Interview Questions.

Question 1. What Is Vat?

Answer :

VAT is a consumption tax, charged on most items and services traded to be used or consumption in the EU. It is levied on the "fee delivered" to the product at every degree of production and distribution.

The "price added" means the difference among the cost of inputs into the product / carrier and the rate at which it's miles offered to the patron. VAT is charged whilst VAT-registered (taxable) companies promote to other companies (B-2-B) or to the final customer (B-2-C). VAT is intended to be "neutral" in that corporations are able to reclaim any VAT that they pay on items or services. Ultimately, the very last customer must be the handiest one who is certainly taxed. Businesses are given a VAT identification variety and feature to expose the VAT charged to clients at the invoices. 

In the EU, there's a minimal general VAT price of 15%, above which Member States are free to set their very own national VAT costs. Member States determine how to spend the sales they get hold of from VAT receipts, except for a small percentage of this overall that's paid towards the EU price range.

Question 2. How Does The Current Eu Vat System Work?

Answer :

Currently, a transitional machine is in area for VAT on intra-EU transactions (see underneath). Under this device, with regards to go-border income between agencies, VAT is collected within the Member State of destination (i.E. Where the goods are despatched to or wherein the recipient of services is hooked up), consistent with the rate and situations of that us of a.

This means that the supplier of goods or offerings does not fee VAT, however the recipient is answerable for paying it. Both the dealer and recipient should conform to big reporting obligations. It ought to be referred to that there are numerous exceptions to those rules. For example, VAT on delivery is paid wherein the transport occurs and VAT on cultural activities occurs where the display takes location.

The regulations for intra-EU transactions differ from merely home transactions, in which the provider costs VAT and is chargeable for paying it to the Treasury. The divergence among home and intra-EU guidelines for VAT poses problems for the Single Market, as it creates extra burdens for groups operating move-border and exposes the VAT gadget to fraud.

For goods or offerings supplied to private individuals (i.E. Commercial enterprise to patron), the taxation is the same for intra-EU transactions as it's far for domestic transactions i.E. The VAT is paid with the aid of the supplier in the Member State in which the sale occurs or wherein the provider is mounted. However, there are sure elements for which specific regulations practice e.G. Distance income, new way of transport, certain offerings and so on.

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Question three. How Much Revenue Is Raised Through Vat Every Year In The Eu?

Answer :

In 2008, total VAT receipts within the EU were around EUR 862 billion. VAT receipts accounted for 21.Four % of the countrywide tax revenues of EU Member States (such as social security contributions), a upward thrust of 12% considering the fact that 1995. It is accordingly a major source of revenue for countrywide budgets and in lots of Member States it's miles the primary source.

VAT receipts represented in 2008 on average 7.Eight% of the GDP of a Member State, a discern that has expanded with the aid of nearly thirteen% from 1995. Since the recession, the percentage of VAT sales as a part of overall receipts has probably grown in addition in most EU nations.

Question 4. How Much Of This Revenue Goes Towards The Eu Budget?

Answer :

VAT is part of the personal assets of the EU price range, and Member States pay a small percentage in their total VAT receipts to the EU. Currently, this contribution from Member States is based totally on rate zero.Three% of the national harmonised VAT base, with temporary decreased costs over 2007-2013 of 0.225% for Austria, zero.15% for Germany and 0.1% for the Netherlands and Sweden.

In 2010 it represents 14 billion Euro.

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Question 5. Why Is There A Transitional System In Place For Vat At The Moment?

Answer :

In 1967, the Council undertook a legal and political commitment to introduce a VAT gadget tailor-made to the Single Market and operated across Member States inside the equal way as inside a unmarried usa.

To whole the internal marketplace by means of 1993, the Commission recommend proposals based totally on taxation within the us of a of foundation, with a harmonised charge structure, and a clearing mechanism for the redistribution of VAT receipts to the Member State wherein consumption takes place.

However, given the lack of consensus and the need for goods that allows you to pass freely inside the EU whilst still allowing Member States to collect the tax sales, the Council alternatively adopted a transitional gadget. The transitional machine has enabled controls of goods at the EU’s inner borders to be abolished even as permitting tax to be gathered inside the Member State of destination at the charge and beneath the conditions of that us of a.

This device became simplest speculated to remaining for four years, but Member States have been unable to come to settlement on a greater permanent device based totally on taxation inside the Member State in which the goods originate. It is now excessive time to tackle the uncertainty about the destiny of the cutting-edge (so-known as transitional) VAT gadget and to pick out a strong and definitive machine via taking into account the views of all stakeholders as to the great way forward.

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Question 6. Why Is There An Eu Minimum Vat Rate?

