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OECD releases draft Commentary on the International VAT Neutrality Guidelines

06 July 2012   (0 Comments)
Posted by: SAIT Technical
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OECD released draft Commentary on the International VAT Neutrality Guidelines.

This commentary on the International VAT Neutrality Guidelines is part of the OECD International VAT/GST Guidelines (the Guidelines), which are currently being developed by the Committee on Fiscal Affairs of the OECD. The Guidelines provide rules for the application of VAT to cross-border trade. They are based on the destination principle, which provides that internationally traded services and intangibles should be taxed according to the rules of the jurisdiction of consumption.

The Guidelines specify that, for internationally traded business-to-business supplies of services and intangibles, the application of this principle is, in most cases, best achieved by allocating the taxing rights to the jurisdiction in which the customer is located (the "Main Rule”). As a consequence of the Main Rule, such supplies are not taxed in the supplier's jurisdiction but are instead taxed on the same basis and with the same rates as local supplies in the jurisdiction of the customer (if VAT is applicable in that jurisdiction).

The Guidelines recommend that the customer should be liable to account for any tax due through the reverse-charge mechanism where that is consistent with the overall design of the national consumption tax system.

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