General functioning of the tax
In the application of the tax by entrepreneurs or professionals, two aspects can be distinguished:
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For their sales or provision of services, the corresponding VAT installments are passed on to the purchasers or recipients, with the obligation to pay them into the Treasury.
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For their purchases, they bear fees that they are entitled to deduct from their periodic self-assessments. In each settlement, the VAT charged to customers is declared, subtracting from this the amount incurred on purchases and acquisitions from suppliers, the result being either positive or negative.
If the result is positive, it must be paid into the Treasury. If it is negative, as a general rule, it is offset in the following self-assessments. Only if at the end of the year, in the last declaration submitted, the result is negative or if the taxpayer is registered in the monthly refund register, in any declaration, can you choose to request a refund or offset the negative balance in subsequent settlements.
Example:
This example shows how the tax works. It is an industrial product whose production chain begins with the sale of raw materials for processing and ends with the sale to the final consumer. For simplicity, it is assumed that the businessman selling the raw materials has not borne VAT . The rate applied is the current one of 21%.
| Total | 105 | ||||
| Production chain | Price without tax | VAT charged (21%) |
Sale price | Input VAT | VAT to be paid |
|---|---|---|---|---|---|
| Raw Materials | 100 | 21 | 121 | 0 | 21 - 0 = 21 |
| Transformation | 200 | 42 | 242 | 21 | 42 - 21 = 21 |
| Wholesaler | 400 | 84 | 484 | 42 | 84 - 42 = 42 |
| Retail sale | 500 | 105 | 605 | 84 | 105 - 84 = 21 |
Each of the entrepreneurs has borne the tax that has been passed on to them by their supplier, this fee being the amount that they can deduct when submitting their corresponding VAT self-assessments.
The final impact, that is, the tax paid by the final consumer in the form of VAT, was 105 euros, which comes from multiplying the final price of the product, 500 euros, by the tax rate of 21%. This tax has been paid into the Treasury little by little by each businessman or professional based on the added value of the good or service in its specific phase of production and distribution.
The tax is ultimately paid by the final consumer of the goods, but those who pay it into the Treasury are the businessmen or professionals who provide the services or deliver the goods.