Place Where the Supply/Activity is Effectively Carried Out as an Allocation Rule : VAT vs Direct Taxation

The aim of this paper is to establish whether VAT place of supply rules are more effective allocation rules than international tax rules currently governing income taxation. This is done through the analysis of the “place where the activity is effectively carried out” (PWAECO) and the “place where the supply is effectively carried out” (PWSECO) as allocation rules. The paper discusses allocation rules applicable to (corporate) income under international taxation provisions, analyzing its limitations and weaknesses, as well as some of the proposed solutions. The attention then shifts to VAT. The place of supply rules under European VAT will be assessed, in particular the role of the PWSECO rule therein; similarly to the approach taken income international tax rules, an analysis of the limitations and weaknesses of the place of supply system within European VAT will then be undertaken. The paper concludes with considerations on whether VAT rules for allocation of taxing rights are more effective than direct taxation's allocation rules, or whether VAT offers a false promise, further highlighting that in tax – as in life – the grass always seems greener on the other side