About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

2 World J. VAT/GST L. 1 (2013)

handle is hein.journals/wjvatl2 and id is 1 raw text is: DOI: http://dx.doi.org/10.5235/20488432.2.1.1 The taxation of cross-border interstate sales in federal or common markets ROBERT F VAN BREDERODE AND PIERRE-PASCAL GENDRON Dr Robert F van Brederode is the managing principal of Essentax LLC, a tax consultancy firm based in Danbury, CT, USA. Previously, he was professor of tax law at the Erasmus University, School of Economics; partner in charge of the Netherlands Indirect Tax Practice at PwC; and Adjunct Professor at New York University, School of Law. Dr Pierre-Pascal Gendron is Professor of Economics and Program Co-ordinator, International Business Degree, The Business School, Humber College Institute of Technology & Advanced Learning, Toronto, Canada. The taxation of cross-border transactions within federal or common markets presents significant challenges to the efficient and fair application of VAT. This article discusses the interstate tax jurisdiction and collection rules applied in the European Union, the United States and Canada. The analysis finds that while the destination principle is dominant, there are very important differences in law and in practice between the three jurisdictions. In the EU, the cost of following the destination principle appears to be significant complexity and fraud. In the US, the absence of a VAT places a significant barrierto achievingthe principle since the use tax is unable to effectively fix the problems. In contrast, the system in place in Canada, while complex, seems to do a good job at protectingthe sales tax base in relation to interprovincial cross-border transactions. 1. Introduction and scope Under a VAT or similarly comprehensive general sales tax, the two main issues connected with cross-border sales of goods and services are tax jurisdiction and tax collection. Streamlined tax jurisdiction rules are required to prevent double taxation and double non-taxation. Jurisdic- tion rules, however, are only one part of the equation. It is also necessary to have practical tax liability rules to ensure that the tax is actually collected, particularly in situations where the seller is not established or not registered in the state that has tax jurisdiction. The destination principle, which is accepted by almost all countries for the determination of VAT jurisdiction in international and cross-border trade, allocates the right to tax a supply of goods or services to the country where they are effectively used or consumed. Thus, a level playing field is cre- ated with locally produced goods and services. For example, if goods are sold from Mexico to France, the latter is entitled to levy VAT on the transaction. For sales of goods between nation states, VAT collection takes place at the border when the goods are cleared with Customs. However, for services and other intangibles in relation to which no customs clearance occurs, as well as for goods sold across interstate borders where Customs control is absent, VAT col- lection may be less straightforward. Under the origin principle, goods and services are taxed in the jurisdiction where the producers or service providers are located. This solves the collec- tion problem, but may create serious economic distortions where the origin and destination countries apply different VAT rates. This article focuses on VAT jurisdiction and collection rules related to cross-border sales of goods and services within federal countries and common markets. We explore in some

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most