P R O M O C U L T U R E – L A R C I E R

Foreword

In times where State budgets are increasingly under pressure, levying of taxes becomes paramount . Invented by the French after World War I, VAT has rapidly spread throughout the world as an effective way of taxing consumption . For many Member States of the European Union, it has become a major if not the biggest source of tax revenue with a trend of steady increase of its share .

While adding a tax on prices appears at first sight as a simple solution, the design of an efficient yet fair VAT system entails in reality quite some complexities . VAT neutrality in business- to- business situations is a key feature of any such system and in particular of the European VAT regime .

Mrs . Charlène Herbain has dedicated her PhD in tax law at the Universities of Luxembourg and Paris  1 Panthéon- Sorbonne to this challenging topic . The publication through the present book of her work offers the broader public an access to the enlightening results of her in- depth research and innovative proposals .

After a historical introduction to the VAT system, the author sketches the defining features of the neutrality principle and its implications . She shows how this principle entails that VAT must not constitute a charge on businesses, that is must no result in any distortions of competition and that the burden borne by the final consumers should be equal in all circumstances, regardless the Member state of production .

In practice, these imperatives raise in fact many questions and con-cerns as neutrality is restricted in many ways, notably through imper-fections or limitations of the European regime, compliance costs, divergences between Member States, for instance regarding VAT rates and the scope of reduced rates, special treatments like the flat rate schemes existing in the UK or Belgium, and derogations, exemp-tions and various options tolerated by an incompletely harmonized system .

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P R O M O C U L T U R E – L A R C I E R

VAT NeutralityXVI

Notwithstanding that neutrality is a clear policy guideline in the design of VAT for the EU, the principle is far from being always guaran-teed in business- to- business situations and gives thus rise to numerous court cases . Indeed, the imperative of neutrality is most frequently referred to by the Court of Justice of the European Union in its pur-posive approach towards the construction of the EU VAT system .

Mrs . Herbain explores the various limitations and flaws of the regime both at EU level and in various domestic laws of the Member states, mostly in Luxembourg, France and Belgium . Her systematic and sub-tle analysis leads her to shape an innovative alternative to the current design based mainly on a redefinition of the origin principle and a way of levying the tax directly on the end- consumer, which would, as a side effect, allow to reduce tax fraud . Her proposal constitutes a precious contribution to the current debate on a reform of EU VAT .

Comprehensible and readable even for non- VAT experts, Mrs Herbain’s work, while rich in details, always tend to assess technicalities against fundamental features of the VAT regime .

Practitioners will find in this book a precious source of detailed infor-mation . Students and non- VAT experts will be guided through the presentation of many cases and the conceptualization of the defining features of the neutrality principle . Scholars and legislatures will gain from the inspiring proposals for a simplified and possibly even more effective VAT regime assuring full neutrality in business- to- business relationships . For all Mrs Herbain’s work offers definitively a way toward a finer understanding of EU VAT and its underlying impera-tive of tax neutrality .

Professor André Prüm University of Luxembourg

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