Well, because we don’t have a VAT, it is, isn’t it? The article puts the blame on the US sales tax system. But regardless, US exporters to the EU end up paying more taxes than domestic EU producers.
> Europe’s VATs are not tariffs and are not subsidizing European exports. Instead, US states’ poorly-designed sales taxes are harming their own businesses’ competitiveness—whether they’re selling down the street, across state lines, or around the world.
Because they are not able to deduct US state sales taxes on business inputs from the final VAT. While Europeans can deduct their local (VAT) taxes on business inputs.
No. The vat is payed by the seller on full price of what they sell. So does their supplier. The trick is -- yoy get tax credits when your supplier is a vat payer. As a result, the tax is collected in parts over the final price sold to the non-business customer.
Which is why being a registered one man company with a vat number allows you to get back vat for your laptop
As an American I don't really deeply understand VAT but I don't get why an American car would pay more overall VAT than a domestically produced car. My impression is that VAT will be the same for items that cost the same, no matter where they are produced.
The idea behind vat is to spread the sales tax across the chain, which means the government gets the money even if the end product didnt reach the customer.
Naturally the chain breaks at the border, so importers pay vat and exporters get vat refunds.
I don't get why you believe the liars who told you an American car would pay more overall VAT than a domestically produced car. I mean, you are getting lied to your face, by someone who is a serial liar, so why are you trying to find an explanation for something that doesn't exist?
European producers can deduct VAT on their intermediate business inputs, but American producers can’t deduct the sales taxes on their intermediate inputs.
VAT is applied on every good sold. So no. If you are able to produce cheaper and shipped cheaper than your EU competitor it will be cheaper when a consumer buys it.
Your European competitor will be able to deduct all their local VAT taxes on business inputs but you won’t be able to deduct your local sales taxes on your inputs.
Yeah and no. I would see intellectual dishonesty as worst and the fact that we did not called it that for years enabled these people. They were giving all possible benefits of the doubt. And calling them dumb is kind of benefit of the doubt.
It’s not a question of being dumb or not, but rather that VAT doesn’t exist in the US so most people don’t understand how it works, if they have even heard of it at all.
Instead of VAT, most states have sales tax, which is similar in spirit but doesn’t work the same way.
There is absolutely nothing, at any step, that takes into account where an item has been produced when the VAT is calculated. You don't need to know anything about VAT to understand at least this very tiny, simple and obvious fact.
But apparently facts don't mean anything anymore in that crazy country there.
The majority of Americans have not been exposed to VAT. Most people see a thing that has value and don’t want to think of each step in manufacturing, and try to reconcile that. To even educated Americans, it takes some thinking to understand both what VAT is and why it’s beneficial over us based sales tax.
The mistake I think Vance made was assuming that Europe doesn’t tax its own vehicles 30%. If he wants to “reciprocate” by impose higher taxes on BMWs, Mercedes, and Audis so I don’t have to deal with their drivers egos every time i go on the highway, let him. This is not a product class that is adding much value to our society in my opinion. I would hope they aren’t so difficult on Honda/Toyota since both brands provide good reliable cars while US manufacturers try to get their shit together
You pay VAT on all products when they’re sold or imported. In Germany it’s 19% and called “Mehrwertsteuer” for the domestic products and “Einfuhrumsatzsteuer” for imported products. There’s an additional Import tax on some products.
Whether or not some action is discriminatory is inherent to that action. Something I do can't be considered discriminatory because of what someone else does. So for example, if I shake hands with all people of all colors, you cannot call that discriminatory just because my neighbor doesn't shake hands with people. That would be completely nonsensical.
Similarly, if the EU applies VAT to all goods sold, that can't be considered discriminatory just because some other country doesn't apply VAT.
Non-European companies don't pay VAT or deal with VAT compliance unless they have sufficient business in Europe that they are required to register for local tax compliance.
European customers handle the VAT themselves when dealing with non-VAT-registered non-European suppliers; this is known as the "reverse charge" mechanism and it's generally a feature of almost every VAT system in the world. (In a nutshell, the customer charges themselves VAT and pays it on their own VAT return. This is similar to the way "use tax" works in the U.S.)
> Note that, while a VAT is imposed at every stage of the process, the net effect is to apply the rate one time to the final sales price. The tax is collected in increments (on the “value added” at each stage), but unlike with a pyramiding sales tax, it does not double tax inputs. The VAT and ideal sales tax share an identical tax base and, if imposed at the same rates, yield identical collections.
The VAT is important in Europe, because if a product is manufactured in many countries, each of those countries gets a share of the tax revenue.
VAT on b2b sales even within an European country are usually not that important.
You add VAT to things you sell (e.g. car repair services), you pay VAT on things you buy (e.g. car parts). If you collected more VAT on sales than you paid on purchases, you owe that to the tax department.
It's a bit of book-keeping but doesn't affect your profits directly.
They do, it's just that many choose the reverse charge mechanism, so the recipient of the services or goods is responsible for paying the VAT to his tax authority. It makes things easier, it doesn't remove VAT.
For almost all B2B cross-border transactions between two VAT registered entities, the reverse charge is mandatory, not something that you can choose to opt in to.
Are you sure? If a software company pay it's contributor dinners in Bruxelles/Milan/Lisbon, is the reverse charge mandatory too? Because it seemed like business as usual each time I went on business trip.
In practice, when you buy something with VAT reverse charged, you normally declare the VAT to be paid and immediately claim it back on the same declaration. So in the net you pay nothing, but the VAT is of course still there.
No, only the end consumer pays VAT in the country of consumption. Everything else nets out, because as a supplier you either you claim back the amount of VAT you've been charged from your local tax authority or you are subject to a "reverse charge" where the cross-border supplies are effectively treated as domestic for tax purposes.
this is correct. the main advantage of a VAT is incentive alignment. every intermediary producer must collect and remit VAT if they want to claim their VAT refunds for inputs. i.e., a seller of a good in Europe must collect VAT if they want to claim a VAT refund on whatever they paid for the good.
compare to American sales taxes, where sellers have no economic incentive to collect sales taxes beyond the probability of being caught and fined.
Primarily though, they must collect VAT because it's the law. In Germany, you can get an exception if you're tiny and have very low revenue.
If it was optional if you didn't want to claim expended VAT, quite a few companies would happily choose that, because you don't pay VAT on labor and that's the biggest cost in many industries. If you're primarily b2c, you could effectively lower your prices by a good chunk or get a healthy chunk of extra profit.
But you can't, because there's no choice, it's just the law.
How does Germany define low revenue for VAT purposes? In the UK, the threshold for compulsory VAT registration is currently £90,000 annual revenue, which I would say is quite large.
Many businesses in the UK operate comfortably with revenue less than £90k. Sole traders mainly. But yes, once you employ staff it's likely you'll be looking at needing a higher revenue.
Sole traders working labour only may operate below this comfortably. But this is irrelevant to this thread about international trade in GOODS. Not many who are shipping goods and trying to make a decent income off a margin will fall under £90k. If you think you want to make £50k a year on a 25% margin, for instance, you will smash that threshold.
Fair. I wanted to compare the German and UK thresholds more generally (the German threshold seems very low to me even for labour-only sole traders). But I would agree with you that trade in goods across borders would very likely cross the UK threshold very quickly.
Max 100k € in the current year, max 25k € in the previous, so effectively you can do it indefinitely only if you remain below 25k. Should you ever cross 100k, you have to immediately switch to the regular scheme, collecting VAT (and being able to file any VAT you paid).
