What are the differences between goods and services in terms of VAT and GST?

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What are the differences between goods and services in terms of VAT and GST?

Generally speaking, the taxable events for VAT/GST are supplies of goods and supplies of services. As a condition to subjecting goods and/or services to VAT/GST, it is normally required that they are supplied by persons identified as taxpayers ("taxable persons") and that are made for consideration.

Usually, VAT/GST systems contain different rules for supplies of goods and services. For example, the rules concerning the determination of what country is entitled to levy VAT/GST on a cross-border supply are often different for supplies of goods and services. Also, different exemptions and VAT rates may be applicable for goods and services.

Goods vs. services

The notion of "goods" basically refers to all tangible property. Depending on the jurisdiction concerned, the concept of goods may be expanded to – for example, but not limited to – electricity, gas, heath and certain interests in or rights to immovable property. The notion of "services" normally refers to everything which is not a supply of goods, i.e. non-tangible property, including – but not limited to – intangibles such as copyrights, patents, licenses, trademarks and similar rights.

Even though supplies of goods and supplies of services form the core of the taxable events in VAT/GST, all countries that implemented a VAT/GST also levy VAT/GST on importation of goods from other countries. In some jurisdictions, the system of exportation and importation is also applied to outbound and inbound services respectively. However, there are also jurisdictions in which specific rules, different from those for exportation and importation of goods, are in place to ensure that outbound services are relieved of the burden of tax and inbound services are taxed.

The importation of goods is a "technical" taxable event which serves to ensure that the tax burden of imported goods is equal to that of domestic goods, so as to ensure that there is no distortion of competition. Conversely, all countries employing a VAT/GST have specific rules to safeguard that goods which are exported are entirely freed of any burden of VAT. Within the EU, the mechanism of exportation and importation has been replaced by a system of so-called intra-Community supplies and intra-Community acquisitions.


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Bertjan Janzen
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Tim Kok
Senior Manager Indirect Taxes
PwC
Ad van Doesum
VAT Adviser / Professor
PwC / Universiteit Maastricht
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