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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 concerns as neutrality is restricted in many ways, notably through imperfections 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, exemptions and various options tolerated by an incompletely harmonized
system.
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VAT Neutrality
Notwithstanding that neutrality is a clear policy guideline in the design
of VAT for the EU, the principle is far from being always guaranteed 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 purposive 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 subtle 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 information. 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 imperative of tax neutrality.
Professor André Prüm
University of Luxembourg
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