The Value Added Tax, or VAT, in the European Union is a general, broadly based consumption tax assessed on the value added to goods and services. It applies more or less to all goods and services that are bought and sold for use or consumption in the European Union. Thus, goods which are sold for export or services which are sold to customers abroad are normally not subject to VAT. Conversely imports are taxed to keep the system fair for EU producers so that they can compete on equal terms on the European market with suppliers situated outside the Union.
Value added tax is
Why do all EU countries use VAT?
How is it charged?
The VAT due on any sale is a percentage of the sale price but from this the taxable person is entitled to deduct all the tax already paid at the preceding stage. Therefore, double taxation is avoided and tax is paid only on the value added at each stage of production and distribution. In this way, as the final price of the product is equal to the sum of the values added at each preceding stage, the final VAT paid is made up of the sum of the VAT paid at each stage.
Registered VAT traders are given a number and have to show the VAT charged to customers on invoices. In this way, the customer, if he is a registered trader, knows how much he can deduct in turn and the consumer knows how much tax he has paid on the final product. In this way the correct VAT is paid in stages and to a degree the system is self-policing.
€180 (paid by the smelter) + €160 (paid by the mine) + €40 (paid by the supplier to the mine) + €20 (paid by the supplier to the smelter) = €400 or the correct amount of VAT on a sale worth €2000.
EU law only requires that the standard VAT rate must be at least 15% and the reduced rate at least 5% (only for supplies of goods and services referred to in an exhaustive list).
Actual rates applied vary between EU countries and between certain types of products. In addition, certain EU countries have retained other rates for specific products.
The most reliable source of information on current VAT rates for a specified product in a particular EU country is that country's VAT authority. An overview of the different rates applied in all EU countries is provided in the EU information document.
What is the Commission’s role in application of the EU VAT system?
The Commission is responsible for ensuring the correct application the VAT Directive. Each Member State is responsible for the transposition of these provisions into national legislation and their correct application within its territory. The role of the Commission, as the "Guardian of the Treaties", consists of ensuring that the national legislation and general practice complies with EU Law.
How do the EU countries apply VAT?
EU countries implement common rules set in VAT Directive in their national legislation. The practical application and the administrative practices of each EU country therefore vary.
Can the Commission intervene in specific cases of application of VAT Directive?
The European Commission does not have competence to solve problems of particular taxpayers in their specific cases nor to give an opinion on factual findings.
The Commission may initiate an infringement procedure against a Member State concerned. However, only the Commission and the Member State are considered parties in this procedure to the exclusion of a particular taxpayer. The outcome of such a procedure does not have a direct effect on specific cases.
Therefore, the only way to seek redress in particular cases is to have recourse to the national means of redress – administrative or judicial.