Analysis On Coordination Of Value-added Tax Jurisdiction Over Cross-border Services

Value-Added Tax(VAT) is not only adopted by more than 160 countries in the world,but also becomes the most popular tax in many countries thanks to its strong revenue-raising function.In the context of the economic integration and trade globalization,the conflict of VAT jurisdiction arising from the lack of coordination at the international level will hamper the development of international trade,damage taxpayers right and national interests.Conflicts of jurisdiction over cross-border services,due to the intangible nature of services and the “easily cross-border nature” of online transactions,make it difficult to coordinate under the current system.In view of the fact that China has accomplished the reform program to replace the Business Tax with a VAT in 2016 and that the VAT system covering goods and services has just been established,there are many imperfections in dealing with cross-border transactions.As far as cross-border services are concerned,China's VAT system has not paid enough attention to them.Exploring the principle of value-added tax jurisdiction of the cross-border service,and proposing a constructive solution to the current problems of China's VAT system are the proper methods for improving China's VAT.China's VAT jurisdiction system for cross-border service is found to be inadequate in some regard,including the vague concept of service,the misplacement of basic principles,the diversity of taxation standards for cross-border services and the difficulty in realizing the jurisdiction over import services.Specifically,from the perspective of concept,the confusion of “service” and “labor service” is reflected by the confusion of their content and the convergence of their taxation rules,while the boundaries of “service”,“good”,and “intangible” are blurred mainly in the field of e-commerce.As far as the basic principles are concerned,the determination of VAT jurisdiction depends on two sets of principles,namely the personality principle and territoriality principle which determine the scope of taxation,and the destination principle and origin principle which specially target cross-border transactions.The principle for determining the scope of taxation adopted in our country incorporates the characteristics of “personality princple”,and the taxation principle for cross-border transactions deviates from the destination principle.With regard to the taxation standard for cross-border services,China has not only adopted three criteria,but also confronts obstacles in their application due to the unclear regulations.What's more,the realization of VAT jurisdiction is also one of the important factors affecting the division of VAT jurisdiction.The main reasons why it is difficult for China to realize the jurisdiction over import services is that the corresponding rules are unreasonable and that transaction type hasn't been distinguished,which make it impossible to achieve the collection and management.Given the above shortcomings,China's VAT system is likely to cause double taxation and double non-taxation which not only jeopardize the interests of taxpayers and the State,but also violate the principle of tax equity,hinders the performance of service trade,and harm China's overall economy environment.In order to solve the above problems,to clarify the basic principles of the division of VAT jurisdiction from a theoretical level remains the first priority.The theoretical basis for determining the principles of VAT jurisdiction can be explored from the perspective of international law and economics.Whether from the perspective of international law or economics,the division of tax jurisdiction needs to be based on the substantial connection between the taxation object and the taxing country.Of course,the division of tax jurisdiction is inevitably bound by the concept of tax law,subject to the basic principles of tax law and adapts to the basic attributes of different taxes.The principles of tax jurisdiction involve two sets.First,the principles for determining the scope of taxation include the personality principle and territoriality principle,which are the principles for determining the scope of taxation.The territoriality principle is more suitable for the determination of VAT jurisdiction because it better accords with the attribute of VAT as a consumption tax.Second,the taxation principles of cross-border transactions include the destination principle and origin principle,which further adjust the tax jurisdiction determined by the personality and territoriality principles.The destination principle is more advantageous when it comes to the allocation of VAT jurisdiction.Two sets of principles are theoretically independent of each other,but they are integrated in practice.The coordination of VAT jurisdiction conflicts requires a combination of two sets of principles.In the choice of the principles of VAT jurisdiction,China should simultaneously comply with the territoriality principle and the destination principle.When determining the VAT jurisdiction over cross-border services,although China's VAT involves the judgment of the person's identity,it actually uses the geographical connection presented by sales “within the territory of the PRC” as the main criterion for determing the scope of taxation.Therefore,China's VAT complys with the territoriality principle with the characteristics of “personality principle”.In order to avoid the emergence of double taxation and double non-taxation,China should gradually change to the destinantion principle and weaken its "personal" characteristics.Given the China's trade deficit in services,the increasing competence of tax collection and management and long-term financial goals,the objective conditions for the simultaneous application of destination principle and territoriality principle in China have been met.Moreover,the successful experience of the New Zealand and Australia's changing from personality principle to the destinantion principle also provides practical guidance for the simultaneous application of destination principle and territoriality principle in China.Specifically,China needs to strengthen the taxation of import services,expand the scope of export services that is subject to zero-rate,and take other measures to achieve the objective of allocating the taxing right to the “consumption place”.However,coordinating the conflict of VAT jurisdiction is not limited to the coordination of principles,but also includes the harmonization of the interpretaion of the “consumption place” by countries.In practice,the differences in the interpretation of core concepts such as “consumption place” are often the direct cause of conflicts of VAT jurisdiction.Before identifying the consumption place,the concept of “service” should be clarified firstly.China's VAT should rebuild the connotation and type of “service”,on the one hand,“service” should integrate “labor service” and become the subject of VAT taxation,and on the other hand,“digital products” should be identified as “service” or “intangible”.After clarifying the connotation and type of “service”,China can introduce the internationally accepted “proxy” to identify the “consumption place”.“Proxy” is a tool for presumping the real place of consumption.It is reasonable and feasible because it takes into account the objective of allocating the taxing right to the consumption place and effectively controls the cost of both administration and taxpayers.China can introduce “proxy” to establish a unified taxation standard and eliminate obstacles in the application due to the unclear regulations.The coordination of basic principles and the unification of the interpretation of the “consumption place” are both unilateral measures taken from the domestic law level.The coordination of VAT jurisdiction cannot rely solely on unilateral measures,but should also rely on international coordination.The international coordination tools and models used in the income tax coordination are relatively mature and can be used to coordinate VAT.China should make most use of the signed “Avoidance of Double Taxation and The Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains” and “Multilateral Convention on Mutual Administration Assistance in Tax Matters” to coordinate the VAT,effectively use the automatic information exchange and tax compulsory arbitration procedures in the income tax field,and promote the drafting and signing of the VAT treaties which truly play the role of a binding bilateral(Multilateral)mechanism to coordinated jurisdictional conflicts at the global level.Although the realization of VAT jurisdiction is at the implementation level,it has greatly affected or even shakened the choice of the various tax jurisdictions at the legislative level.Since the simultaneous application of the destination principle and territoriality principle means that China will entensively implement zero-rated or tax exemption for export services,the realization of China's VAT jurisdiction mainly lies in the taxation of import services.China currently taxes import services through the withholding system.The withholding system should distinguish between B2B(business-to-business)transactions and B2C(business-to-individual)transactions.For B2 B transactions,in accordance with the order of the subject of the withholding agents,China should clarify the criteria for the identification of the “business establishment”,reconstruct the “agent” system and improve the withholding system for the purchaser as the obligor;for B2 C transactions,China should build a system which requires overseas suppliers to be taxpayer and provides channels for intermediaries to assist in the collection and management.The design of specific rules is the last but not the least stage to improve the coordination of VAT jurisdiction's conflict.