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VAT Terminology
Output VAT: Amount received by a seller as a percentage of the gross sale price of goods or services Input VAT: Amount paid by a buyer as a percentage of the gross purchase price for goods or services used in production.
VAT Calculation
VAT taxpayers RELATE total OUTPUT VAT (amounts received from buyers in sales) to their total INPUT VAT (amounts paid to sellers in purchases). When total Output VAT exceeds total Input VAT the difference is paid to the taxing jurisdiction. When total Input VAT exceeds total Output VAT the taxpayer is entitled to a refund. Input VAT paid toward goods or services eventually sold in exempt transactions are not included in the running VAT calculation.
Are digitally-transmitted products goods or services? VAT is WAIVED for consumers in service transactions, but not for goods. If digitally-transmitted items are goods then tax is due from businesses and consumers. But if seller is in a non-VAT jurisdiction, (with no VAT collection obligation), then VAT authorities have no imports and customs documentation to help monitor purchases and enforce self-assessment by buyers.
In certain service transactions that could be completed over the internet, the European Union treats Place of Supply as the CUSTOMERS LOCATION (e.g., transfer of intellectual property, advertising, consulting, and data processing). Virtual customers location could be unknown to sellers from VAT jurisdictions. Business buyers in VAT jurisdictions must selfassess and remit their home input VAT in these service transactions when a non-VAT seller does not collect it.
Internet Access is treated as telecommunications services by EU. VAT for telecom services to CONSUMERS is NOT WAIVED. EU expects non-VAT telecom service providers (including internet service providers) to collect and remit applicable VAT.