I don't know any numbers, but I only ever see it being used by sellers on Amazon.
In my country, segments more prone to “informal” sales (SMEs, cash transactions, limited incentive for paperwork), have reduced VAT (final sale has a reduced rate compared to many supplies), and the customer can get some of that VAT back as an income tax deduction if they demand to be invoiced.
The advantage of this, is that if you have to have accounting for sales, you'll probably have accounting too for labour, and you'll also pay income tax, social security, etc.
In my US state, vendors & service providers are quite open about "if you pay cash, I will not charge you the Gross Receipts Tax" (GRT is New Mexico's weird attempt at something vaguely like a cross between VAT and a sales tax).
This is such a common misconception that even business owners get wrong. No, it doesn't even out for the business, because they sell their products with a profit and thus pay more in VAT than they get back. You only get more back if you're selling for cheaper than it costs you to make it, meaning you're out of business pretty quick.
Edit: Congratulations to the people who are down voting very basic mathematics.
Businesses don't "pay" VAT, they collect and remit VAT on behalf of the tax authority. A business (supplier) that doesn't sell to end consumers pays no VAT, even though they collect a lot and reclaim a lot. It fully nets out.
No, that's not how it works. If a business sells to another business, then the buyer is the consumer, and VAT has to be paid. And of course they have to sell with a profit.
Many B2B offers and proposals are negotiated or priced without VAT mentioned, but it is absolutely added to the bill.
The only time it "nets out" is if a business has the same expenses for their purchases as for their sales, meaning they're soon bankrupt.
It nets out to everyone but the final consumer. Imagine 30% VAT rate:
Alice digs up some copper and tin and sells it to Bob for 10€ + 3€ VAT = 13€. Alice remits the 3€ to the authorities on Bob's behalf.
Bob casts bronze bars and sells them to Carol for 39€ + 11.70€ = 50.70€. Bob claims a 3€ refund for VAT he paid Alice and remits 11.70€ to the authorities on Carol's behalf.
Carol makes a sculpture from the bronze and sells it to a customer for 1014€ + 304.20€ VAT = 1318.20€. Carol claims a 11.70€ refund for VAT paid and remits 304.20€ to the authorities.
The end customer ends up paying 100% of the total VAT (304.20€). Everyone else nets out to 0.
That's just mental gymnastics. In the end the customer pays 100% of the costs a business has, that's completely obvious. Then we can say that businesses don't pay payroll tax either, because all salary costs are also baked into the price of the final products to customers.
You're correct with your calculations, but it's not honest to say that the customer pays the VAT and therefore it nets out for a business.
What's happening is that a business gets refunded by the government for any VAT they pay. Alice charges Bob VAT. Alice remits the money to the tax authorities who then refunds Bob the money they paid.
If after paying payroll taxes, the government decided to hand all the money back, that would be VAT. The only one who doesn't get refunded is the final customer.
No, I've been trying to explain that this is a myth. A business has to charge VAT on everything they sell. This VAT is paid by the customer to the business and then by the business to the government. A business also has to pay VAT on everything they buy from other businesses. They get to deduct the difference between these two, and pay what's left. I will give you a very simple example:
Consider a business who only purchase products and sell them to consumers for a higher price:
Step 1: They buy inventory for a total of €1000. €250 of that is 25% VAT. They have paid a total of €250 in VAT.
Step 2: They sell inventory for a total of €1200. €300 of that is 25% VAT. They have charged a total of €300 in VAT.
Deducting what they paid from what they have charged, you get €300 - €250 = €50. They have to pay the government €50.
And this is for a business who only resells products with a margin. Normally a business tries to minimize their costs and maximize their revenue, meaning that the difference in VAT will be even bigger.
I urge you to examine these common myths with a clear mind. It doesn't matter if your family and uncles believe in them or if the people here on HN believe in them. What matters is when your business financials are wrong and you're loosing money unexpectedly because you have believed in something which isn't true.
> A business (supplier) that doesn't sell to end consumers pays no VAT
They indeed pay no net VAT (it's not a cost for them in the sense of their profit and loss statement), but they do remit a bit of the VAT collected by the end consumer to their _local_ tax authority.
As an example, let's consider a VAT rate of 20%, and a Dutch company that buys from a French one and sells to a German one. Their costs per product are €80, and thus they pay €16 of VAT over that to their French suppliers. If they sell a product for €100 (i.e. they add €20 of value), then they collect €20 of VAT from their German buyers (which might in turn get it from the end consumers). There's a difference of €4 between what they received and paid in VAT, and that difference is collected by the Dutch tax authority. That €4 is not coincidentally the 20% VAT over the value added by the Dutch company.
Wrong, wrong, wrong. When the good passes from one country to the next, the vat from the first country is given back - as if it was bought tax-free - and the VAT of the country you're in applies.
Before the EU common market, you used to be able to do that VAT refund even for your own purchases as a private person on vacation - you can still, for example between the EU and Switzerland. It was even translating to tax-free vacation shopping because they weren't interested in collection taxes below a certain value.
Which really shouldn't be surprising: if a business is not adding value, it's not a viable business. But if a business is adding value on net, it should indeed owe tax charged on net value added.
I don't know the initial incentives, but VAT is much harder to evade (businesses have to keep track/declare things if they want to reclaim the VAT they paid).
Also it's a consumption tax, in the end the end consumer is the one paying it (through higher price). The businesses in the middle are mainly collecting the tax on behalf of the state.
I mean, what's the rationale in the US for a business being taxed on their profits, and also having to pass along the sales tax they've collected?
It's just two forms of taxation. Sales tax/VAT is a fixed proportion of sales, and then you also pay tax on profit that's left.
You might as well ask why people pay income tax when they make money and then have to pay sales tax/VAT again when they spend it!
Of course, answering that is complicated, and there are a lot of factors. But the main one is basically that governments like to tax "everything", so that people/goods/services that might wind up evading one tax wind up paying another. Sales tax makes sure governments get revenue even when businesses make no profit, taxing profits makes sure governments get more revenue when businesses make more money.
It’s not really a tax on their profits. Consumers have to pay it on top of the net sales price, and they know that it won’t add to the company‘s bottom line. The money goes to the state every month (or quarter sometimes), deducted by the VAT the business itself already paid for services/products.
For accounting purposes, VAT is a totally separate cycle of money, and for every important financial metric, VAT is ignored. [Removed] If you happen to spend more VAT than you collect, you’ll get the negative back from the state. Also, the net price is always known because it must be shown on every invoice.
On a product of 120€ with 70€ wages, they pay 20€ VAT on the 100€-before-tax, and they pay 25% IS (corporate tax) on the 30€ margin, so 7.5€ (this example is for France). If they distribute the remaining 22.5€ as dividends, the recipients pay up to 30% IR, so 7€.
VAT is most of the tax revenue by far. France’s budget is made of 50% VAT, 15% from corporate tax (IS), 10% from income tax (IR) and then the rest from various state revenue (like renting the palaces for movies).
1. They need to tax every economic transaction possible to maintain demand for the Euro currency and keep it from loosing its value. This is the most important reason.
2. To get more money in taxes for the government. There's people who argue that lower tax rates increases economic activity and in the end would increase tax revenue also for the government. The government doesn't see things that way. "You pay me now, pay more!"
3. Taxes on profits are an incentive for business owners to reinvest any surplus into growing their business, meaning more jobs etc.
