VAT as a harmonized tax under European Union law vision of a community without borders, which the European Union was to become, was also to concern the economy.
VAT as a harmonized tax under European Union law The vision of a community without borders, which the European Union was to become, was also to concern the economy. European tax rules the idea was therefore to harmonise tax law, while realising that this would be a difficult task. Indeed, it should be taken into account that taxes are one of the most important tools for influencing the state economy. Therefore, income taxes, less affecting transactions between states, were left to national law, while turnover and excise taxes were addressed. The assumption was that countries should not favour or disfavour any other Member State, including by means of turnover taxes.
The origins of VAT – where and when?
VAT was first introduced in France in 1954. Thanks to EU legislation, it has become commonplace in much of Europe, as the 1967 Directives required each Member State to apply VAT in its national laws.
Some countries whose legal systems offer favourable forms of taxation are defined as having harmful tax competition. However, the criteria for assessing whether a country falls into this group vary. Assessment criteria The best-known definition of a country with a favourable tax regime that can be considered to be applying harmful tax competition is provided by the Organisation for Economic Co-operation and Development (OECD). According to the 1998 OECD guidelines, the four key criteria for a jurisdiction to be considered as such are: 1) no income tax or a purely nominal income tax; 2) lack of effective exchange of tax information with other countries; 3) lack of transparency; (4) Lack of significant efforts to introduce effective exchange of tax information with other countries and transparency.
VAT and online invoicing
Before the pandemic, governments sought to take advantage of consumption growth, and indirect taxes became the main source of revenue for public budgets. This area is the most susceptible to tax avoidance, so national tax authorities are seeking to effectively collect taxes and combat fraud through digital technology. Their purpose is to monitor the sales process between end customers, detect tax evasion transactions and reduce tax fraud. The introduction of online cash registers has proven to be an effective tool to support the whitening of the economy.
Labour costs
Employment and payroll taxes and contributions continue to decline in 2021, but their actual rates vary across the region. The Czech Republic, after a period of flat tax, is returning to progressive taxation. They are followed by Austria, Germany, Slovenia, Croatia and Slovakia, among others. The remaining countries, Bulgaria, Romania, Ukraine and Hungary, still apply flat income tax.
The regional average of total employer compensation costs remains unchanged at 160 percent of net pay, but these values vary significantly across the country. When it comes to taxes and contributions, the ratio of employer costs to gross pay averages 15 percent, but the difference between the lowest and highest employer contributions is more than 30 percentage points. The two extreme cases (contribution burden below 5% in Romania and above 30% in Slovakia) highlight the limitations of the comparability of the different tax systems.
For more information, visit the website: https://europe-tax.com/