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Despite the reputation of VAT as a convenient tool for accumulation of significant amounts of tax revenues to the budgets with relatively low administrative costs, the broad use of new information and communication technologies and the spread of e-commerce throughout the world considerably affects this tax’s efficiency, increases the risk of non-taxation or double taxation of operations, made in the framework of international trade, and violates the principle of fairness between goods and services, traded (provided) offline and online.In this regard, this paper outlines the main list of issues, that arise when using VAT to e-commerce transactions (especially - international ones), and describes main approaches, that are planned to apply or are already applied by the leading countries in the context of economical development and e-commerce.In general, international organizations (OECD, EU) have confirmed that e-commerce transactions are subject to VAT on a destination principle, and all sellers must be registered for VAT purposes in the countries, where their clients are located. However, there are still problems of international co-operation and coordination, related to the VAT application to international transactions.For less developed countries, emerging economies, and countries, that are planning to become EU member-states (such as Ukraine), not only the problems of applying VAT to e-commerce transactions, which are not solved in the most developed countries, must be addressed, but also those, that impede their economic and social development.Based on the results of the analysis, the paper offers recommendations on improving the legislation on e-commerce taxation in Ukraine and general recommendations that should contribute to the development of this type of trade in the country.

In a small open economy composed of unionised international Cournot-Nash duopolies, a self-interested government has unilateral incentives to set higher specific domestic excise duties under the destination principle when the typical foreign firm is dominant and the import-competing sector is small. Excise taxes may emerge in political equilibrium when domestic firms and unions lobby for protection and the government is unable to use alternative protective policies because of international agreements. In so far as the government is prepared to exchange tax revenues for political contributions, under some conditions the excise tax rate will be higher than the one chosen without lobbying.

Rapid growth in e-commerce has altered the ability of jurisdictions to enforce commodity taxes on a destination basis. This results in different effective tax rates depending on the way in which goods and services are purchased and the characteristics of both the products and the sellers. We discuss the arguments for the destination principle as the appropriate place-of-taxation rule for consumption taxation of cross-border trade. We analyze various recent reforms to the value-added tax in the European Union in response to e-commerce. We then examine various policy options in the USA—maintaining the status quo, changing nexus rules, states adopting information reporting, and national reforms that require firms to remit taxes regardless of physical presence—and relate them to the recent European reforms. We conclude based on our analysis and the recent European Union experience that reforms at the national level appear to be the important next step to enforcing commodity taxes at destination in the USA.

In a two-country duopoly model, this paper compares destination- and origin-based commodity taxes adjusted to tariff reductions so that the world price and foreign welfare remain unaltered. We first find that this tariff-tax reform reduces domestic welfare under the destination principle while the opposite holds under the origin principle. Then, it is shown that this ranking is reversed if exports are taxed. In short, which is preferable between destination and origin taxes depends on the tax principle and which between imports and exports are taxed.

The taxation of cross-border transactions within federal or common markets presents significant challenges to the efficient and fair application of VAT. This article discusses the interstate tax jurisdiction and collection rules applied in the European Union, the United States and Canada. The analysis finds that while the destination principle is dominant, there are very important differences in law and in practice between the three jurisdictions. In the EU, the cost of following the destination principle appears to be significant complexity and fraud. In the US, the absence of a VAT places a significant barrier to achieving the principle since the use tax is unable to effectively fix the problems. In contrast, the system in place in Canada, while complex, seems to do a good job at protecting the sales tax base in relation to interprovincial cross-border transactions.

Rapid growth in e-commerce has altered the ability of jurisdictions to enforce commodity taxes on a destination basis. This results in different effective tax rates depending on the way in which goods and services are purchased and the characteristics of both the products and the sellers. We discuss the arguments for the destination principle as the appropriate place-of-taxation rule for consumption taxation of cross-border trade. We analyze various recent reforms to the Value Added Tax in the European Union in response to e-commerce. We then examine various policy options in the United States – maintaining the status quo, changing nexus rules, states adopting information reporting, and national reforms that require firms to remit taxes regardless of physical presence – and relate them to the recent European reforms. We conclude based on our analysis and the recent European Union experience that reforms at the national level appear to be the important next step to enforcing commodity taxes at destination in the U.S.

The fact that developing countries do not have carbon emission caps under the Kyoto Protocol has led to the current interest in high income countries in border taxes on the ‘virtual’ carbon content of imports. We use GTAP data and input–output analysis to estimate the flows of virtual carbon implicit in domestic production technologies and the pattern of international trade. The results present striking evidence on the wide variation in the carbon-intensiveness of trade across countries, with major developing countries being large net exporters of virtual carbon. Our analysis suggests that a tax on virtual carbon could lead to very substantial effective tariff rates on the exports of the most carbon-intensive developing nations. As an illustration, we find that average tariff rates of 10%, 8% and 12% would be faced by imports from China, India and South Africa if carbon is taxed at $50/ton CO2. Moreover, there is wide variation in intensiveness across sectors within countries with implications for the disparate effective tariff burdens on particulars parts of the economies of these countries. Such empirical findings, we argue, are useful for framing on-going discussions about the principles and practice of border taxes on virtual carbon.

Motor fuel is taxed by European Union member states where purchased. This article describes (a) the case for destination-based taxation of motor fuels, (b) economic distortions, incentives for destructive tax competition, and questionable division of tax base inherent in purchase-based taxation of commercial motor fuel, (c) loss of fiscal sovereignty inherent in minimum tax rates, imposed to alleviate the first two problems, and in uniform rates, (d) the apportionment-based system employed in the US and Canada and its advantages, (e) technology to determine distance traveled in each member state, and (f) legal and political obstacles to adopting an apportionment-based system.

