OECD implements guidance for VAT collection on cross-border sales
by Iheanyi Nwachukwu
November 1, 2017 | 12:45 am| | | Start Conversation
Value Added Tax (VAT), also known as Goods and Services Tax (GST) in a number of countries has become a major source of revenue for governments around the world.
As VAT continued to spread across the world, international trade in goods and services has also expanded rapidly in an increasingly globalised economy.
One consequence of these developments has been the greater interaction between VAT systems, along with growing risks of double taxation and unintended non-taxation in the absence of international VAT co-ordination.
Amid this growing risk of double taxation, the Organisation for Economic Co-operation and Development (OECD) released new implementation guidance to promote the effective collection of consumption taxes on cross-border sales.
Nigeria, a member of OECD earned N207.35billion for the three months ended March 2017, representing 85.5percent of 2017 expected revenue of N242 billion.
According to data released by the National Bureau of Statistics (NBS), this figure translates to 1.25 percent decrease from N207.35 billion earned in the three months ending December 2016. It also represents a 9.84 year-on-year increase from N186.43 billion earned in the corresponding period last year.
OECD implementation guidance on VAT collection will support the consistent implementation of internationally agreed standards for the VAT treatment of cross-border trade and is of particular relevance given the rapid and ongoing digitalisation of the economy.
The new implementation guidance will support enhanced compliance levels while limiting compliance costs for digital suppliers by promoting the consistent and coherent implementation of these collection mechanisms across jurisdictions.
The boom in e-commerce and its impact on the collection of VAT on business to consumer (B2C) supplies in the market jurisdiction was identified as a key tax challenge in the context of the OECD/G20 Project on Base Erosion and Profit Shifting (the BEPS project).
The new guidance “Mechanisms for the Effective Collection of VAT/GST Where the Supplier Is Not Located in the Jurisdiction of Taxation” (implementation guidance) focuses on the implementation of the recommended approaches included in the 2015 Final Report on Action 1 “Addressing the Tax Challenges of the Digital Economy” of the BEPS project (BEPS Action 1 report). These recommended approaches, which are also included in the International VAT/GST Guidelines, have already been successfully implemented by a large number of countries.
The implementation guidance builds on good practice approaches deployed by jurisdictions when they require foreign suppliers to register and collect VAT on cross-border B2C sales in application of the solutions recommended in the BEPS Action 1 report. The implementation guidance was developed by the OECD with the active involvement of a wide range of jurisdictions beyond the OECD and with representatives of the global business community.
The early data on the impact of the recommended solutions is very promising. The European Union (EU), which was the first adopter of these collection mechanisms, has identified the total VAT revenue declared via its compliance regime (the Mini One Stop Shop or MOSS) as in excess of EUR 3 billion in its first year of operation.
The MOSS has also played an important role in reducing the compliance burden of businesses that use the regime. Approximately 70% of the total cross-border B2C supplies of services and intangibles that are in scope of this regime are captured by this compliance regime.
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