Taxation of service transactions in terms of valu added tax

In terms of value added tax taxation of services is one of the most difficult and complex topics to comprehend and tax in Turkey, OECD and European Union. Depending on the authorization of the taxation, countries have a right to establish taxation rules and determine the services subject to VAT within their own political borders, on the other hand, it seems necessary to determine relatively uniform taxation principles between countries and to tax the services in accordance with these principles in order to avoid double taxation on the same transaction. Therefore in terms of services, the destination principle in VAT should be applied as a basic principle. The legal application of The One Stop Shop (OSS) which has been implemented in the European Union especially aims to tax international telecommunication, broadcasting and electronic services, explains in detail the basic gudielines and the taxation methods in accordance with the destination principle. Some services within the scope of VAT are exempted from VAT due to international principles, social, economic and political reasons. While some excemptions guarantee that the incurred VAT is compensated through deduction and refunds, the taxpayer is not entitled to deduct and refund for some exemptions. Moreover for some exemptions deduction is allowed until service is done but VAT that cannot be deducted as of the date of service is prohibited to deduct. In terms of defining the services subject to VAT, negative definition is based on and it has been acted that all transactions except the delivery of goods are subject to VAT as a service both in the European Union and in Turkey. Fort his reason determining the scope of transaction and the some situations that require payment should be attentively evaluated. Mainly four different taxation and declaration methods are applied in the taxation of services in Turkey. One is completely appropriate for VAT theory that the taxpayer declares and pays the tax. The second method dictates the service buyer not to pay the tax to the seller, but to declare and pay the tax directly to the tax office. It is named as reverse charge mechanism. The third method which is revenue-based taxation rules that the taxpayer who will demand calculate, declare and pay a specific rate of revenue as VAT without considering the VAT to be deducted. Finally, the tax return number 3 as fourth method orders the application of The One Stop Shop in Turkey for cross-border electronic services. In addition to these methods, VAT return number 5, which is specific to sales made in auction halls, places can be counted as fifth. While Turkey is compatible with EU practices in terms of taxable services and the destination principle, there are serious divergences for using taxation methods of services. Even though it can be said that the application of VAT reverse charge mechanism has become relatively widespread in EU after the missing trader and Carrousel fraud, the application of reverse charge mechanism in Turkey seems to be more disruptive to the original VAT theory. The basic VAT application which is disrupted by the reverse charge mechanism of VAT seems to be further deteriorated by the revenue-based taxation method. Both applying reverse and contrary taxation regimes and making the implementation of VAT more difficult with exceptions and rate differentiations make tax compliance much more difficult, inconvenient and costly in the Turkish VAT system. It also causes the Tax Administration to allocate vast majority of its workforce to VAT services. In this respect, it can be said that VAT practice in Turkey has been detached from its theoretical background and basic principles, and both administration of taxation and tax compliance have become increasingly costly and difficult to implement.