A MULTILATERAL OPTION FOR VAT IN INTERNATIONAL TRADE?

• Published in: The International and comparative law quarterly Vol. 71; no. 4; pp. 857 - 888
• Main Author: Xu, Yan
• Format: Journal Article
• Language: English
• Published: Cambridge, UK Cambridge University Press 01.10.2022
• Subjects: Borders; Boundaries; Business models; Consumption; Customers; Economic development; International cooperation; International law; International trade; Jurisdiction; Law and legislation; Mobile commerce; Multilateralism; Pandemics; Social aspects; Soft law; Suppliers; Supplies; Tax credits; Taxation; Transactions; Unilateralism; Value-added tax; VAT; United States > US; destination principle; international coordination; soft international law; VAT; multilateral treaty; public international law; unilateral actions
• ISSN: 0020-5893; 1471-6895
• DOI: 10.1017/S0020589322000331

Value-added tax, the most common form of consumption tax in the world, operates on a destination principle to ensure it is levied only in the place of final consumption in cases of cross-border transactions. The international trade in services and intangibles through digital means poses two challenges: finding the place of consumption and collecting the tax when services supplied by businesses in one jurisdiction are instantaneously consumed by customers in another. This article examines these challenges and considers how unilateral action and soft international responses have so far failed to achieve consistent destination basis taxation. An alternative option would be to adopt a hard multilateral response that would overcome the limitations of unilateralism and soft-law approaches and achieve consistent destination basis taxation in the digitalised economy.