The first OECD Global Forum on VAT was held in Paris on 7 - 8 November 2012. The Forum confirmed the need for an international standard on the VAT-treatment of international trade.
Countries around the world need to agree urgently on a global framework for the application of Value Added Taxes (VAT; also called Goods and Services Taxes, GST) to international trade, particularly in services and intangibles. The OECD is currently developing International VAT/GST Guidelines to address issues of double taxation and unintended double non-taxation, and this work provides a unique basis for the creation of the future international standard for applying VAT to cross-border trade. This was a key conclusion of the more than ninety delegations that participated in the inaugural meeting of the OECD Global Forum on VAT, in Paris on 7-8 November, with representatives of over eighty countries and International Organisations from all around the world. This conclusion was strongly supported by representatives of the business community and leading academics, who also participated in a part of the meeting.
VAT is a major source of revenue for governments around the world and its importance continues to increase. Over 150 countries operate a VAT today, twice as many as in 1992, and this number continues to grow. VAT now raises some 20% of the world’s tax revenues. As countries around the world are facing similar questions on the design and operation of VAT, the OECD has launched its Global Forum on VAT as a platform for policy dialogue and consensus building around best practice principles, particularly in the context of international trade.
The Global Forum looked at a range of design issues, notably considering how rising household income inequality may affect VAT policy and discussing options for improving VAT compliance. Country experts also exchanged views on countermeasures to reduce VAT losses due to fraud and, in this context, expressed a strong need for enhanced administrative co-operation, including through the exchange of information, building on OECD work in this area.
The key focus of the debate at the Global Forum was on the issue of double taxation and double non-taxation that results from the uncoordinated interaction of national VATs at international level. In contrast with the taxation of income (where there is the OECD Model Convention) there is no internationally agreed framework for the application of VAT to cross-border trade. This is especially problematic in the context of the strong growth in services and intangibles. Services cannot be subject to border controls in the same way as goods, so administrative procedures for ensuring that the right amount of tax is paid in the right place are more complex. From a government’s viewpoint there is a risk of under-taxation and loss of revenue, or distorting trade through double taxation. From a business viewpoint, there are large revenue risks and high compliance costs.
The Global Forum concluded that there is a strong need for internationally agreed principles and guidelines that contribute towards ensuring that VATs interact consistently so that they facilitate rather than distort international trade and considered that the work on the International VAT/GST Guidelines provides the ideal basis for the development of such global standards. Against this background, participants strongly agreed that the Global Forum’s key objective should be to build the widest possible international consensus on the International VAT/GST Guidelines, as the future international standard for applying VAT to cross-border trade with a view to minimising risks of double taxation and unintended non-taxation.
Work on the VAT/GST Guidelines will now continue under an ambitious work programme to complete these Guidelines by 2014, in co-operation with Global Forum participants. A comprehensive set of Guidelines will be presented for endorsement by the Global Forum on VAT at its next meeting early 2014.