The treatment of credit in EU VAT and an evaluation of the cash- flow method applied to it

Abstract: The credit is a financial service which holds a vital role to the transactions between the financial and non-financial enterprises with their customers. The goal of credit is to aid the legal and physical persons to successfully face and thus to overcome their difficult economical situations. Due to the fact that the VAT exemption status of granting, negotiation and management of credit causes negative consequences for the EU economy, several proposals for imposing the VAT on the financial services have been derived from a number of methods. One of them, it is believed to be the most important of all. This is the cash-flow method which constitutes a suggestion for taxing the VAT exempt financial services which are of capital nature and their remuneration is hidden in the profit margin. This method will be described and analyzed so as to find a solution for correctly entering the granting, negotiation and management of credit into the normal VAT system.