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Value Added Tax
This book integrates legal, economic, and administrative materials about value
addedtax.Itsprincipalpurposeistoprovidecomprehensiveteachingtools–laws,
cases,analyticalexercises,andquestionsdrawnfromtheexperienceofcountries
andorganizationsaroundtheworld.Italsoservesasaresourcefortaxpractitioners
andgovernmentofficialsthatmustgrapplewithissuesundertheirVATortheir
prospectiveVAT.Thecomparativepresentationofthisvolumeoffersananalysisof
policyissuesrelatingtotaxstructureandtaxbaseaswellasinsightsintohowcases
arisingoutofVATdisputeshavebeenresolved.Inthenewedition,theauthorshave
expandedthecoveragetoincludenewVAT-relateddevelopmentsinEurope,Asia,
Africa,andAustralia.Anewchapteronfinancialserviceshasbeenaddedaswell
asananalysisofsignificantnewcases.
Alan Schenk teaches VAT at Wayne State University and has taught VAT at
other universities such as Harvard University, the University of Michigan, and
theUniversityofSanDiego.Forthepasteightyears,ProfessorSchenkhasserved
asTechnicalAdvisorfortheInternationalMonetaryFund,draftingandreviewing
legislativeproposalsforsalesandvalueaddedtaxforseveralcountriesinAfrica
andforemergingeconomiesofEasternEurope.Heistheauthoroffourbooksand
has published many articles on VAT including several involving the taxation of
financialservices.
OliverOldmanisLearnedHandProfessorofLaw,Emeritus,attheHarvardLaw
School.Fortwenty-fiveyearsuntilJuly1989,hewastheDirectoroftheSchool’s
International Tax Program. He has been a member of the Law School Faculty
since1955whenhebegandirectingtheTaxProgram’strainingactivitiesandwas
appointedProfessorofLawin1961.Hebeganteachingaboutvalueaddedtaxesin
hisComparativeTaxPolicycourseinthe1960sandofferedhisfirstseparatecourse
onthevalueaddedtaxin1979.HehastaughtthecoursecontinuouslyatHarvard
LawSchoolsincethen.ProfessorSchenkhasbeenafrequentguestlecturer.
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Value Added Tax
A Comparative Approach
AlanSchenk
WayneStateUniversity
OliverOldman
HarvardLawSchool
iii
cambridge university press
Cambridge,NewYork,Melbourne,Madrid,CapeTown,Singapore,SãoPaulo
Cambridge University Press
TheEdinburghBuilding,Cambridgecb22ru,UK
PublishedintheUnitedStatesofAmericabyCambridgeUniversityPress,NewYork
www.cambridge.org
Information on this title: www.cambridge.org/9780521851121
©AlanSchenkandOliverOldman2007
Thispublicationisincopyright.Subjecttostatutoryexceptionandtotheprovisionof
relevantcollectivelicensingagreements,noreproductionofanypartmaytakeplace
withoutthewrittenpermissionofCambridgeUniversityPress.
Firstpublishedinprintformat 2006
isbn-13 978-0-511-24937-2eBook(EBL)
isbn-10 0-511-24937-3eBook(EBL)
isbn-13 978-0-521-85112-1hardback
isbn-10 0-521-85112-2hardback
isbn-13 978-0-521-61656-0paperback
isbn-10 0-521-61656-5paperback
CambridgeUniversityPresshasnoresponsibilityforthepersistenceoraccuracyofurls
forexternalorthird-partyinternetwebsitesreferredtointhispublication,anddoesnot
guaranteethatanycontentonsuchwebsitesis,orwillremain,accurateorappropriate.
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To
Jared,Ethan,Daniel,Jordan&Rae
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Contents
ListofTables,Figures,andCharts pagexxiii
ListofCases xxv
PrefacetotheRevisedEdition xxxiii
1 SurveyofTaxesonConsumptionandIncome,
andIntroductiontoValueAddedTax 1
I. Introduction 1
II. DevelopmentofTaxesonConsumption–ABriefReview
ofHistory 2
III. DirectandIndirectTaxesonanIncomeorConsumption
Base 5
A. DirectandIndirectTaxes 5
B. IncomeandConsumptionBaseforTax 8
IV. TaxStructuresinDevelopedandDevelopingEconomies 13
V. BroadeningtheBaseofaTaxSystem 16
VI. TheValueAddedTax 16
VII. TheProliferationofVATs 17
VIII. GlossaryofVATTerms 19
IX. OutlineofIssuesPertainingtoConsumptionTaxes 23
X. DiscussionQuestions 24
AppendixA:DevelopmentTaxation 25
I. Introduction 25
II. TheReformofIndirectTaxation 27
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viii Contents
III. TaxingImports 27
IV. TaxingExports 28
2 FormsofConsumption-BasedTaxesandAltering
theTaxBase 30
I. FormsofConsumption-BasedTaxes 30
A. Introduction 30
B. Consumption-BasedDirectTaxonIndividuals 30
C. SingleandMultistageSalesTaxes 33
II. OverviewoftheValueAddedTax 33
A. InGeneral 33
B. JurisdictionalReachoftheTax 35
C. InclusionofVATinTaxBase 35
D. InclusionofCapitalGoodsinTaxBase 36
III. MethodsofCalculatingVATLiability 38
A. Credit-InvoiceVAT 38
B. Credit-SubtractionVATThatDoesNotRelyonVAT
Invoices 41
C. Sales-SubtractionVAT 42
D. Addition-MethodVAT 43
IV. MethodsofAlteringtheTaxBase 46
A. EntityExemptions 48
B. ZeroRating 50
C. TransactionExemption 52
D. AlterationofBasebyGrantingorDenyingCredits 54
E. MultipleRates 54
V. DiscussionQuestions 55
3 VarietiesofVATinUse 58
I. Introduction 58
II. EuropeanUnion:AMatureVATResistant
toChange 59
A. VATintheEuropeanCommunity 59
B. EuropeanCourtofJustice 63
C. ApplicationoftheEUSixthVATDirective 64
1. Historyandproposalforrecodification 64
2. WhenisataxonconsumptionnotaturnovertaxorVATin
violationofthesixthdirective? 64
Description:This book integrates legal, economic, and administrative materials about value added tax. Its principal purpose is to provide comprehensive teaching tools - laws, cases, analytical exercises, and questions drawn from the experience of countries and organizations from all areas of the world. It also