You're right, it's not surprising at all. It's a tax meant to make revenue for the government. But all my life I've heard from people (who have never had a business), that businesses get back all their VAT. It doesn't help showing them the accounting, which very clearly shows VAT paid and VAT deducted.
It's a misconception that is on the level of people believing that their progressive tax rates are applied back towards previous salaries or business owners who think you should increase prices for the customers you have to make up for the customers you lost.
The detail that is missing from the mathematics is that companies fairly often buy more than they sell, which is called investment. Most early companies do not go with great profit if one removes all assets from the company. Buildings, cars, equipment and so on. If a new company takes a loan as a as initial investment, they are unlikely to have profits the first taxation year to cover it, and yet they still get to remove the vat from purchases.
From that one can make an additional insight. Most companies have less money during the early investment phase, which is where they get most benefit from removing vat from purchases.
You are thinking of a different deductiblity. When investing into the company you can deduct cost from taxes on profit, assuming there is profit to deduct it from. VAT however is still removed regardless if there is profit, which apply both to inventory and to other assets like buildings, equipment, cars and so on. The deduction on taxes on profit is thus done after vat has already been removed.
The assumption is not that you can one day sell it and pay vat on it. If a company buys a car, there is no assumption that they will sell the same car for profit at a later time. The assumption is that the car exist for the company in order to generate profit over time as part of the business operations, which is the reason why you don't need to pay VAT when purchasing it.
As a side note, there exist plenty of companies with zero or close to zero revenue, but with plenty of expenditures for which they get to remove VAT on. Those could be fake companies that are created for this specific purpose, or companies that are in theory investing into becoming profitable. A common example is a person investing into a expensive hobby, say photography, who could in theory turn it professional but has a company in order to avoid paying vat on equipment. In order to make the tax office "happy" they maybe sell a couple of photos a year, but is no where profitable and will likely never be it.
Different countries in EU may have different laws regarding VAT. The above is primarily about Swedish TAX system, but its very likely the same apply to Germany.
You're right in everything. The key difference between a business running a deficit in VAT and a deficit in profits (a loss), is that the business gets paid by the taxman for the deficit in VAT, but not for any deficit in profits.
However, regarding the discussion if it "evens out" for a business on VAT in and VAT out, investments shouldn't be considered, since they are investments and not product or part of revenue. Not only can a business deduct VAT from their investments, they can deduct the entire cost from taxes, divided over several years if they want.
> which is the reason why you don't need to pay VAT when purchasing it.
Technically you always have to pay the VAT, but then you reclaim it, as I'm sure you know. Internally that is. If it's imports then it's more complicated and differs between countries.
Everybody pays VAT. As a business you charge VAT for everything you sell and pay that out to the tax authority, and you get VAT back for anything you buy. As a consumer it's just an item on the bill.
Say the VAT rate is 20%. Now if you buy something for $100, install it and charge $100 to your customer, you get back $20 from the tax authority and pay them $20, so if billing cycles align no money actually flows to or from the tax authority. But if you add value, say by buying $100 in parts, assemble them and sell the assembly for $150, you get back $20 for parts purchased but collect $30 for the sale, creating a net flow of $10 to the tax authority.
If everything happens under the same tax authority this nuance doesn't matter, in total there's always a $30 tax on a $150 part, no matter how complex the supply chain. But if more countries are involved the difference matters: if a company in Poland makes parts worth $100 and a company in Germany assembles them and sells them in the German market for $150, that's $20 in taxes for Poland and $10 for Germany. With a sales tax that's only collected when selling to a consumer it would have been $30 for Germany and $0 for Poland.
The Polish company invoices the German company under the "reverse charge" regime. The German company treats the parts as if they were supplied by another Germany company, charging itself German VAT and refunding itself an equal amount of German VAT. There's nothing collected in Poland.
Reverse charge only moves vat collection from seller to buyer, so seller doesn't have to deal with 27 tax agencies and buyer only deals with their tax agency.
It's actually less paperwork, because you don't have two companies filing separate VAT rates with two tax authorities. On the surface, the reverse charge sounds complex but it actually simplifies things for the importer.
Nothing collected directly doesn't necessarily mean nothing collected at all. The turnover subject to said regime still needs to be reported, in higher detail if significant. Although I have no idea what exactly happens with such information, it's not hard to imagine it being used to settle the bill between countries.
That's not how VAT works in EU, when I'm buying stuff as business expenses from EU I need a reverse charge bill with my VAT ID and no VAT is applied on purchase. If I buy locally then I subtract the input when I'm paying my VAT or request a return if it's more than I owe in VAT (which happens when you are selling to other countries).
And therein lies the rub. Any goods / materials from outside the VAT zone will have VAT charged on the import. Vis—a-vis a tariff.
Example
I manufacture and sell teak wood tables in Portugal.
I buy the wood from Asia, which does not have a VAT and is outside the EU. When I import said wood, I get assessed a value to pay VAT on. This is a tariff.
I buy the stain and finish from Germany, which is inside the EU and has a VAT, through a complex paperwork system, I also pay VAT when the finish gets imported to me, but eventually I can claim that VAT paid back and it “nets out”. So I get this back. How do I get it back? I can subtract VAT paid from the VAT collected when I sell the goods.
More like VAT is a sales tax, by a different name. Regardless of the name, the buyer should pay the same amount of tax whether they buy domestic or from abroad. If VAT wasn't paid when buying from abroad, it would unfairly disadvantage domestic suppliers.
(I'm not an accountant, but as far as I know, the same VAT deductions for businesses apply whether they buy from an EU country or from a non-EU country, which your example doesn't take into account.)
But the actual net VAT charged is the same as if I used native materials, so the imports are at no disadvantage to native sales. So it is not a tariff.
If i offer a service for 100 €. I have play VAT for i, typically i add these to the bill, but for the sake of simple numbers i dont.
As an example, i have following costs for offering the service:
- Materials: 20€ - i can deduct these from the VAT.
- Salaries: 60€ - i can NOT deduct these from the VAT.
- Profit: 20€ - i can NOT deduct these from the VAT.
So earning my company 100€ will have me pay (in switzerland for example 7%) approximately 6€ VAT, the 1€ i did not have to pay, must be paid by the producer of the materials. Of course you can argue that the customer pays the 6€ and my company only pays the 1€, but it's never the less always a split bill.
The bill looks like it is split because VAT is collected at each transaction, but in the end it nets out for everyone but the end consumer.
So in your case the raw material producer would collect €1 of VAT from you, but this is entirely fictional, because you can immediately claim it back. Only when you sell the goods to an end consumer would VAT that cannot be claimed back be due.
Lots of countries do fine with a rather simple tax system. Why should I be taxed when I spend the already taxed money? Not to mention that VAT discourages spending and stifles economic growth, and people wonder why the shops are closing and wages are stagnating
I’ve heard it’s also liked among economists because it’s like.. “sound”, somehow, or “efficient” as far as taxes go? Like a lot of special taxes, tariffs, deductions have super complex side effects, kickbacks, unexpected payees and loopholes.. but as I understand VAT is relatively “sane” on paper?
But also there was something about taxing consumption that was bad somehow.. is it regressive? I don’t remember. Feels “flat”, but maybe not?
Neutral is the word. It means that the tax does not change what's the rational actions vs if the tax was not there.
And yes, it's regressive relative to income. Poor people spend all their money on essentials, paying the vat on all their income. Rich people can save most of their money (e.g in stocks), and end up paying a much smaller percentage of their income in VAT.
