VAT Terminology and
Rates – a Recap
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VAT Terminology
Output Tax
• VAT charged by businesses on sales made to their customers
• “Output” meant to reflect outgoing sales
Input Tax
• VAT spent by businesses on qualifying business expenditures
• “Input” meant to reflect incoming purchasing
Supply
Consideration
Reverse
Charge
Mechanism

• VAT terminology for a “sale”
• Goods: tangibles; Services: intangibles
• Payment received in return for the supply of goods or provision of services
• Generally, “everything received in return for the supply of goods and
services,…”
• Situation in which seller of services (usually foreign) is not liable for VAT, and
instead buyer is required to account for VAT
Note the focus on movement on goods/services, rather than movement
of money
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.
FOR INTERNAL USE ONLY. Not for distribution to clients unless the technical and policy review requirements of Tax Services Manual section 23.7 are satisfied.
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7
VAT Rates
Standard
• EU VAT rates range from 15% to 27%. Average EU VAT rate is
approaching 21.5%—somewhat less in ASPAC and LATAM
Reduced
• Any rate lower than the standard rate
• E.g., basic food stuff, books—usually political decision
Zero-rated
• No VAT is charged, but seller HAS a right to credit input tax
• E.g., exported goods and services
Exempt
• No VAT is charged, but the seller HAS NO right to credit input
tax
• E.g., certain financial, medical and education services
Outside
Scope
• Not within the scope of VAT in the jurisdiction concerned
• E.g., charities and non-business
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.
FOR INTERNAL USE ONLY. Not for distribution to clients unless the technical and policy review requirements of Tax Services Manual section 23.7 are satisfied.
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Global Trends and
Developments
8
Global Challenges
Import
valuation
issues
Sourcing
changes for
e-services
Importer of
record must be
owner to
recover VAT
Proposed
Sourcing
changes for
e-services
Current
reform
Cashflow
VAT
system
Proposed
reform
Introduction
in April 2015
Multiple
indirect taxes
and
jurisdictions
VAT credits
vs. refunds
Import
restrictions
Difficulties
with VAT
refunds
Various rate changes
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.
FOR INTERNAL USE ONLY. Not for distribution to clients unless the technical and policy review requirements of Tax Services Manual section 23.7 are satisfied.
17
VAT Rate Changes – Past 12 Months,
Country
Effective Date
Original Rate
New Rate
Serbia
1/1/2014
8%*
10%*
France
1/1/2014
19.6%, 7%*
20%, 10%*
Cyprus
1/1/2014
18%, 8%*
19%, 9%*
Ghana
1/1/2014
12.5%
15%
Mexico
1/1/2014
11% border region
16%, Standard
Honduras
1/1/2014
12%
15%
Japan
4/1/2014
5%
8%
Dominican Republic
1/1/2015
18%
16%
Ukraine
1/1/2015
20%
17%
Luxembourg
1/1/2015
15%,12%*, 6%*
17%, 14%*, 8%*
Czech Republic
1/1/2015
21%, 15%*
21%, 15%*, 10%*
Source: WNT Research
* Reduced VAT rate
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.
FOR INTERNAL USE ONLY. Not for distribution to clients unless the technical and policy review requirements of Tax Services Manual section 23.7 are satisfied.
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9
Global VAT/GST Expansion

China started in 2011 a reform to replace its business tax with a
VAT

Jurisdictions that have recently introduced a VAT/GST
− Full VAT is expected to be in place by the end of 2015 for all of China
− Bahamas (Jan. 1, 2015)
− Malaysia (Apr. 1, 2015) to replace sales and services tax

Potential introduction
− Egypt: plan to replace current sales tax with a VAT by January 2016?
− India: plan to replace current complex indirect tax system with a GST
by April 2016?

Others
− Gulf Cooperation States: undergoing discussions of a VAT framework
agreement
− United States: included in certain discussions for a comprehensive
tax reform (based on the Canadian GST model?)
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.
FOR INTERNAL USE ONLY. Not for distribution to clients unless the technical and policy review requirements of Tax Services Manual section 23.7 are satisfied.
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Global Shift in VAT/GST Taxation of Services

The Organisation for Economic Co-operation and Development (OECD) is working on
International VAT/GST Guidelines
− Business-to-business (B2B) transactions
 Guidelines on B2B international services that were finalized in 2014 and have
already been endorsed by over 100 countries
 B2B services should generally be taxed where the service recipient is located
 Renewed focus on ensuring that VAT exempt businesses are also subject to
these rules and the potential to exploit mismatches in taxation are phased out
− Business-to-consumer (B2C) transactions
 Draft guidelines have been released for comments on December 18, 2014
 Remote sellers of electronic services to final customers may be required to
register and remit VAT/GST in the country where the final customer is resident
 In addition to the European Union, Iceland, Switzerland, Norway, Ghana,
Kenya, South Africa, and Albania more jurisdictions are looking into new
VAT/GST rules on e-services
• Korea (Jul.1 , 2015); Japan (Oct. 1, 2015)
• Australia, New Zealand, Canada?
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.
FOR INTERNAL USE ONLY. Not for distribution to clients unless the technical and policy review requirements of Tax Services Manual section 23.7 are satisfied.
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