VAT Jurisdictions vs. Non-VAT Jurisdictions

Abstract

The point at issue is whether it is possible for VAT jurisdictions to effectively interact with non-VAT jurisdictions in regard to eCommerce.

VAT and retail sales tax are without doubt the two prevailing indirect tax systems within the global community. 130 jurisdictions as of the year 2010 adopted and implemented a VAT system. Other jurisdictions of significance, for example, the USA, utilize a retail sales tax system.

While VAT and retail sales tax differ in terms of the principles of neutrality and the manner in which tax is imposed and implemented, the primary discrepancy between the two systems may, arguably, be the contention as to whether the destination or origin principle is applied and the manner in which the place of supply is determined and, furthermore, the interpretation of ‘physical presence’.

As cross-border transactions are exacerbated by the easy access and use of the eMarket, there has been increased urgency to harmonize principles and definitions globally. The OECD has recommended the use of the destination principle, and the USA Streamlined Sales Tax Program (SSTP) encourages a shift to the destination principle in regard to cross-border transactions, especially in regard to eCommerce.

Both GST and retail sales tax are applied in Canada. GST is imposed on a national level and retail sales tax on a provincial level. The provincial sales tax and GST have been operating in conjunction since 1991, serving as testament that non-VAT jurisdictions need not have a devastating impact on eCommerce when transacting with VAT jurisdictions.