It should also be added that in most EU countries, essentials like food have a lower VAT rate than luxury goods, specifically as an attempt to address this.
The taxman thought of that - at least in some jurisdictions.
In my native Norway, if you are a professional and do work benefitting yourself, you are supposed to pay VAT on the value of the job you did, even if it was done after hours.
Makes me wonder if those also applies to professional chefs and cleaners. And do daycare staff need to declare time spent taking care of their own children?
No, it's only for stuff which needs 'special competency'. E.g if you are a plumber then changing gaskets are Ok (because that's something 'anyone' can do), but not bigger stuff.
Kind of but not really completely correct. It's not for professionals in general, but for self-employed professionals. And 'only' for the work which needs special competency. E.g is changing gaskets as a plumber ok, but more serious work triggers VAT.
But yeah, pretty lame rule, and I doubt many actually follows it. I think it's primarily meant for people doing house flipping.
it is regressive, it impacts small earners more than rich people, since a larger share of their income goes into direct consumption.
But many countries have different VAT brackets for different goods, e.g. in Italy at different times (I'm not sure of the current brackets) "staple" goods like bread or milk had 4% VAT, health and education had 5%, fish or meat had 10%, generic services have 22% and at some point "luxury" goods had 30%+ vat.
Yes, on paper VAT works out better, and it's a darling of economists. In practice, VAT requires more paperwork, accounting, and interaction with the bureaucracy. The end result is that even though the U.S. has the tax pyramiding "problem", you find much more tax avoidance in Europe than in the U.S. Grey and black markets constitute a huge, double-digit fraction of the European economy, and it's what helps sustain organized crime there, even in stereotypically rule-abiding Germany. Like many things in Europe, VAT works well for large enterprises; it's quite burdensome for small businesses, and that's probably where the complaints are coming from--small and medium-sized businesses in the U.S. who find dealing with EU taxation daunting.
In school (economics, law) I had learned all about how great the VAT system is. But about 10 years ago I wanted to buy a simple ~$100 rack shelf to fit a PC Engines APU from an Italian manufacturer. I had to create an Italian tax ID, which was annoying. I recently had to use it again just to buy some tins of anchovies from Italy.[1] In both cases I received more paperwork regarding the VAT than I did the import paperwork. It seems slight but it's actually quite a lot of friction compared to just giving X dollars and receiving your product. Dealing with tax and import crap is exactly why import/export companies exist, creating needless intermediaries that siphon value.
In that light, the "inefficient" sales tax premiums we pay in the US can be interpreted as the cost of enjoying a more decentralized taxation system that makes compliance more convenient and transactions run smoother. There's less accounting and--more importantly (because US accounting can be complex, too)--less coordination required. It's the economics version of worse is better.
[1] And just to be clear, in both cases I was purchasing through a clearly retail-oriented store website. IOW, even as an effectively retail consumer you had to provide a tax ID--the equivalent of an employer ID or social security number in the US. I don't know if this is a hard requirement for retail generally in Europe, or just the easiest way for them to deal with VAT accounting on their end when only a small portion of their business is retail.
I'm in the US so didn't have a VAT ID. Plus, I originally wasn't trying to purchase it as a business, and the businesses I was purchasing from do sell to individuals, it's just that apparently they wanted even individuals to provide a [personal] tax ID. Though, to get the Italian tax ID I believe I did have to register using an American business entity. (I can't remember, and apparently because of the strict privacy laws AFAICT there's no online database where I can query my Italian tax ID to see what name it's registered to, or even whether it's registered to a business or individual. It's somewhat understandable, but at least in the US the government provides an online service that can confirm whether a name matches a tax ID.)
If the president of Brazil, Lula, decides to increase import taxes, the US will mirror this decision. As a result, Lula has set a tax rate that US applies on imports and that US buyers end up paying to the US government.
No, while you mirror, you are not in control. But sure, you can decide to stop the mirroring that you started even though now it puts you in a worse situation than where you started. Say, Lula sets the import tax at 100% - will Trump say "that's too high a number for me, I fold"? In that case, he wanted the rates to be the same but now the difference is even higher.
Yes, they have just decided not to control it and left it in the hands of Brazil.
If they are smart, they just won't follow on the promise... but they haven't being doing that kind of thing recently.
Anyway, we will probably not see any trolling, because increasing the tariffs from Brazil's side would be a minor economic setback, and there are elections next year.
In fact the complexity of vat in europe is a disadvantage when dealing with things like small transactions. We have resorted to using an American company as a merchant of record to manage the complex invoicing for us, even if they keep a percentage of the sales.
VAT is simple unless your company has a very large, broad set of products. It's a PITA to deal with due to the invoicing and documentation requirements, but that's due to the volume of work required, not the complexity of it.
It's simple but it's a lot of busywork. This can be expensive for companies with a lot of purchases as the tax authorities demand a copy of every invoice regardless of the size of the transaction.
Other than the volume of paperwork involved, the actual technical aspects of VAT are far simpler than sales tax, as most countries only have a handful of VAT rates.
Yeah unfortunately EU countries have adopted complicated VAT systems in the sense that they have different rates on different categories of goods and services.
New Zealand has a much more sensible system: other than a few categories of services that are zero-rated (like land) for GST (what NZ calls VAT) everything is charged at a flat rate of 15%. It eliminates all the bullshit like decade long court proceedings about whether something is a cake or a biscuit, or silly social media campaigns about whether tampons are "luxury goods". It is all taxed at 15%.
That being said, the system is not more complex in the EU really, just more annoying.
You never had to handle cross country VAT it seems, and the stupid regulations that changed to make it require vat collection on the country of the payee :)
They are sensible regulations, but single market consisting of multiple countries with own fiscal and taxation policies is always somewhat complex thing.
Still, my understanding is that if you know the country and classify product like you know the rate. So it is less complex than sales taxes which might be local in other places.
Not anymore. For few years there has been EU VAT one stop shop system where you pay to your local tax office. And with digital products it's even easier with "VAT Mini One Stop Shop" (MOSS).
So for EU to EU company it's actually very simple.
But in mean time many other countries made some version of "digital tax". So you want to have this handled by someone anyway.
B2B sales have VAT applied, but before sending the VAT money it collected, the company deducts the VAT it was charged when it bought the goods. (each company ends up sending tax money that covers how much value it added)
(it's a bit more complicated when it's cross country since it involves refund rather than deducting, but that should be the same idea)
I find it funny that a lot of people can't read the article, so here's an ELI5 case on why VAT isn't discriminatory from our lovely Franch LeChat.
Going to add TLDR for people: Vat applies to all shit on the market, regardless of where the fuck you produced it.
---
The Value Added Tax (VAT) in Europe is designed to be a consumption tax that applies equally to both domestically produced goods and imports. This means that whether a product is made locally or imported from another country, the same VAT rate is applied when the product is sold to the end consumer. This approach is intended to create a level playing field, ensuring that local producers do not have an unfair advantage over importers, and vice versa.
The reason VAT is not considered discriminatory against imports is that it is applied at the point of consumption rather than production. When goods are imported into the EU, they are subject to VAT at the same rate as similar goods produced within the EU. This ensures that the tax burden is the same for both local and imported products, promoting fair competition. Additionally, businesses can often reclaim the VAT they pay on purchases, including imports, which further neutralizes any potential disadvantage.
