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Taxation of services with VAT and exercise of the right to refund VAT paid abroad

Value added tax is an important source of public financial resources that finance the public consumption. In the single market of the European Union, the current VAT system, initially designed as a transitional system, is fragmented and complex for taxpayers who do business internationally, thus it also enables fraud.

Domestic and cross-border transactions are treated differently, and goods or services can be purchased in the single market without paying VAT. Therefore, reforms are gradually being adopted through the Directives, which are striving for simplification, higher efficiency of tax administrations and are limiting the risk of fraud.

Frequent legislative changes due to the strategies of the European Union affect the unstable national legislation, which implements these changes with amendments to the existing legislation each time. Despite taxpayers encountering up to 27 different national legislations in performing international transactions, the VAT area is one of the most harmonized due to its inclusion in the common fiscal policy.

In the accounting processing of international transactions, it is therefore crucial to follow legislative changes as this is the only way to enable consistent fulfilment of obligations as well as to exercise the rights of taxpayers identified for VAT.

In the case of taxation of services, general rules and special rules apply. Both determine the place of taxation and thereby obligate taxpayers to treat their international transactions correctly. With these, VAT may be paid abroad (to a country other than the country of VAT identification), therefore the legislation allows for a simplified procedure to exercise the right for a refund, as long as the applicant meets the statutory conditions.

Correct accounting processing and, consequently, correct reporting enable the exchange of data between the authorities of the member states of the European Union and the control of taxpayers; meanwhile, the case law shows how ignorance of the law can cause irretrievable losses for taxpayers.

AUTHOR

Matej Ramšak

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