On Constitutive Requirements of VAT Taxable Transaction and Perfection of Related Legislation in China

Abstract

Taxable transaction forms the necessary content of the objective requirement of VAT taxable activities, which can be divided into ordinary taxable transaction and deemed taxable transaction, referring to the sales of goods and services and the deemed sales of goods and services respectively. But the definitions of the constitutive requirements of taxable transactions are unclear, incomplete and unscientific in existing China’s VAT legislation. The future China’s VAT legislation can be improved in the following aspects: firstly, under the classification of goods and services as the two fundamental taxable objects, define the sales of goods as the transfer of ownership or disposal rights for consideration, reflect a certain degree of generality, define goods by circulation, and enumerate the scope of goods; secondly, define the meaning of supplying services, by clarifying that the supply of services consists in fulfilling an obligation of action, inaction or permission, highlight its underpinning nature, and enumerate the scope of services; thirdly, define the requirement of for consideration individually, by highlighting that the acquisition of economic benefits is related to the transfer of goods and the supply of services and there is a direct correlation between them; lastly, restrict the composition of the deemed taxable transaction, by limiting its scope from multiple perspectives and adding the constitutive requirement of deductible input tax to the deemed sales activities such as use of merchandise for non-business activities and the gratuitous gifting of goods.