We study the positive implications of commodity taxation and tax harmonization under the destination and origin principles when firms are monopolistic competitors facing variable demand elasticity and segmented markets. Our emphasis is on the international location of firms in the presence of market size asymmetries and trade costs. Under the destination principle, an increase in the tax rate of a country always causes some firms to relocate to the other. This effect may be reversed under the origin principle when economic integration is deep enough. Under tax harmonization the choice of a common tax principle is irrelevant for the market outcomes and for the global tax revenues. It affects, however, the distribution of revenues between small and large countries. (c) 2006 Elsevier B.V All rights reserved.

Recent work has started to analyze the choice of international commodity tax base under conditions of imperfect competition. This paper focuses on the effects of changing levels of trade barriers in a model where firms engage in duopoly competition and governments set commodity taxes non-cooperatively. It is shown that the consumption base (destination principle) dominates the production base (origin principle) when trade costs are high, but the ranking of the two tax bases is reversed for low levels of trade costs. We conclude that the case for origin-based commodity taxes becomes stronger when barriers to trade fall.

This paper shows that under imperfect competition, the welfare effects of indirect tax harmonization may depend crucially on whether taxes are levied by the destination or the origin principle. In a standard model of imperfect competition, while harmonization always makes at least one country better off, and may be Pareto-improving, when taxes are levied under the destination principle (which currently applies in the European Union), harmonization of origin-based taxes (as recently proposed by the European Commission) is certain to be Pareto-worsening when the preferences in the two countries are identical, and is likely to be so even when they differ.

Each country must decide (i) whether, and if so at what rate, to tax its citizens/ residents on their foreign-source income (e.g. wages, interests, dividends, etc.); and (ii) whether, and if so at what rate, to tax foreigners on their income originating from sources within the jurisdiction. This chapter describes the main principles of international taxation.

This paper discusses how joint cross country indirect tax initiatives can be used to achieve global rebalancing. This is potentially an important development for G20 discussions which thus far have centered on exchange rates as the instruments to achieve rebalancing. We suggest that if China and Germany (as major surplus countries) switch their present VAT systems from a destination principle to an origin principle, and the US (as the major deficit country) adopts a VAT on a destination principle VAT, jointly these actions can significantly reduce the three countries' joint imbalances and so contribute to global rebalancing. We use a numerical general equilibrium model with a monetary structure incorporating inside money to capture endogeneity of trade imbalances, and to also investigate the potential impacts of such initiatives. These confirm that VAT structures are not only good for global rebalancing but also the changes we consider are beneficial for welfare and revenue collection. Our research is aimed to inject new ideas to the present global rebalancing debate.

The paper analyzes the VAT frauds issues in the European Union after the abolition of the internal customs. All the suggested solutions based on the origin principle create distortions in the “one market” and have a doubtful efficiency. The reverse-charge regime for all business to business transactions joint with VAT at the last stage also creates heavy discriminations. The current system based on the destination principle joint with ad hoc measures—such as specific reverse-charge, rebate and margin regime under evidence that VAT due has been paid, joint/several liability…—and a consistent information-exchange-system may provide a less distorting solution.

We develop a model of commodity tax competition with monopolistically competitive internationally mobile firms, transport costs, and asymmetric country sizes. We investigate the impacts of non-cooperative tax setting, as well as of tax harmonization and changes in the tax principle, in both the short and the long run. The origin principle, when compared to the destination principle, is shown to exacerbate tax competition and to erode tax revenues, yet leads to a more equal spatial distribution of economic activity. This suggests that federations which care about spatial inequality, like the European Union, face a non-trivial choice for their tax principle that goes beyond the standard considerations of tax revenue redistribution.

The paper discusses the main arguments for destination- versus origin-based commodity taxation in the European Community’s Internal Market. Destination-based solutions distort commodity trade in the Community because cross-border purchases by final consumers can only be taxed in the origin country. On the other hand, an origin-based general consumption tax is neutral in a European context and it can be combined with destination-based taxation in third countries in a non-distortionary way. Furthermore, it is shown that the introduction of capital mobility does not affect the neutrality of an origin-based consumption tax. Finally, the paper addresses the administrative and political implications of a switch to the origin principle in the European Community.

The 70s and early 80s were in fact difficult for the European Community: high rates of inflation combined with sluggish economic growth and persistently high unemployment. The process of European economic integration had almost come to a halt. The only major institutional reform was the creation, in 1979, of the European Monetary System (EMS) which was then regarded with suspicion by many analysts in particular by academics and central bankers. Concomitantly the United States, from 1982 on, experienced a strong expansion of their economy that brought about substantial employment growth and the reduction of inflation rates. The American experience was mainly attributed to three major economic policy measures: restrictive monetary policies, supply-side economics (mainly expressed through a lowering of tax rates), and deregulation, that is the reduction of state interference in the economy.1

This paper examines the argument that uniform indirect tax rates are necessary to remove trade distortions for participating countries in economic integration. In a simple goods mobile, factor immobile international trade model it is shown that uniformity of tax rates is not necessary with either a general origin or destination based tax. Under a restricted origin basis, absence of distortion is only possible if trade is bilaterally balanced, in which case uniform or nonuniform rates across countries serve equally well.

A familiar proposition asserting the trade-neutrality of uniform, indirect taxes under both the origin and destination principles is re-examined in the context of a world with trade in intermediate goods. A uniform, general sales tax is shown to be trade-neutral under the destination principle, but trade-distorting under the origin principle. A ‘stage of processing’ value added tax is nondistorting under either border tax adjustment principle. The discussion is then related to a proposed change in GATT rules that would require origin principle administration of the European value added tax.