However, it's important to note that while VAT itself is not discriminatory, other factors such as customs duties and regulatory standards can still affect the competitiveness of imports versus local produce. These factors are typically addressed through separate trade policies and agreements rather than through the VAT system.
And if you read a previous comment it effectively means imported goods are taxed twice.
Both in their country of manufacture and then again in the country where they are sold.
It makes sense to tax local companies with a VAT tax to fund their local govt/infrastructure. But imports are get nothing for that tax.
If you are a European exporter and there is no tariff/tax in your export destination then you only get taxed once.
And thats why "where the fuck you produced it" matters.
Huh...it's just a financial penalty imposed on the manufacturer that goes to the govt. Whatever labels/reasons you want to assign it is completely irrelevant.
I think Trump is advocating for reciprocity so yes if they want to then of course.
Ultimately the objective is to to remove trade tariffs/taxes completely but that's not going to happen till there is an incentive for countries to come to the table.
Other countries are not going to let the USA determine domestic tax policies.
If they did remove VAT from items imported from the United States it would lead to the absurd situation where a US merchant could import an item from Germany without VAT and then sell it to consumers in Germany without VAT undercutting German retailers and denying the German government their consumption tax revenue
Is Stephen Miller really that stupid, or does he have an agenda to gut American business? One really has to wonder if he's actually a spy from an adversarial nation.
Everything with these people makes sense when you understand that they want to break down the United States into their own corrupt little fiefdoms. They are anti-Union, not just with workforces, but with nations, because united people are harder to exploit.
This is why the way to fight them is to get involved in your local communities. Get off social media and get involved locally. Talk to people, help people.
By weakening its ties with Europe and other allies, the US is undoubtedly taking actions that benefit both Russia and China. That's not to say the president or his team are in cahoots with one or both of those countries, but these are the kinds of actions the US would be taking if that level of conspiracy were to be true.
There are a couple goals here. They would like to tank US economy so oligarchs can buy it for pennies on the dollar. Oligarchs like Elon and Thiel want to own their own cities called Network States. You can find more details about that here https://www.thenerdreich.com/
Trump is owned by Russia and China so turning America away from Europe weakens them. Like Zelenskyy says, Russia is likely going to attack NATO within the next couple years so breaking them away from America takes away a very powerful ally. Europe likes to twiddle their thumbs so he is betting that they won't get their shit together and odds are he is right. The EU moves slowly and is very nonsensical.
The real play that not even Trump sees coming is putting JD Vance behind the desk. Elon and the rest of the billionaire class are just using Trump to set the table for Vance. Once that happens we are all truly fucked.
I don’t know, if Elon and Thiel think they’re just using Trump for their own ends and they’ll discard him once they’re done, they’ll join a long line of people who I’ve heard the same theory about, all of whom ultimately failed.
To be honest, I don’t think there’s a single person in this entire pyramid of horrible who is a threat like Trump. It’s not because Trump is smarter or more evil than the rest of them, it’s because he’s absolutely shameless in a way you can only be if your brain is legitimately miswired. And as a result, he has managed to capture the loyalty of a third of America who will rabidly support him no matter what. Those people aren’t going to do that for Vance, or Musk, or DeSantis. Trump is unique in that regard.
The intended audience are the American people, to make it look like "America is not going to take that shit that ___ have been given us anymore!" It just has to have the illusion of action, since most voters don't read enough, or are educated enough, to evaluate and understand the substance.
This is going to be used as the basis of the tariff. It doesn’t matter if the Trump administration is correct. Take it from a fentanyl-slinging Canadian - they’re either dumb or grasping for straws / full of shit.
They are telling you tariffs are coming and they have identified the scapegoat to communicate to their voter base.
That’s all you need to know. I’m honestly not sure why anyone is bothering discussing it since it’s a waste of time.
If you are debating it, it means you are already behind the curve of understanding of where it’s going.
Bots or people in complete denial. People are waking up a bit slower than expected to the reality of what is happening. I completely understand in a way, because it only becomes clear once the barrel is pointed at you. At that point, it’s too late.
Trying to help out where I can - this is all misdirection. I’m sure there are a lot of smart people on here fascinated by pattern recognition. It’s their time to shine.
As a European, I see it as a blessing in disguise. America is a reckless country that goes from crisis to crisis due to being terminally greedy. And now, they're even unable to keep a stable political landscape. The fewer economic ties we have, the better.
What you're ignoring is that the VAT is not just applied to imports. It's applied to all consumption, it doesn't matter whether the good was imported, produced locally, or a mix.
From the US perspective, US is not discriminated against when it has exactly the same rules applied to them as anyone else. So, yes, it matters from the US perspective.
It may not matter for the lies US spreads and sells, but that is different thing then perspective.
I can understand that phrasing - it sounds like they’re trying to impose the American way on sovereign nations. I think they may be surprised that they get nowhere on this.
> Despite the appearance of subsidizing exports and punishing imports, however, a border-adjusted VAT is trade neutral. A border adjusted tax leads to currency appreciation for the imposing country, which would make it cheaper to import goods, more expensive to export goods, and thus would cancel out the apparent benefits of the tax on imports and the rebate on exports.
Nope. The difference is that a tariff only applies to imports, whereas a VAT applies to all sales in the country regardless of whether they are imports or domestic.
The former puts imports at a competitive disadvantage. The latter does not.
If you're going to start equating VAT (essentially sales tax) with tariffs you open the whole nightmare can of worms that is US sales tax to the rest of the world - for those not living in the US every state, and in some cases every county has its own sales tax rate ....
Sales tax is the same across all goods sold in the US, irrespective of whether they were imported or not. VAT rate differ based on the origin which is the issue
This isn't true: local (to me) jurisdictions vary between an 8ish% sales tax and a 10% sales tax. In many states, there's no sales tax on food but food is taxed in Alabama. There's any number of variations of this in the US.
It's important to understand that (in simple terms) businesses do not actually pay VAT. VAT is a tax that ultimately burdens consumers, not companies. When a business purchases a product that includes VAT, it initially pays the VAT amount. However, when the same business later issues invoices for its own products or services (also including VAT), it is required to remit the VAT to the tax authorities minus the VAT it has already paid on its own purchases.
In practice, this means that if you sell something with VAT to a company, the VAT component is irrelevant to that company. This is, of course, a simplified explanation, but fundamentally, that's how the system works.
I don't know about the modalities in all the EU countries, but generally it's an indirect reimbursement, deducting the VAT you payed extra from the VAT you're supposed to hand over to the tax authorities. The readjustments are done monthly.
It's not real reimbursement, you were reimbursed already when you "added value" and sold the goods or services to someone else for more than you paid for. The money you took contains VAT and most of that you will keep yourself because you paid for it. You will the take the say 20% you collected when you sold goods, subtract the VAT your supplier put on their invoice to you and give the rest to the government. You are in a way reimbursing the government. It's possible to get reimbursed by the government if you spent more money on VAT than you collected yourself - it happened to me as a freelancer if I spent more money on bills but either didn't generate any income or worked for foreign companies and my invoices were VAT free.
When all of this happens depends on the jurisdiction I guess. I had to do it quarterly. Some other people I know did it yearly. "Real" companies are probably again different, and different in different countries.
Even if the VAT tax ends up being the same for imported goods versus domestically produced goods, that is still a discriminatory tax against the import. The reason is because the imported good already paid taxes in the country it was produced in.