Answer :

A minimum EU VAT fee turned into mounted to coincide with the introduction of the EU Single Market, which intended that economic controls at internal borders had been not executed. This minimal rate enables to keep away from full-size versions in Member States’ VAT charges that can result in distortions of opposition among high and occasional charge nations and placed the smooth functioning of Single Market at danger. The minimal degree for the VAT rate has been constant at 15% considering 1992, with normal evaluate of this price. Member States are unfastened to set their own rate at or above this minimal.

Question 7. What Are The Rules With Regard To Reduced Vat Rates, And What Type Of Goods And Services Can Benefit From These Rates?

Answer :

EU guidelines allow Member States the option of applying one or  reduced rates to a restrained list of products and services, which are set out in Annex III to the VAT Directive. The reduced rate can not be less than five%, and the list of eligible goods and offerings should be strictly interpreted.

Some examples of products eligible for a decrease fee encompass: foodstuffs, drug treatments, scientific gadget for the disabled, books on all bodily manner of assist, newspapers, periodicals, passenger shipping, admission to indicates, theatres, museums, and so forth.

Some examples of services eligible for a reduced rate consist of: the delivery of passengers and their accompanying bags, admission to indicates, theatres, circuses, festivals, enjoyment parks, concert events, museums, zoos, cinemas, exhibitions and comparable cultural events and centers, preservation of housing as part of a social policy, and so forth.

In addition, there may be a mess of derogations on the utility of zero rates, awesome-decreased costs (decrease than 5%), and decreased rates for services or products now not commonly eligible. This makes the entire machine complex and open to misinterpretation. 

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Question eight. What Is The Situation With Regard To Vat Exemptions? What Is Exempt And Why?

Answer :

Supplies falling beneath a class exempt from VAT are bought to the customer, normally a very last patron, without any VAT being implemented to that sale. Exemptions from tax consist of for example, certain sports in the public hobby (hospital treatment, school schooling and so forth.) or certain insurance and financial services. Reasons at the back of the exemptions vary, at the time the exemptions were granted a few sports were only achieved with the aid of public authorities, for a few different it become very hard to decide the taxable basis, for a few others the VAT turned into an excessive amount of of a burden, administratively or financially.

However, as the supply is exempt from VAT, deduction of the VAT paid on the inputs isn't always feasible. For instance, postal services are at gift exempt from VAT. So if a person sends a parcel the use of the Post Office he isn't always charged VAT, but the Post Office has paid VAT on its inputs: the trucks it makes use of, the post containers it buys, and all of the different things. It cannot reclaim or deduct this VAT. So part of the price of the stamps you purchased to send the parcel represents paying this "hidden" VAT.

Question nine. Why Does The Vat System Need To Be Reviewed?

Answer :

Value delivered tax (VAT) is a chief supply of revenue for country wide budgets, and is likely to be proportionally even more in order the monetary disaster and getting older populations take their toll on other taxes (such as labour and capital).

Many Member States have currently elevated their VAT prices as part of their consolidation efforts. Consumption taxes are taken into consideration, in widespread, to be a more solid sales source, and more boom-pleasant, than positive different taxes along with income and profits.

However, the VAT gadget presently in vicinity is not nicely-outfitted for nowadays’s society. It turned into designed over forty years ago, while offerings, modern technology and globalisation had a far less outstanding role in the economy than they do these days. There are numerous shortcomings in the modern VAT system which create barriers to the Internal Market, purpose burdens for businesses and prevent Member States from benefitting from the real potential of this tax.

While essential concept behind VAT is to have a large-based totally, globally implemented intake tax, the wide and divergent use of decreased prices and exemptions by means of Member States manner that most effective a part of final consumption is being taxed at the usual fee. Moreover, inconsistencies in the application of reduced VAT quotes additionally result in distortions of opposition in the Internal Market. Finally, the cutting-edge VAT device is quite vulnerable to fraud and a considerable a part of the VAT is misplaced this way.

Taking under consideration the above weaknesses, the VAT gadget wishes to be reviewed to ensure that it is as efficient, sturdy and flexible as it is able to probable be. A reform of the VAT system should greatly make contributions to delivering at the EU’s 2020 Strategy, strengthening the Internal Market and supporting Member States’ budget consolidation.

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Question 10. What Does The Single Market Act Say In Relation To Vat?

Answer :

The Single Market Act units out several initiatives to reinforce growth and enhance the Internal Market. This consists of growing a supportive criminal and financial environment for corporations so as to reduce administrative burdens and sell go-border pastime.

VAT is a key element on this respect. In its idea No 20, the Single Market Act in particular mentions the concept of a brand new VAT Strategy. The present day structure of the VAT device ends in disproportionate administrative burden for organizations while, with the modern technological traits, their administrative obligations will be reduced considerably, in particular with reference to reporting and amassing VAT.

