The question of applying various principles VAT accrual by country of destination or by country The issue of origin is key to shaping the fiscal policy of countries that are actively involved in international trade. The principles of distribution of this indirect tax directly determine which country will receive tax revenues from the consumption of goods and services, which can significantly affect the development of their economy.
How it works!
VAT by destination country
Meaning: VAT is paid in the country where the product or service arrives (that is, where they are used).
Example:
- Ivan buys a German-made TV in Russia.
- The German manufacturer does not pay VAT in Germany, as the goods are exported.
- Ivan pays Russian VAT in Russia when buying a TV in a store.
Conclusion: VAT remains in the country of consumption (in this case, Russia).
VAT by country of origin
Meaning: VAT is paid in the country where the product or service was created.
Example:
- Ivan buys a TV from Germany in Russia.
- The German manufacturer adds German VAT (for example, 19%) to the price of the TV.
- No additional VAT is charged in Russia.
Conclusion: VAT remains in the country of origin (Germany).
The key difference between the principles
- By destination country: The tax goes to the country where the product is used (beneficial for importers).
- By country of origin: The tax remains in the country where the product is produced (beneficial for exporters).
Why is the country of destination principle used more often?
This principle is more fair and beneficial for global trade.:
- Taxes remain in the country where the goods are consumed.
- It stimulates international trade: exports are exempt from VAT, which makes exported goods cheaper.
