socialand altruistic aims were the primary drivers of crowdfunding but they are evolvinginto viable equity and debt models This chapter provides a comparative lawexamination of the treatment of crowdfunding under different VAT/GST systems.Only a few jurisdictions such as Australia have provided explicit guidance on theVAT/GST treatment of crowdfunding while in the European Union, the EuropeanCommission has referred crowdfunding to the VAT Committee which consists ofall Member States
The two further chapters in this part examine in detail the VAT treatment ofinvestments in the European Union and South Africa, respectively
Part IV of this book covers the VAT issues associated with the two keyfinancialpooling services, insurance and gambling Two jurisdictional chapters deal withhow insurance services are treated in Australia and the EU, respectively, and a thirdchapter looks at gambling services
Intermediary services related to the provision of casualty insurance (for lossesother than life or health) are fully subject to GST in Australia while they are exemptfrom tax in the EU The Australian chapter explains in detail how insurance can
Trang 33be taxed successfully in a VAT system while the EU chapter investigates theconsequences of exempting the service from VAT.
A similar dichotomy is encountered in the case of gambling services Thechapter explains that under the traditional VAT used in the European Union,gambling services are characterized as exempt supplies while they are treated astaxable supplies in jurisdictions adopting the modern VAT The second part of thechapter addresses the new challenges brought about by the growing provision ofonline gambling services In particular, it examines the best way to impose VAT onsuch services in the context of OECD VAT/GST Guidelines and recent initiativesadopted in a number of jurisdictions to impose VAT on services provided elec-tronically across borders
Robert F van Brederode
Richard Krever
Trang 34Establishing the VAT and Financial
Supplies Benchmarks
Trang 35Theories of Consumption
and the Consequences of Partial Taxation
of Financial Services
Robert F van Brederode and Richard Krever
Abstract While the VAT is technically a tax imposed on registered enterprisesmaking taxable supplies, it is designed to be a consumption tax, borne by personsmaking acquisitions forfinal consumption The initial step when designing a lawintended to tax personal consumption is to determine what constitutes consumption.Two different understandings have emerged The first, and broader, view definesconsumption from the perspective of the individual making an expenditure—theapplication of economic resources for any purpose other than savings equates toconsumption The second relies on a societal view based on total consumption in acountry: only when an individual uses real resources from the pool available to allparticipants in the economy does consumption occur A consumption tax based onthefirst view will have a dramatically different scope from a consumption tax based
on the second, as the example of the tax consequences of the making of a giftreveals The two views of consumption yield different tax bases and also offerdifferent perspectives of neutrality The consequences of both views are alsoillustrated with a consideration of how current VAT rules applying to gambling andinsurance fit into the two paradigms Separately, while there is not universalagreement on the point, generally under both views of consumption the loanintermediary services provided byfinancial service providers should be subject totax Nevertheless, in almost every case, jurisdictions have followed the traditionalVAT precedent of characterizing loan intermediary services (as well as the provi-sion of intangible investment instruments) as exempt supplies The partial taxation
of exempt supplies, through the denial of input-VAT credits to persons acquiringthese services and goods, gives rise to both theoretical and practical problems
A number of practical consequences are reviewed
R.F van Brederode ( &)
Crowe Horwath LLP, Atlanta, GA, USA
e-mail: robvanbrederode@aol.com
R Krever
Monash Business School, Monash University, Clayton, VIC, Australia
e-mail: Rick.Krever@monash.edu
© Springer Nature Singapore Pte Ltd 2017
R.F van Brederode and R Krever (eds.), VAT and Financial Services,
DOI 10.1007/978-981-10-3465-7_1
3
Trang 361.1 The Concept of Consumption
VAT is a general sales tax aimed at taxing private, personal, orfinal consumption.However, the dominant variant of VAT, the so-called credit invoice system,becoming predominantfirst in Europe and colonizing the world at rapid speed sincethe late 1960s, does not tax consumption directly, but rather indirectly via theexpenditure made for consumption The expenditure is a proxy for the actualconsumption In other words, VAT ignores the reality of the‘physical’ consump-tion of a good, but simply assumes that consumption will take place once a payment
is made for it
A consumption tax directly levied on individuals is feasible and has been posed in thefirst half of the 20th century by Fisher and later Kaldor under the title
pro-of a personal expenditure tax The personal expenditure tax measures consumption
in each tax period as total income derived in the period less amounts spent to derivemore income and amounts invested in savings, i.e.1:
Y S ¼ C
All income not applied to one of these two purposes is presumed to be used forconsumption In contrast, a transaction-based consumption tax is imposed at thetime consumptive expenditure takes place In the case of the VAT, the tax iscollected from a registered supplier who may not know the purpose to which thesupply of goods or services will be put
Designing a law for the purpose of taxing personal orfinal consumption requires
an understanding of what personal or private orfinal consumption is The adjectives
‘personal’, ‘private’ and ‘final’ indicate that the target of the tax is consumptiveexpenditure by individuals, at the final stage of the supply chain, and not byorganizations or for purposes that are not personal Business expenditure should,thus, not be taxed, even if a single person owns the business, because the use ofgoods and services for the furtherance of an enterprise, logically, does not constituteprivate or final consumption Although the adjectives ‘personal’, ‘private’ and
‘final’ seem to be relatively clear, the meaning of ‘consumption’ is less obvious.Without a conceptual understanding of what constitutes ‘consumption’, all dis-cussions on how to apply VAT tofinancial supplies will remain rudderless and leadnowhere
The concept of ‘consumption’, therefore, is the constituent element of anyconsumption tax, including VAT This section offers two philosophical approaches
to defining this concept The divergence between the two views is the result of theirdifferent perspectives on how to determine what constitutes consumption