It makes sense for a German car manufacturer to pay taxes to Germany, since the German state provides it with services (roads, police, infrastructure.) It makes no sense for an American car manufacturer to pay taxes to Germany since it gets no services from Germany. (And no, earning the "privilege" of unloading the car from the boat isn't worth 20%.)
If the EU has an interest in making this fair, they can remit the sales tax they collected to the US government. Or they can just accept that this is a discriminatory tax and may incite another discriminatory tax on the US side.
This is not how a VAT works. An American car manufacturer _selling_ a car to Germany means that the importer on the German side pays the tax, not the American. VAT is always applied to the buyer, not the seller.
Tariff is applied to import and export. VAT is applied to everything, including domestically produced things. German cars pay the same VAT which makes it fundamentally different them VAT.
A regular tariff is also paid by the buyer yes, the comment i replied to seems to not understand either concept.
Where the VAT is different is that since all products are taxed the same regardless of origin there is no advantage given to any origin. A tariffs would make the foreign product less attractive. VAT does not.
I already explained why the VAT makes the foreign product less attractive. It's because the foreign product already paid taxes in the country where it was made. So it gets taxed twice, whereas the domestic product is taxed once.
And before you comment, I do understand that the EU allows VAT tax collected in one member country on a product to reduce the amount of VAT tax collected in another member country. There's no such arrangement in place for the US, which is what makes it discriminatory.
Please respond to my actual argument rather than insulting me.
Because it is single market. Just like inter-state commerce inside USA.
Now why the corporations inside USA have failed to lobby mechanism that allows them to get refunds on sales taxes when they export stuff is reasonable question to ask.
> Because it is single market. Just like inter-state commerce inside USA.
No. The US doesn't do this for interstate commerce. For example, California doesn't reduce its sales tax on an item just because Illinois already charged some other tax on that item.
> Now why the corporations inside USA have failed to lobby mechanism that allows them to get refunds on sales taxes when they export stuff is reasonable question to ask.
It's not the job of US corporations to fix discriminatory tax and tariff schemes cooked up in Europe.
On the other hand, in Washington, some people are starting to take notice. If the Europeans want to slap a 20% price increase on US goods, we also know how to do that for European goods.
You should negotiate with Trump if you think American taxes are too high. Unless EU attacks US militarily and takes their territory, USA taxes are not their issue.
I am unsure what you mean by "the foreign product already paid taxes in the country it was made" in this case. The VAT is done on the buyers side. The foreign product is taxed by the importing entity in the country with the VAT, then by the consumer when they buy the product from the importer.
For the consumer there is no difference between the foreign and domestic product and therefore there can be no difference in how attractive it is.
Whether the buyer or the seller pays the VAT is not relevant. If the price to the consumer is higher, the economic effect is the same.
As another commenter said, this is the same as tariffs. If someone said that tariffs disadvantage foreign producers, you wouldn't smirk and say "idiot! tariffs are paid by the buyer, not the seller!" Instead of trying to demonstrate how very smart you are, you should engage with the arguments that I'm presenting.
>and may incite another discriminatory tax on the US side.
The US already has some of these. Eg YouTubers all have to pay taxes to the US government even if they are not US citizens, have never been to the US, and interact with Google Island Ltd.
My understanding is that the basis of this tax is that it's "money earned from American viewers" or something along those lines.
Imagine if every country in the world did something like this.
By this logic an American state should remit the sales tax they collect on imported cars back to Germany. The Germans would probably love this, twice as many German products are sold in the US as US products sold in Germany.
Sales Tax, Value Added Tax, Goods and Services Tax, are all taxes on consumption. They are paid by the consumer at the location of the consumption. They aren't a tax on production or producers.
Sorry, but a VAT is paid for by the final consumer. US suppliers paying taxes would be a manufacturer's sales tax (MST), but they went out of style decades ago. If any states are dumb enough to still have an MST, maybe they should start there.
> The reason is because the imported good already paid taxes in the country it was produced in.
The German corporate tax rate is 29.9% vs 21% for the US (from googling). If Germany is anything like my nearby country there are also additional taxes which the US may or may not have (probably not).
Why doesn't the US just raise their own sales tax on both imports and domestic products?
Literally every single developed country aside from the US uses a VAT.
Is the US going to crusade to change every single country to use your shitty taxation system instead of a VAT?
(the answer is no, VAT is just the only excuse they could find for tariffs on the EU, like how "fentanyl" was the only excuse they could find on Canada no matter how BS it was)
Unless I missed something, this is the entire explanation of why the VAT isn't like a tariff:
>>>VATs are border-adjusted, meaning they rebate tax on exports and impose tax on imports. Despite the appearance of subsidizing exports and punishing imports, however, a border-adjusted VAT is trade neutral. A border adjusted tax leads to currency appreciation for the imposing country, which would make it cheaper to import goods, more expensive to export goods, and thus would cancel out the apparent benefits of the tax on imports and the rebate on exports.
The rest of the article is just about how US sales tax sucks. So VATs are not like a tariff because they put pressure on currencies to adjust in value? Huh? Can someone explain what taxfoundation is talking about?
If I make two ford fiestas, one in the US and one in Germany and they are otherwise identical--identical labor costs, identical shipping costs, etc etc--do I have to sell each ford fiesta in germany at a different cost to the consumer (so including all taxes levied on the consumer) for me to make the same profit on each fiesta? If so, then I dont see what is dishonest about likening the VAT to a tariff.
Cost inside Germany are inclusive of VAT. So German manufacturer pays to their supplier price of item + VAT. VAT is send to tax man. And when they then sell it to consumer they get to deduct from VAT they charge the amount they were charged themselves. So in the end consumer pays all of the VAT.
When you ship car to Germany, you have to charge this VAT from consumer too. But now as you did not previously pay any you charge full amount and get nothing back.
In each step inside Germany the intermediate buyer was charged more than outside where there were no VAT.
Well from peer comments and examples it seems like the difficulty is that a car company will have to pay VAT on the full value of the car if it is imported, but only end up in net paying VAT on the portion of value that they added if they didn't import the car. Wouldnt it be more fair to just charge VAT on the value that the importer is adding, rather than the entire value? I suppose they would if they could but its impractical for international trade.
It seems like most people in this thread are just using it as an opportunity to shit on Trump but I have yet to see an explanation for why this argument is dishonest. The effect of the VAT seems pretty tariffy.
>Wouldnt it be more fair to just charge VAT on the value that the importer is adding, rather than the entire value? I suppose they would if they could but its impractical for international trade.
They don't pay anything. They collect the tax paid by consumer which is N percent of the price. If N - 1 was already collected by previous parts of the chain, they only have to collect 1.
"Value added" is bit misleading. As it indicates point where taxation events happen when it is inside market. But in reality it is purely a consumption tax.
And well with imports value add happens at the border, where magically a car for example appears. So value addition of whole car's value is done. From zero to cars value in added value.
They are two separate things. There is a flat VAT on every consumer product in the EU. When I buy something in Denmark from a Danish (or any EU) shop I pay 25% to the government. If I buy something from a non-EU shop I pay 0% to the government until it gets dutied in customs and then I pay the 25%. In America you also pay taxes on goods, the difference is you have to add it on top of your price yourselves... Like that was so crazy shopping in a US store the first time... that the price listed was not the price you had to pay. I don't think it would be particularily unfair for the US to do the same, but the difference is that you don't have the 25% flat vat on your internal goods, so in order for it to be equal we would need to add a tax on US goods to balance it out.
