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  • Print publication year: 2015
  • Online publication date: February 2015

8 - Timing and Valuation Rules

Summary

Timing (or tax accounting) rules are used to identify the tax period in which a taxpayer must pay tax on imports, report taxable sales, and claim deductions or credits for tax paid on allowable imports and domestic purchases. When a VAT is introduced or the rate is changed, effective date and transition rules are needed to identify which sales and purchases are subject to the old rules and which to the new or amended law.

VAT generally is imposed on the sum of the amount of money and the value of non-monetary consideration received for a taxable supply. Special valuation rules are provided for particular transactions. This chapter covers the timing, transition, and valuation rules.

The Timing Rules

Accrual, Hybrid, and Cash Methods – in General

This section discusses the rules governing the basic methods of accounting for VAT. It does not discuss the innumerable varieties of special schemes for retailers that are available in many countries.

Most taxpayers must use the accrual or a hybrid method of accounting to report sales and claim input credits under a credit-invoice VAT (like the European VATs). Under the accrual method, taxpayers generally report taxable sales when goods are sold or when services are rendered, subject to rules accelerating the reporting, and they claim input credits when the business acquires the goods or services eligible for the input credits.

Williams, D., “Value-Added Tax,” in 1 Tax Law Design and Drafting164, 191–194 (Thuronyi, V., ed., IMF 1996)
Schenk, A., “Japanese Consumption Tax After Six Years: A Unique VAT Matures,” 69 Tax Notes899, 910 (Nov. 13, 1995)
Doran, N., “The Time of Supply Rules: How Far Do They Go?,” 1998 British Tax Review602
Schenk, A. & Oldman, O., principal draftsmen, “Analysis of Tax Treatment of Financial Services under a Consumption-Style VAT: Report of the American Bar Association Section of Taxation Value Added Tax Committee,” 44 The Tax Law, 181, 187
Schenk, A. & Oldman, O., Value Added Tax: A Comparative Approach with Materials and Cases (Transnational Publishers 2001)
Dewilde, K., Eeckhout, K., & Boone, C., “The Margin Scheme for Travel Agents: The European Commission’s Proposal to Simplify the European VAT Rules,” 14 Int’l VAT Monitor 7 (Jan./Feb. 2003)