OECD International VAT and GST Guidelines

Sat 19th Apr 2014

The Organisation for Economic Co-Operation and Development are set to publish their latest global VAT and GST Guidelines. This comes from the OECD’s Committee on Fiscal Affairs, and sets the consumption tax model for countries around the world to adopt to ensure tax consistency and fairness.

VAT on goods – the easy part

The guidelines will restate much of the basic principles for VAT/GST on goods which are well rehearsed in the European Union and elsewhere. This will include the basic tenets of an efficient and fair sales tax regime, including:

  • A broad based tax on the final consumer
  • Staged collections of VAT by companies, supporting the neutrality principle (including: sound tax administration; reciprocity between countries on VAT recovery)
  • Taxation at the point of consumption – the destination principle – so that exports are VAT free

VAT on services and intangibles to Multiple Location Entities – not so easy

Most of the new review will be concerned with the treatment of VAT on international services and intellectual property. The increasingly complex supply of services across borders makes it more challenging to understand the supplier and final consumer. For example, if a US HQ orders software from a provider in Canada, that is then tailored by another supplier in India but used by the US’ offices around the world, where is the point of consumption and destination? Which countries are due VAT?

This has required reviewing a number of influencers underpinning the service for so-called Multiple Location Entities, including:

  • Direct use – where is the service actually used, thus giving taxing rights to the appropriate jurisdiction
  • Direct delivery – where are the services sold to (irrespective of their use)
  • Recharges – where are the costs of the services finally recharged to, which then determines taxing rights