Court of Justice of the European Union (CJEU)
The nature of VAT is best described by referring to the case law
of the Court of Justice of the European Union (CJEU). According
to the CJEU, value added tax is characterized by the following
– It applies generally to all transactions relating to goods or
– It is proportional to the price charged by the taxable person
in return for the goods and services which he or she has
– It is charged at each stage of the production and distribution
process, including that of retail sale, irrespective of the num-
ber of transactions which have previously taken place.
– The amounts paid during the preceding stages of the process
are deducted from the tax payable by a taxable person, with
the result that the tax applies, at any given stage, only to the
value added at that stage and the fnal burden of the tax rests
ultimately on the consumer.
Thanks to input tax deduction, tax paid during the preceding
stages is neutral for the business. This mainly affects the extent
to which it is related to taxable output transactions or transac-
tions not effected in Germany which would be taxable had they
been effected in Germany. If output transactions are VAT-ex-
empt, input VAT deduction is possible only in certain cases;
these are, in particular, exports and intra-EC supplies.