1 See Kaldor ( 1956 ), elaborating on and re fining the work of Irving Fisher ( 1937 ) See also Andrews ( 1974 ).
Trang 37Thefirst view approaches consumption from the perspective of the individualmaking the expenditure This is a broad approach starting from the expenditure taxbase:
C¼ Y S
and capturing any application of a person’s resources apart from investment orsavings If the person making a payment for a supply cannot show that the outgoingwas incurred directly in the course of generating income or acquiring an investment,
it is assumed the expenditure was for private consumption
The second approach has its roots with Thomas Hobbes2and John Stuart Mill3and relies on a societal view based on total consumption in a country.4Under thisapproach consumption occurs only when an individual uses real resources from thepool available to all participants in the economy Or, from theflip side of the coin, ifthe application of personal resources does not remove goods or services from thepool, so as to make them unavailable to others, the outgoing is not viewed as apayment for consumption There exists a parallel between the Hobbesian view andeconomic‘Pareto optimal’ analysis, which seeks to maximize private well-being tothe extent that production and distribution cannot be reorganized to increase thewell-being of one or more individuals without decreasing the well-being of others.5The differences between these two approaches can be demonstrated through theexample of the making of a gift In traditional income tax and consumption taxanalysis, a cash gift is considered income to the recipient (the person enjoys anincrease in economic capacity) and consumption to the donor.6 In terms of thebenchmark personal expenditure tax, the benefactor has incurred an outgoing thatwas not applied to savings or investment and it is thus treated as consumption Asthe economic power transferred by this person could have been used to acquiregoods or services in the market, it is assumed the donor must have derived utilityequal to the goods or services forgone in favour of the making of the gift.The social pool or Pareto optimal view, in contrast, would not consider the gift to
be consumption by the donor as it does not reduce the consumption opportunities ofanyone else.7There is no extraction from the consumption pool until the recipientuses the funds to acquire goods or services
The two views of consumption yield different tax bases Under the broaderpersonal view, consumption is based on the exercise of command over resources
Trang 38Under the social pool view, consumption is measured in terms of actual use ofresources by an individual.
The two views of consumption also yield different perspectives of neutrality.The personal view of consumption seeks to achieve neutrality in terms of anindividual’s spending decisions by imposing the same tax burden on all applica-tions of income other than investment in savings (or expenditures incurred inbusiness to derive further income) Under this view, the taxpayer should bear thesame tax whether income is used to acquire services or goods or is given away asmoney The social pool view of consumption, in contrast, is not concernedexclusively with neutrality in terms of an individual deciding how to applyresources Rather, it looks at neutrality in terms of the cost to the government andindividuals of alternative consumption choices and the time at which consumptiontakes place
The consequences of the competing views on consumption can best be trated with a consideration of how gambling and insurance might be taxed under aVAT Under the social view of consumption, gambling and insurance involve ashifting of resources between persons but no consumption, apart from the inter-mediary services of a gambling operator or insurer who assists with the shiftingprocess In contrast, under the personal consumption view, expenditures on gam-bling and the acquisition of insurance policies amount to consumption, withoutregard to what happens to the funds spent on gambling or insurance
illus-Looked at from a social consumption viewpoint, gambling amounts to generousgifts of money to a pool for eventual distribution to a lucky winner who can use themoney to acquire goods or services in the marketplace The only market transac-tion, apart from the pooling services of the gambling operator who collects the giftsand passes them on to the winner, takes place when the winner uses his or herwinnings to acquire goods or services All transactions before that point except thepooling services are merely shifting money between persons and command nosocial resources Apart from the pooling service, therefore, there is no consumption
to tax under the social view of consumption
The same is true of insurance policyholders From a social consumption spective, insurance constitutes a group of persons gifting funds into a pool to bedistributed to those participants who suffer losses to allow them to buy repairs orreplacement goods The pooling process shifts consumption potential from thepersons who contribute to the pool to the claimants paid out of it but from a socialconsumption perspective, consumption only takes place when the claimant uses aninsurance settlement to acquire goods or services out of the social pool
per-A very different characterization follows if the two types of transaction areconsidered from a personal consumption perspective In the case of insurance, eachpolicyholder parts with money to acquire the security of an insurance policy Thepolicyholder hopes he or she will suffer no personal loss and the pooled funds will
be used by someone else to acquire goods or services but is happy to hand over themoney for the security of knowing a policy is in place and compensation available
if the worst case scenario comes to pass The consumption of the policyholder inthis view is the sense of security bought with the policy and the value of the
Trang 39consumption is the cost of the policy, without regard to whether or not the cyholder suffered a loss, received a settlement, and purchased goods or services inthe marketplace with the proceeds.
