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Principle of Vat Neutrality and the Reverse Charge Mechanism

Author

Listed:
  • Famulska Teresa

    (University of Economics in Katowice, Faculty of Finance and Insurance, Department of Public Finance, .)

  • Rogowska-Rajda Beata

    (University of Economics in Katowice, Faculty of Finance and Insurance, Department of Public Finance;, .)

Abstract

The principle of VAT neutrality is among the fundamental characteristics of this tax. It is implemented through reduction of VAT output by the amount of VAT input. The right of deduction constitutes an integral part of the VAT mechanism and is intended to free the entrepreneur entirely from the burden of VAT paid for the goods and services purchased within the framework of business activity. However, in certain situations it is possible to shift the obligation to pay VAT to the customer being a taxable person by introducing a reverse charge mechanism. The purpose of the article is to identify the relationship between the implementation of the principle of VAT neutrality and the reverse charge mechanism. The conducted analysis of the essence and functioning of the reverse charge and the detailed findings drawn on its basis allow us to conclude generally that this mechanism does not affect implementation of this principle.

Suggested Citation

  • Famulska Teresa & Rogowska-Rajda Beata, 2018. "Principle of Vat Neutrality and the Reverse Charge Mechanism," Financial Internet Quarterly (formerly e-Finanse), Sciendo, vol. 14(3), pages 87-97, September.
    • Handle: RePEc:vrs:finiqu:v:14:y:2018:i:3:p:87-97:n:5
    DOI: 10.2478/fiqf-2018-0022
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    References listed on IDEAS

    as
    1. Keen, Michael & Smith, Stephen, 2006. "VAT Fraud and Evasion: What Do We Know and What Can Be Done?," National Tax Journal, National Tax Association;National Tax Journal, vol. 59(4), pages 861-887, December.
    2. Pricewaterhousecoopers, 2007. "Study in respect of introducing an optional reverse charge mechanism in the EU VAT Directive," Taxation Studies 0019, Directorate General Taxation and Customs Union, European Commission.
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    More about this item

    Keywords

    VAT; input VAT; output VAT; principle of VAT neutrality; reverse charge;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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