Worldwide Versus Territorial Tax Systems: Comparison of Value Added Tax and Income Tax
Wayne State University Law School Research Paper No. 09-27
VALUE ADDED TAX AND DIRECT TAXATION, Michael Lang, Peter Melz, Eleonor Kristoffersson, eds., IBFD, December 2009
15 Pages Posted: 10 Dec 2009
Date Written: December 8, 2009
Abstract
The following paper was presented at a conference on Value Added Tax and Direct Taxation – Similarities and Differences: International Network for Tax Research (INTR) Conference, March 26-28, 2009, Organized by the Institute for Austrian and International Tax Law, WU Vienna and the Institute for VAT Research at Stockholm University, and was published by the IBFD.
In designing an income tax or a VAT, a country generally must decide how broadly, geographically, it wants to assert its tax authority. The country may choose to impose its income tax or VAT under a worldwide or territorial principle. There are many countries with worldwide and territorial income taxes. There are many countries that impose territorial VAT systems, but relatively few impose a worldwide VAT system. To date, the literature fails to recognize some existing VAT systems as worldwide systems. In this paper, I suggest that at least the New Zealand and South Africa VATs can be analyzed as worldwide VAT systems. I compare these systems with the commonly used territorial VATs. This paper also raises the question of whether differences in the design of a VAT as a territorial or worldwide VAT represent only differences in form or differences in substance.
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