Vat And Financial Services

This book explains the theoretical and policy issues associated with the taxation of financial services and includes a jurisdictional overview that illustrates alternative policy choices and the legal consequences of those choices . The book addresses the question: how can financial services in an increasingly globalized market best be taxed through VAT while avoiding economic distortions? It supports the discussion of the key practical problems that have arisen from the particular complexity of the application of VAT to financial services, and allows for the evaluation of best practice by comparing the major current reform models now being implemented.

The current European VAT legislation encompassing insurance and financial services, including intermediation thereof, dates back to the adoption of the Sixth VAT Directive in 1977. The definitions do not, however, encompass the current complexity of insurance and financial transactions. This has resulted in considerable confusion for fiscal authorities and for businesses when deciding upon the application of the VAT exemption. As the correct VAT treatment has a significant economic impact on businesses, a great number of cases have been referred to the Court of Justice of the European Union. This is also the reason why the European Commission presented its proposal for the future treatment of insurance and financial services, including intermediation thereof, in November 2007. The political process has not yet been finalised and if the Commission's proposal is agreed upon, the question of understanding the definitions still exists. This book deals with the exemption for intermediation of insurance and financial services within European VAT. This implies analysing the methods of interpretation applied by the Court of Justice of the European Union when interpreting the provisions regarding insurance and financial services. Furthermore, the current definitions for intermediation of insurance and financial services as provided for in the VAT Directive are analysed and conclusions are made in order to define a single concept of intermediation. These analyses are followed by various practical scenarios from case law of the Member States concerning intermediation of insurance and financial services. Finally, comments based on the analyses carried out are given on the European Commission's proposal for amending the VAT Directive and the accompanying Regulation regarding intermediation of insurance and financial services.

VAT and Financial Services takes the reader through the relevant legislation case law, and legal concepts; examines the consequences of outsourcing; looks at the key issues facing financial services and insurance; and discusses the VAT cost sharing exemption. Since the last edition significant changes include: consequences of Brexit, the abolition of Cost Sharing Groups and significant developments in case law.

Most VAT systems exclude public bodies from the scope of value added tax (VAT) systems. However, because what is considered proper for public bodies to engage in varies over time and depends on political preference, there has been a growing awareness that the exclusion necessarily gives rise to economic distortion and legal uncertainty. A movement to include public sector bodies within the GST system to some extent or even fully (as in New Zealand) underlies the European Commission's 2011 study on the treatment and economic impact of exemptions in the public interest. Whether the present EU treatment really is as bad as the distorting effects suggest, or whether the New Zealand model really is so perfect that jurisdictions with exclusion models ought simply to replace these existing systems with a New Zealand style system: these are the questions which triggered this research and which form the basis for the critical analysis contained in this book. Using a system design point of view, the author focuses on VAT schemes where exclusion or inclusion of public bodies are currently being applied and on how these models function. He presents an in-depth analysis of the major issues in this context, such as the treatment of public bodies as taxable persons, their right to deduct input VAT on acquisitions, and the treatment of the income of public bodies. Specific aspects examined include the following: ; reallocation of funds and income vs. the production/distribution/consumption cycle; the concept of 'merit goods'; bias to self-supply instead of contracting out; preference to integrate vertically in the supply chain; applicability of VAT to government regulatory services; tax cascading in the public goods and services context; administration and compliance burden in government agencies; interpretational and implementation difficulties in EU Member States; and VAT compensation schemes considered as illegal State aid in the public sector context. The book concludes with an insightful discussion of what might be considered as 'best practice' in relation to both the exclusion and full tax models. Peerless in its thorough discussion of the treatment of public bodies in various VAT systems, and in the EU VAT system in particular, this study will be warmly welcomed by practitioners, academics, and policymakers as a giant step.

One of the most complex issues in tax policy today is the treatment of the institutions, products, and services that make up the financial sector. It can be harder to ascertain income, expenses, and profits for financial firms than for firms selling goods and services, and it is easier for individuals and firms to manipulate financial transactions so as to exploit tax loopholes. This volume explores the challenges faced by tax policymakers and identifies modern best practices in several areas: banks, insurance companies, securities companies, investment funds, pension funds, and derivatives.

Financial services are generally exempted from VAT or other general consumption taxes. This panel examines the operation of this exemption system for financial services and its impact on the economy in general and market competition in particular. The panel discussion is divided into three main parts. The first part deals with the broad approaches being followed around the world for taxation of financial services. The second part deals with the problems being encountered under the current exemption systems. Subjects in this part include the partial input tax deduction schemes, application of tax to outsourcing of processing of financial transactions, and the guidance provided under landmark court decisions in Europe. The third part focuses on options for change, both ad hoc options to address specific problems, and general options to make financial services taxable or to simplify the partial input tax deduction system.

Value added tax (VAT) is a relatively modern development. Designers of VAT recognized from the outset that the way in which financial institutions are remunerated creates significant difficulty when the tax is applied to their services. Administrative difficulties relate to imposing invoice-based VAT on service fees charged as part of the margin between buy and sell rates. Theoretical reasons relate to arguments that financial services should not be taxed under a consumption tax because, it is argued, financial services are not consumed in the way in which goods and services are consumed. Because of these difficulties, most jurisdictions have opted to exempt financial services from VAT. However, the commonly accepted reasons to exempt financial services from VAT are not compelling, since financial services are no different in relevant respects from other services. Moreover, there are methods by which financial services could be brought within the VAT base. Furthermore, although exemption is the simplest way for a VAT to treat financial services, it causes significant distortions in the economy.

Banking is an increasingly global business, with a complex network of international transactions within multinational groups and with international customers. This book provides a thorough, practical analysis of international taxation issues as they affect the banking industry. Thoroughly explaining banking’s significant benefits and risks and its taxable activities, the book’s broad scope examines such issues as the following: taxation of dividends and branch profits derived from other countries; transfer pricing and branch profit attribution; taxation of global trading activities; tax risk management; provision of services and intangible property within multinational groups; taxation treatment of research and development expenses; availability of tax incentives such as patent box tax regimes; swaps and other derivatives; loan provisions and debt restructuring; financial technology (FinTech); group treasury, interest flows, and thin capitalisation; tax havens and controlled foreign companies; and taxation policy developments and trends. Case studies show how international tax analysis can be applied to specific examples. The Organisation for Economic Co-operation and Development Base Erosion and Profit Shifting (OECD BEPS) measures and how they apply to banking taxation are discussed. The related provisions of the OECD Model Tax Convention are analysed in detail. The banking industry is characterised by rapid change, including increased diversification with new banking products and services, and the increasing significance of activities such as shadow banking outside current regulatory regimes. For all these reasons and more, this book will prove to be an invaluable springboard for problem solving and mastering international taxation issues arising from banking. The book will be welcomed by corporate counsel, banking law practitioners, and all professionals, officials, and academics concerned with finance and its tax ramifications.