Anyway, taxation on car varies from EU country to EU country. In Denmark you pay a ridiculous amount of money to get a car registrered. To prevent every Danish person from buying a car in Germany we tax imported cars equal to Danish cars. Then on top of that you have various enviromental taxes, which our local car dealers are obviously geared toward, but if you were to import some non-eco friendly car your taxes on it would be silly high. (I say ridiculous and silly but I agree with it). The flip side of this is that some vehicles (like Teslas) have been getting very large tax reductions because they are green. Here is the kicker though, these are for private imports. If a Ford dealership wants to sell American cars, they can do so on equal terms to European car companies. You can argue Trump is at least a little correct on cars, but the reason Danes do not buy American cars is because American cars aren't build for our roads. Somewhat ironically a lot of the countries which have the highest taxes on imports of cars are also the countries which don't produce cars. America can tax the EU sky high on cars and it wouldn't impact Denmark because we produce exactly 0 cars. It would impact Germany, which has much lower import taxes than us and is also where a company like Tesla produces the European cars which are sold in Denmark. Something which would likely be a target for EU retaliation.
The worst part is probably that it'll mainly impact smaller businesses. Our biggest exporter of anything to the US is Novo Nordisk but companies like them have production inside the US and will not be impacted by the tariffs. Mean while some specialist tiny store will likely lose a lot of money. I have a pair of Iron Ranger boots as an example. I guess Red Wing might not be a tiny company, but they don't have EU production so I would find a non-american alternative to these if we enter a trade war and there is another 15-20% added on top of the VAT to balance things out. Not that I'll need a new pair of boots for a while, but you get the point.
The reality is that if we enter a trade war, we will both lose. The Trump administration is gambling that they can pull production back to the US, and maybe they'll succeed better than Australia did back in the day. The US is certainly a big enough economy that it might be capable of doing it. It's far more likely that it'll surrender the global economic leadership to China though. It's tricky of course, because China would already have that if they decided to meet EU regulation on safety standards. The danger to the US is if BRICS manages to pull half of the world away from the dollar. If that happens there will be nothing to carry the massive US deficit, and the US is the first and only nation in the history of the world that has been capable of remaning dominant while also having a deficit. Which is solely thanks to the dollar being the world currency.
>If I make two ford fiestas, one in the US and one in Germany and they are otherwise identical--identical labor costs, identical shipping costs, etc etc--do I have to sell each ford fiesta in germany at a different cost to the consumer (so including all taxes levied on the consumer) for me to make the same profit on each fiesta?
No, probably. It depends on the price of the materials you use. It's a value added tax. It taxes the value that you created.
Lets say you buy €5000 worth of steel and then make it into a car that you sell for €10,000. With a 20% VAT rate the government gets €2000 and you get €8000.
However, that steel you bought also included 20% VAT in its price (€1000). You get this money back from the government. The steel actually cost €4000 for you.
In total your profit would be €4000. Effectively, the 20% VAT applies to the €5000 of value that you created.
---
If you built that Ford Fiesta outside of the EU then the "value add" is the entire price of the vehicle. But you don't have to pay VAT for the raw materials you buy, so theoretically it should end up being the same amount of profit.
You seem to be saying that its fair that the EU end up with 2k in taxes in both cases, where in the case where it was imported there was far less happening in the EU.
Yes. It is. Because it is government stealing my money. After I already paid income tax. VAT is charged from me not the seller, the seller just has to move the money from me to tax authorities.
VAT is tax on my consumption. It is in essence extra tax on anything and everything I buy. Thus it is really not taking any money from the seller, but me a EU citizen.
Basically money for USA here should come from income taxes paid by workers and the corporate taxes paid on profits. And then well capital gain taxes paid for profits paid out.
What you're missing would be obvious if you looked at where the money ended up, and didn't play the sleight of hand with pretending that there was just one government involved.
In the second case, a EU government has $2k, the steel producer has $4k, and the EU-based car producer has $4k.
In the first case, a EU government has $2k, the steel producer has $4k, the US-based car producer has $3k, and the US government has $1k.
It was the US government that took the money from the US-based company! That's not at all like a tariff imposed by the EU. If you don't like the US taxing US companies, the entity that can fix it is the US government. Not the EU.
Sorry Im not trying to play sleight of hand. As far as tariffs and business competitiveness are concerned, the things that matter are the price to the consumer and the profit to the company.
You seem to be saying that it is self-evidently fair that the EU end up with 2k in taxes in both cases, where in the case where it was imported there was far less happening in the EU. Why do they deserve 2k in tax revenue when the steel was rolled in the US ?
The VAT is a consumption tax, not a production tax. It's totally agnostic to where the production happened. If you want to sell something to a EU-based consumer, that money has to be paid no matter where you're from. What could be more fair than that?
Again: the difference is coming purely from the US government choosing to tax a US company. Just why is that a problem that should be solved by the EU?
So let me get this straight: because the US wont let you get the sales tax you paid back like you would with a VAT, you blame the "sane" system for effectively imposing an import tax, even though there is no way for the that receiving system to know how much sales tax was paid already and deduct it properly?
I'll gladly flip that argument on its head: the US is imposing an export tariff, since everything sold from the US to Europe includes US sales tax in the process, while in the inverse, any EU company charges 0% VAT to the US.
You can’t equate VAT and sales tax, as the article explains. It’s an inherent property of US sales tax that it pyramids (multiplies on each intermediary sale). You would have the analogous effect if you sell the US-produced car to a US-based reseller: The sales tax on the steel is lost to you as well then, you don’t get it refunded from the sales tax paid by the US end consumer who buys the car from the reseller.
So if anything, the sales-tax system should be critized, not the VAT.
The EU import VAT has the purpose of treating EU producers and foreign producers equally, by subjecting both to the same tax rate. But you can’t blame the EU for steel being effectively more expensive in the US (if that is actually the case), similar to how you can’t blame the EU for labor costs being higher (or lower) in the US.
> buy $5000 worth of steel in the US, inclusive of sales tax
Sales tax is only charged on retail sales to consumers, there is no sales tax on raw materials for production. So if material costs are the same, and sales tax and VAT rates are the same, the steel will be less in the USA, because there will be no sales tax. In your example, the steel would only be $4k in the US.
You are calling the US tax sales tax but acting like it was applied like a VAT.
Exactly. So in reality the US car was produced for less than 5k* worth of steel because the steel price in Europe includes VAT, and in the US it does not. End of story.
*This is true if the price of steel is the same in Europe and the US. It might not be, and a country or a region might have a competitive advantage. For instance a country might add tariffs on steel imports and increase the costs of manufacturing.
You are missing the fact that the US manufacturer is paying more because the US tax system applies sales tax multiple times on inputs as they move through manufacturing steps. Raw materials like steel are often exempt even in the US, but many other business expenses are not. This is outdated approach to taxation. The entire world has moved on to VAT, which taxes only the final sale to the consumer. Foreign countries are not being unfair, as it is not their responsibility to manage the US tax system and keep it efficient - that's the job of the US government.
> If I make two ford fiestas, one in the US and one in Germany and they are otherwise identical--identical labor costs, identical shipping costs, etc etc--do I have to sell each ford fiesta in germany at a different cost to the consumer (so including all taxes levied on the consumer) for me to make the same profit on each fiesta?
No. In both cases, the German consumer is paying the VAT on top of whatever net price you set, and that VAT goes to the German state.
VAT is the most regressive sort of tax and gives the lie to the myth of Europe as a socialist paradise. In Spain it's used because it's much easier to collect than are income taxes, which lots get away without paying.
