• Service: Tax, Global Indirect Tax
  • Type: Business and industry issue
  • Date: 8/5/2012

OECD Briefing 2012 

OECD Briefing 2012

The Organisation for Economic Cooperation and Development (OECD) is developing a global framework for applying VAT/GST to international services. These guidelines are needed to address uncertainty and risks of double or non- taxation resulting from inconsistencies in the application of VAT/GST to international trade.

Amanda Tickel (Partner, KPMG in the UK) and John Bain (Partner, KPMG in Canada) participate in a Tax Advisory Group (TAG) at the OECD considering this framework. The group consists of governments, businesses and academia, and is focused on shaping the principles and wording of the new guidelines. Here, Amanda and John provide an update on the work of the advisory group so far and a look ahead to what is coming in the future.

So far…

The OECD has recognized that the development of VAT/GST systems on a country-by-country basis has led to different rules as to when and by whom a supply should be taxed. In 2006, the OECD announced its intention to develop a set of internationally recognized guidelines for VAT/GST. They aim to improve the way different countries’ VAT/GST systems interact, and seek to ensure services and intangibles are subject to tax only once – in the country of consumption. To date, guidelines have been developed and published with respect to the following:

  • applying the destination principle on place of taxation for business-to-business (B2B) internationally traded services or intangibles
  • applying the ‘neutrality’ principle to ensure that business has the right to deduct/recover input tax, recognizing that recovering VAT/GST paid in foreign countries is often costly and in a significant number of cases impossible.


Work is in progress in the following areas:

  • Commentary on the interpretation of ‘neutrality’ and guidance on a practical implementation. A draft Commentary was approved for a public consultation in June 2012 and comments are invited by 26 September 2012 (
  • The VAT treatment of B2B supplies of services/intangibles across borders to/between branches of a single legal entity with establishments (e.g. branches) in more than one jurisdiction (a multiple legal entity or MLE). The advisory group is developing guidelines to determine how best to allocate taxing rights on externally acquired services or intangibles by an establishment of a MLE for use by one or more other establishment(s) of the same MLE. Two approaches were considered:
    1. Taxation at the establishment where the service or intangible is used (Allocation Approach)
    2. Taxation at the head office of the MLE, irrespective of the establishment where the service is used (Head Office Approach).

    The Allocation Approach is preferred and from this two methods to ensure taxation in the jurisdiction(s) of use have been considered: The Direct Use Method (where only one supply is recognized: the supply of a service or intangible by the supplier) and the Recharge Method (where two supplies are recognized: (i) the supply between the external supplier and the establishment that represents the MLE in the business agreement and (ii) the subsequent internal recharge to the establishment(s) of use). The Recharge Method is generally considered as the preferred option and Guidelines are currently being drafted.
  • Place of taxation for cross-border trade in services and intangibles linked to immovable (or real) property. The advisory group has accepted the underlying principle that taxing rights should be allocated to the country where the property is located. A description of the main categories of services/ intangibles covered by these exceptions to the main rule have been agreed and will be used to draft guidelines by the end of this year.

The guidelines referred to in points two and three mentioned are expected to be ready for public consultation in early 2013.

In future…

Looking ahead it is expected that further work will be done in 2013-2014 to develop guidelines in respect of cross-border supplies of services and intangibles to final consumers (B2C); dispute resolution and mutual cooperation between countries to resolve conflicts and consideration of issues related to avoidance and abusive practices. A complete set of International VAT/GST guidelines should be presented by the end of 2014.


Businesses need internationally agreed upon principles to ensure a consistent interaction of VAT/GST systems. The guidelines currently being developed should improve the way different countries’ VAT/GST systems interact by striving to ensure services and intangibles are subject to tax only once. 


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