Difficulties in Determination of VAT Treatment of Various Categories of Financing Solved by “Economic Reality”?

In this article, the author discusses the difficulties in the determination of the VAT treatment of various financial products, including Islamic finance products, based on both EU and GCC legislation. Main findings are that under both systems, establishing whether or not financing products that achieve the same economic goal are indeed treated in a similar way is burdensome. Alternative solutions to achieve more justified results, such as applying a more economic approach or limited implementation of VAT exemptions, should – in the author’s view – be further investigated.