An analysis of the VAT implications of chain transactions : an EU perspective

Abstract

Purpose: The primary purpose of this study is to analyse the VAT implications of chain transactions. This research examines the reasonableness and shortcomings of the current system on chain transactions as per EU VAT Directive, as well as according to laws of different member states, while evaluating the impact on the interpretation of practitioners arising from CJEU cases on chain transactions. This research further analyses the effect of the Quick Fixes and the proposed Definitive Regime on chain transactions. Lastly, this research assesses recommendations for beneficial improvement, while identifying growth potential for chain transactions. Design: As a preliminary means of gathering information, an analysis of relevant literature was carried out. Subsequently, 15 semi-structured interviews were conducted with 12 local tax practitioners, 1 tax practitioner from Cyprus, and 2 high-ranking officials from the Office of the Commissioner for Revenue. Findings: The findings indicate that there are shortfalls in the current system for chain transactions; however, with respect to the triangulation mechanism, the objective of avoiding unnecessary registrations is achieved. Differing interpretations were a recurring issue on chain transactions, although improvements have been made with the new Quick Fixes. CJEU case law is evidently fundamental to practitioners, and its codification into the Quick Fix was viewed positively, providing further clarity to chain transactions. Despite the Definitive Regime being viewed as a shift towards the ideal scenario, shortcomings with proposals related to chain transactions were identified. Implementation of the Definitive Regime is not believed to be attainable by 2022. Although VAT is not viewed as an element which would hinder business, the changes bring about an added compliance cost for EU businesses. Conclusion: Although the Quick Fixes are perceived as beneficial, the entire VAT system will soon be revamped with the introduction of the Definitive Regime. Changes are resulting in increasing compliance costs which may be unsustainable for SMEs. In order to enhance growth of the single market, chain transactions should be facilitated. Recommendations given in this respect include improving harmonisation, alongside providing a central depository of guidelines. Value: This study sheds light on the shortfalls of the system applicable to chain transactions, emerging from the Directive, together with the applicable changes in the Quick Fixes. This research provides valuable insights on the proposals of the Definitive Regime impacting chain transactions, as well as on areas for improvement to ensure proper and efficient application of the rules.