Question eleven. What Are The Key Issues That Are Addressed In The Consultation?

Answer :

The Green Paper places all factors of the VAT system up for discussion and aims to get as huge as viable feedback on the way to acquire a easier, extra strong and cutting-edge VAT machine. The goal is to review the current regime which will lessen series and compliance fees, provide maximum flexibility for Member States and guard against fraud.

A first part of the consultation offers with the remedy of move border components i.E. What would be the maximum green manner to price and acquire VAT in intra-EU transactions. The second part worries a big range of key issues, consisting of the way to ensure tax neutrality, the diploma of harmonisation required in the unmarried marketplace and a way to lessen "purple tape" even as ensuring VAT revenues for Member States.

Contributors to the session are also invited to raise any other troubles that they feel is probably applicable, which might not be specially cited within the Green Paper.

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Question 12. What Problems Do Businesses Face Under The Current System?

Answer :

Businesses that need to perform cross-border within the EU face additional VAT duties and have to follow special VAT regulations which do not affect corporations running most effective at home stage.

This creates better compliance costs and administrative burdens for businesses working in multiple Member State, and may act as a deterrent for groups (specially SMEs) from taking full gain of the Internal Market.

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Question thirteen. What Makes The Current System Susceptible To Fraud And How Can This Be Addressed?

Answer :

Abolishing fiscal controls on the time of implementation of the internal market (1993) has been of massive advantage for European groups. The free move of products in the EU has drastically reduced the administrative burden and expenses related to go border sports.

Nevertheless, the current European VAT preparations are designed in order that intra-EU supplies of goods between organizations are exempt inside the Member State of foundation, with taxation taking region in the Member State of destination. This exemption mechanism exposes the VAT device to fraud, in particular carousel or ‘Missing Trader’ fraud. This is while a fraudster purchases items VAT-free in one Member State and resells them with VAT in another Member State. The fraudster then wallet the VAT and is going missing, without asserting something to the tax authorities inside the Member State of vacation spot.

One manner of tackling carousel fraud is to enforce a “opposite charge” system i.E. Making the client answerable for paying the VAT, in preference to the vendor. The Green Paper seeks feedback from stakeholders on diverse alternatives that might help to prevent fraud, which include pass-border reverse-price or taxing intra-EU supplies. It also opens a dialogue on new manner for accumulating VAT, which might assure that Member States get the VAT that they're due, save you fraud and provide more criminal reality to corporations.

Question 14. How Much Is Lost Every Year Because Of Vat Fraud?

Answer :

Although, due to the very nature of fraud, it's far difficult to place a particular determine on VAT losses on intra-EU transactions because of fraud, it's far thought to be numerous billion euro each 12 months. In 2009, the Commission posted a take a look at on the EU VAT gap1, which compared what Member States actually were given in VAT receipts with what ought to had been predicted.

While this VAT gap covers more than just fraud (additionally prison avoidance and insolvencies), the take a look at set the space at €106.7 billion in 2006 within the EU-25. This represents a median of 12% of the internet theoretical liability despite the fact that several Member States were above 20%.

VAT fraud does no longer simplest affect the financial pursuits of the Member States and the EU. It additionally has an impact on sincere organizations which find themselves unable to compete on a degree playing area in those sectors which can be suffering from a sizeable quantity of VAT fraud.

Question 15. What Has The Commission Done To Address The Problem Of Vat Fraud?

Answer :

In 2008, the Commission set out a coordinated strategy to enhance the fight against VAT fraud in the EU. This Strategy covered a series of centered measures, including plans for legislative proposals (which have now all been recommend), and an extended-term reflection on a way to combat the trouble. One key element changed into to look growing the efficiency of administrative cooperation between tax administrations, and setting up the felony base for organising a community of country wide officers to locate and fight new instances of cross-border VAT fraud. This network – Eurofisc – is now operational and operating to coordinate facts change and establish an early warning mechanism to hit upon and save you fraud.

Some styles of fraud require specific measures, and the Commission has worked to help Member States in any manner that it can to fight such interest.

For instance, when critical stages of VAT fraud were detected in the CO2 emissions buying and selling scheme in 2009, the Commission acted very right away, bringing forward a proposal for a reverse fee system which Member States ought to practice to address this problem .

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Question 16. What Are The Next Steps After The Vat Green Paper?

Answer :

The Green Paper on the future of VAT launches a wide session procedure with all stakeholders at the current VAT machine and the possible methods to strengthening and improve it. The session will retain till 31 May 2011.

On the premise of the remarks acquired, the Commission will draw up a Communication earlier than the end of 2011, starting off the priorities for a destiny VAT Strategy.