Value Added Tax and Financial Services

Asia-Pacific Tax Bulletin, Vol. 10, pp. 363-370, 2004

Victoria University of Wellington Legal Research Paper No. 29/2013

10 Pages Posted: 15 May 2010 Last revised: 10 Apr 2015

John Prebble QC

Victoria University of Wellington - Faculty of Law; Institut für Österreichisches und Internationales Steuerrecht, Wirtschaftsuniversität Wien; University of Notre Dame Australia - School of Law

Sybrand van Schalkwyk

Staples Rodway

Date Written: 2004

Abstract

Value added tax (VAT) is a relatively modern development. Designers of VAT recognized from the outset that the way in which financial institutions are remunerated creates significant difficulty when the tax is applied to their services. Administrative difficulties relate to imposing invoice-based VAT on service fees charged as part of the margin between buy and sell rates. Theoretical reasons relate to arguments that financial services should not be taxed under a consumption tax because, it is argued, financial services are not consumed in the way in which goods and services are consumed. Because of these difficulties, most jurisdictions have opted to exempt financial services from VAT. However, the commonly accepted reasons to exempt financial services from VAT are not compelling, since financial services are no different in relevant respects from other services. Moreover, there are methods by which financial services could be brought within the VAT base. Furthermore, although exemption is the simplest way for a VAT to treat financial services, it causes significant distortions in the economy.

Keywords: Income Tax, Value Added Tax, Financial Services, Goods and Services Tax, Non-Discrimination Principle

JEL Classification: K34

Suggested Citation

Prebble QC, John and van Schalkwyk, Sybrand, Value Added Tax and Financial Services (2004). Asia-Pacific Tax Bulletin, Vol. 10, pp. 363-370, 2004; Victoria University of Wellington Legal Research Paper No. 29/2013. Available at SSRN: https://ssrn.com/abstract=1605002

John Prebble QC (Contact Author)

Victoria University of Wellington - Faculty of Law ( email )

PO Box 600
Wellington, 6140
New Zealand
+64 4 463 6311 (Phone)
Papers Indexed at HOME PAGE (Fax)

HOME PAGE: http://www.victoria.ac.nz/law/staff/prebble-scholarly.aspx

Institut für Österreichisches und Internationales Steuerrecht, Wirtschaftsuniversität Wien ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

University of Notre Dame Australia - School of Law

Sydney Campus, New South Wales
Australia

Sybrand Van Schalkwyk

Staples Rodway ( email )

3rd Floor 85 The Terrace
PO Box 1208
6140 Wellington
New Zealand

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