OECD works to simplify global VAT and GST regimes
Part of the role of the Organisation of Economic Co-Operation and Development is to work towards the standardisation of global taxes around the world. This includes major consumption taxes, including Value Added Tax (VAT) and Goods and Services Tax (GST).
In its latest update, the OECD has highlight the work of two key working groups, and the progress being made. This includes:
1 Where taxes are levied
For international supplies of services, it is not always clear in which country the VAT arises. This is known as the ‘place of supply’. For example, multinationals signing global service contracts for their worldwide subsidiaries cannot always easily allocate costs and determine if VAT/GST falls due and in which country.
2 VAT neutrality
As a tax on consumers, VAT and GST are intended to be cash flow neutral for companies which have to charge and administer the taxes. However, the reliability is that businesses regularly suffer losses because of incomplete or opaque VAT rules around the world. It therefore forces companies into making business decisions based on national VAT laws which are therefore a distortion to free trade. Additionally, many countries continue to discriminate between domestic and foreign companies on VAT registrations, returns and compliance.
The OECD is expected to produce new statements on the above areas, including in-depth analysis of examples for countries to use as they develop their national consumption tax systems.