Possibilities and Risks of the Introduction of Cross-border Input VAT Deduction System in the EU

The current VAT transition system (from the destination to the origin principle) contains a number of shortcomings. For example, the input VAT reimbursement to those taxpayers in other EU countries is nowadays made in accordance with the guidelines of 79/1072/EEC, namely in a form of repayment upon the individual formal claims. This study primarily examines the possible cross-border input VAT repayment procedures for companies and tax authorities in both cases of making private business with domestic and also foreign partners. Especially the VAT revenue equalisation efforts between countries and the tax control mechanism in the EU are thoroughly examined. In addition the costs and benefits which are related to the cross-border input tax reimbursement system are discussed. Moreover, it is to be examined under the particular consideration of federal tax administration system in Germany what sorts of additional preparations should be made in this country to safeguard the well-functioning cross-border input VAT refund system which is accompanied by the EU-wide clearing mechanism. Furthermore, the study deals with the possibilities of VAT evasion in such a cross-border reimbursement system. A large number of contacts of the Ifo Institute with domestic and foreign business associations and chambers as well as private companies in the EU Member States will facilitate the collection of their practical knowledge and experiences about this matter, which will be mainly carried out in the context of experimental games.