Global Trends in VAT/GST and Direct Taxes

S. 196I. Introduction

Both VAT and direct taxation require, as a fundamental element, a nexus for the allocation of taxing rights to a given jurisdiction and for the individualization of both taxpayers and persons who will finally pay the tax burden. However, the VAT system and direct taxation differ in many respects, and this difference can be found when one investigates the financial connecting factors (nexus) too.

The starting point in this paper concerning indirect (consumption) taxes is the multi-stage VAT and the currently effective EU VAT Directive. On the other hand, for direct taxes the OECD Model Tax Convention (hereinafter, the “OECD MC”) serves as a common basis for the broad network of double taxation conventions concluded between countries in order to mitigate the effects of double taxation.

This contribution aims at examining the financial connecting factor (nexus) that plays a fundamental role in these tax systems for allocating taxing rights between different tax jurisdictions. In the first part the focus is on the connecting factors in the VAT world, and in the differences between services and goods. In the second section the nexus rules in direct taxation will be detailed...