The unified VAT system established by the so-called EU VAT directives is one of the biggest achievements of the European Community in the area of taxation. As a result of the unification, EU VAT rules also extend to a taxable individual who pays VAT on supply of goods or services in the member states where the person in question is not registered as a taxable person. According to the Eight VAT Directive (79/1072/EEC, the Directive), member states must ensure that such a taxable person has the right to the refund of VAT paid in another member state.
The Directive sets rather detailed requirements for such VAT refunds, thus, this leaves little room for member states to establish additional restrictions.
The right to the VAT refund is granted to a taxable person of another member state who does not conduct economic activities or does not have a fixed establishment in the member state where goods or services are purchased, and VAT is paid.
The VAT is refunded on the basis of an application, of which the specimen is approved by the Directive. Originals of all invoices and the Certificate from the taxable person, issued by the official authority of the home country of the applicant, must be attached to the application.
The application has to relate to goods or services purchased during a period not less than three months and not more than one calendar year. Applications may, however, relate to a period shorter than three months where the period represents the remainder of the calendar year.
The minimum refundable amount must be not less than 200 euros when the application relates to a period of less than a calendar year, but not less than three months. If the application relates to a period of a calendar year or to the remainder of the calendar year, the amount may not be less than 25 euros. Member states may round up and down those limit amounts by up to 10 percent.
Applications must be submitted to competent authorities of the VAT refund state within six months of the end of the calendar year in which the VAT became chargeable. The tax authorities must examine the application and must adopt the decision within six months after the submission of the application.
Thus, the Directive is a useful tool for both foreign undertakings and for Baltic businessmen. International transportation companies buying fuel in different member states can be mentioned as an example.
All three Baltic countries have implemented the requirements of the Directive and refund for the VAT to the taxable persons of other member states that qualify for the requirements as established by the Directive. Lithuania, however, has already been criticized by the business community for too formalistic of an approach in examining and rejecting applications.
Tomas Davidonis is a senior associate at Sorainen Law Offices in Vilnius.
