VAT in Latin America, Asia Pacific and Europe.docxVIP

VAT in Latin America, Asia Pacific and EuropeWhen the complete history of taxation is written value-added tax (VAT) and variations on the same VAT theme, such as goods and services tax (GST) in Canada and Australia, consumption tax in Japan and Impuesto al Valor Agregado (IVA) in Latin America, will get star billing.From its modest beginnings in Europe in the 1950s, VAT has spread all over the world and its share of global tax receipts is rising. While corporate and personal income tax rates are generally declining, VAT rates are generally edging upwards and the International Monetary Fund (IMF) is urging developing countries to substitute VAT for their existing sales tax regimes.This chapter describes the VAT issues that confront multinationals as they do business internationally, focusing particularly on the position in Asia Pacific and Latin America where many multinationals expect most of their growth to come from in the next decade or so.Three important features distinguish VAT-type regimes from all other forms of taxation:? a general application of the tax at each stage of the production and distribution process;? a credit mechanism for VAT paid on qualifying business expenditure; and? a federal rather than a state or provincial level of administration.Despite these underlying similarities, VAT regimes in Europe, Latin America and Asia Pacific differ significantly and VAT risks and opportunities vary accordingly. Recognizing these opportunities for efficient indirect tax planning purposes is vital to multinationals wishing to increase certainty in their planning processes and mitigate costs.Tax policy drivers VAT was introduced to Europe in 1954 by France and has been adopted by all the existing 25 EU member states and most other European countries. A series of Directives issued by the European Commission holds the system loosely together, but optional articles in the Directives give member states scope to shape their own VAT laws. The evolution of European VA