VAT: towards a destination principle

EU VAT began life as an origin-based tax on services and a destination tax on goods. Services with a few exceptions were taxed according to where the supplier was located. This worked well enough at a time when most services were provided to people who consumed them in the same country as the supplier was based. International supplies of goods on the other hand were generally taxed in the country where they were to be consumed by virtue of the VAT charge at importation.

With technological advances in the late 1990s non-EU businesses found they had an advantage over their EU counterparts in not having to charge VAT on services they supplied to EU consumers. Distortion in the EU market for services was increasing and member states were beginning to lose VAT revenues.

The EU began to address this in 2003 by introducing use and enjoyment rules....