Tax neutrality and cross-border services

Under the European VAT system, taxable persons are entitled to deduct VAT on goods and services where they use those goods and services for the purposes of their taxable activities. Presently, taxable persons can only exercise the right to deduction in the Member State in which they are established or registered. VAT paid in other Member States can only be refunded. In this article, the author discusses the relationship between the right to deduct input VAT and that to obtain refund. Furthermore, he examines the consistency of the systems of deductions and refunds with the principle of tax neutrality, and the consequences for the right to refund arising from different national restrictions of the right to refund. Finally, he examines the Commission's proposal to change the present situation for non-resident EU traders.