poli-A parallel story applies to the gambler under the personal consumption spective In this view, the thrill of the bet is the consumption The gambler hopesfor a win but is willing to part with the funds knowing they could be lost The cost
per-of placing the bet is the amount the gambler is willing to pay for the emotions per-ofgambling From a personal perspective, the value of the gamble is the amount spent
on the bet that could be spent on equal cost goods or services The fact thatsomeone else may win and use the pooled funds to acquire supplies in the mar-ketplace does not affect the fact that the gambler was willing to pass on that amountfor the chance to win
The case studies in Part 4 of this volume show that VAT designers have sistently adopted the narrower social view of consumption Thus, in the jurisdic-tions in which gambling and insurance are subject to VAT, the rules disregard thepersonal consumption of security for the insured and excitement of the bet forgamblers and only subject to VAT the intermediary pooling services of the insurerand gambling operator Consumption using pooled funds is taxed only when aclaimant or gambling winner draws from the pool and uses the funds to acquiregoods or services in the marketplace
con-1.2 The Consequences of Partial Taxation
of Financial Services
An initial challenge to any discussion of taxingfinancial services is the cation of the subject of discussion In both VAT laws and VAT literature, thegeneral title‘financial services’ is used to describe a remarkably wide array of verydifferent services The supplies commonly identified as financial services fall intothree broad camps:
identifi-• loan intermediary services provided to lenders (including persons makingdeposits infinancial institutions) and borrowers;
• insurance and gambling pooling services; and
• the provision of intangible investment instruments
While they enjoy a common title, the three branches offinancial services, as theterm is understood for VAT purposes, raise fundamentally different theoretical andpractical tax issues
With some very limited exceptions, the first widespread model of VAT to bedeveloped, the ‘traditional’ VAT adopted in Europe, treated all three types offinancial services as exempt supplies A more varied approach can be found in the
Trang 40modern VAT, used as a model in many jurisdictions since the mid-1980s, withmany jurisdictions adopting this model applying VAT to one or both types ofpooling services Almost all jurisdictions, however, followed the traditional VATprecedent of characterizing loan intermediary services and the provision of intan-gible investment instruments as exempt supplies The partial taxation of exemptsupplies—imposing no tax on the supply but denying the supplier any credit forinput taxes incurred on acquisitions used to make the exempt supplies—gives rise
to both theoretical and practical problems The theoretical difficulties with partialtaxation—overtaxation of business consumers of these services and undertaxation
offinal consumer users of the services—are the primary drivers behind the shift totaxation of some types offinancial services in jurisdictions outside the traditionalVAT zone and proposals for broader taxation offinancial services more generally.Separately, there are a number of unfortunate practical consequences from thecharacterization offinancial supplies as exempt supplies These are reviewed below
1.2.1 Mixed and Composite Supplies
Whenever a VAT has multiple positive rates or categories of taxable supplies (at apositive rate), exempt supplies and zero-rated supplies, characterization issues willarise in the case of multiple-element supplies that have elements that would besubject to different tax rules if supplied separately If the different elements are each
of sufficient value and can be identified and segregated for tax purposes, the supplymay be treated as a mixed supply and separated into its components for VATpurposes, with each element subject to the tax treatment that would apply if it were
a standalone supply The consideration for the mixed supply will be prorated acrossthe elements to calculate tax payable (or not payable) on the different parts.Other multi-element supplies, sometimes referred to as composite supplies,contain many elements that work together to form a single supply In these cases,the composite supply is treated as one service sui generis In other cases, while itmay be possible to separate the elements of a mixed supply, minor elements may besufficiently inconsequential to be disregarded as de minimis components, with thesupply taking on the character of the predominant component
A variety of processes—administrative guidelines, judicial doctrines, statutoryrules—may be used in different jurisdictions to identify and characterize mixed,composite and predominant supplies All are vulnerable to manipulation and cre-ative ‘bundling’, however, and businesses providing both taxable and exemptsupplies, particularly financial institutions, have become particularly adept atdeveloping tax-effective packages To enhance their competitiveness, financialinstitutions may seek to devise custom packages so that exempt supplies becometaxable to clients entitled to a VAT credit and taxable supplies fall into the exemptsupplies category for clients who are not