> Trump commonly mentions that the EU charges a 10 percent import tax on US vehicles while the US only levies a 2.5 percent tariff on European cars coming into the US
That seems pretty significant no? Why do we need German cars anyway?
Edit: This is a bit tongue in cheek, but I imagine there's a limited demand for american vehicles in Europe just due to the market fundamentals. Raising tariffs on European vehicles disproportionately harms american consumers. Tesla has a significant production capacity in Europe, probably because it was in demand in Europe.
I think it’s the other way around. US and China is applying a downward pressure on EU taxes and labor rights, and VAT balances it by treating everyone equally.
Keep in mind, a German built vehicle pays VAT on all the imported materials and components too. I imagine that is a significant share.
When most other countries apply VAT, I think the correct counter for the US is to do the same.
Yeah but these are tarriffs. Negotiate, if you want to get them away - but Trump has shown that his own word (the "beautiful" trade deal he signed during his first term) is worth absolutely nothing.
The Trump team is not stupid and understands that the Vat tax is not discriminatory. The problem is in their logic and propaganda - "USA has a trade deficit because everyone is taking advantage of us".
Then they look here at the EU and it turns that it has very low tariffs for the US, and the trade still has a large deficit. That goes against everything they say, so what excuse are they going to use against Europe?
They are not going to admit that their logic doesn't follow problem is elsewhere. And they know perfectly well that because the Vat tax is not a tariff, and because EU governments depend on the revenue they get from it, it is impossible for them to get rid of it. They really want these tariffs just because that's what they believe, that tariffs are 100% good, the reasoning doesn't matter
> If there is a complaint to be made about tax policy and implications for US competitiveness in Europe, it is about uncompetitive state sales tax structures in the US system that yield what is known as “tax pyramiding.”
The average state sales tax is probably less than half the average European VAT, so even when you double tax, state taxes are likely still more competitive.
> If a European resident orders from a US retailer, they do not pay US sales tax, just like a US consumer can obtain a VAT rebate on purchases of European products. Neither is a subsidy. These are simply consumption taxes falling on the consumer.
I wonder how often the US consumer actually gets a VAT rebate on their imported purchases, or how many US consumers are even aware of this.
> I wonder how often the US consumer actually gets a VAT rebate on their imported purchases, or how many US consumers are even aware of this.
It's quite unlikely they would have been charged VAT in the first place if buying online. The seller would have noted that the destination was not within the common market, and shown prices without VAT included.
This mostly matters when you're physically in the EU when making the purchase but will leave the EU before using the item. In that case you can get a VAT refund when leaving the country. This tends to be well advertised both at the airport and at the stores that tourists are most likely to shop at.
When I was a student (and poor), the average VAT I paid on products was less than 5% (I only paid for food and had student prices for transportation and musical school, so no Vat on that). Healthcare was also 0%. So it really depends on your situation.
VAT is a complex system that encourages fraud, which encourages expansion of tax collection and investigation forces. It is also treated differently from income tax. As any tax advisor in Europe will tell you, disparities in VAT reporting and payments/claims are treated with more suspicion by the tax authorities than similar issues with income tax. It is sometimes called a 'punitive tax', because the default behaviour of tax authorities is to fine you.
The cost of compliance is also prohibitively high, even if you find an agent who will deal with various EU members' tax authorities, some (hello, France and Germany!) require suppliers to register and report/pay directly. It is a Byzantine system that's designed to stop growth, exclude small businesses, and entrap taxpayers.
As a European, I would love for it to go to hell and never come back.
393 comments
[ 5.0 ms ] story [ 263 ms ] thread> Europe’s VATs are not tariffs and are not subsidizing European exports. Instead, US states’ poorly-designed sales taxes are harming their own businesses’ competitiveness—whether they’re selling down the street, across state lines, or around the world.
The two things seem unrelated?
But regardless, US exporters to the EU end up paying more taxes than domestic EU producers.
No, because the domestic EU producers are paying VAT at each stage of their production process. The US manufacturers need to catch up!
As long as I know, VAT should be payed only once for a finished product when sold to the very end customer.
Which is why being a registered one man company with a vat number allows you to get back vat for your laptop
but only because of tariffs, not VAT system. we pay VAT regardless from where the good came from.
Naturally the chain breaks at the border, so importers pay vat and exporters get vat refunds.
In the end its just a sales tax
https://comptroller.texas.gov/taxes/publications/94-124.php
The consumer pays the VAT, not the producer.
Have Americans become really that dumb?
It’s not a question of being dumb or not, but rather that VAT doesn’t exist in the US so most people don’t understand how it works, if they have even heard of it at all.
Instead of VAT, most states have sales tax, which is similar in spirit but doesn’t work the same way.
Being confidently wrong in the comment section is dumb and arrogant.
But apparently facts don't mean anything anymore in that crazy country there.
The mistake I think Vance made was assuming that Europe doesn’t tax its own vehicles 30%. If he wants to “reciprocate” by impose higher taxes on BMWs, Mercedes, and Audis so I don’t have to deal with their drivers egos every time i go on the highway, let him. This is not a product class that is adding much value to our society in my opinion. I would hope they aren’t so difficult on Honda/Toyota since both brands provide good reliable cars while US manufacturers try to get their shit together
Similarly, if the EU applies VAT to all goods sold, that can't be considered discriminatory just because some other country doesn't apply VAT.
European customers handle the VAT themselves when dealing with non-VAT-registered non-European suppliers; this is known as the "reverse charge" mechanism and it's generally a feature of almost every VAT system in the world. (In a nutshell, the customer charges themselves VAT and pays it on their own VAT return. This is similar to the way "use tax" works in the U.S.)
The VAT is important in Europe, because if a product is manufactured in many countries, each of those countries gets a share of the tax revenue.
You add VAT to things you sell (e.g. car repair services), you pay VAT on things you buy (e.g. car parts). If you collected more VAT on sales than you paid on purchases, you owe that to the tax department.
It's a bit of book-keeping but doesn't affect your profits directly.
compare to American sales taxes, where sellers have no economic incentive to collect sales taxes beyond the probability of being caught and fined.
If it was optional if you didn't want to claim expended VAT, quite a few companies would happily choose that, because you don't pay VAT on labor and that's the biggest cost in many industries. If you're primarily b2c, you could effectively lower your prices by a good chunk or get a healthy chunk of extra profit.
But you can't, because there's no choice, it's just the law.
I don't know any numbers, but I only ever see it being used by sellers on Amazon.
The advantage of this, is that if you have to have accounting for sales, you'll probably have accounting too for labour, and you'll also pay income tax, social security, etc.
Edit: Congratulations to the people who are down voting very basic mathematics.
Many B2B offers and proposals are negotiated or priced without VAT mentioned, but it is absolutely added to the bill.
The only time it "nets out" is if a business has the same expenses for their purchases as for their sales, meaning they're soon bankrupt.
Alice digs up some copper and tin and sells it to Bob for 10€ + 3€ VAT = 13€. Alice remits the 3€ to the authorities on Bob's behalf.
Bob casts bronze bars and sells them to Carol for 39€ + 11.70€ = 50.70€. Bob claims a 3€ refund for VAT he paid Alice and remits 11.70€ to the authorities on Carol's behalf.
Carol makes a sculpture from the bronze and sells it to a customer for 1014€ + 304.20€ VAT = 1318.20€. Carol claims a 11.70€ refund for VAT paid and remits 304.20€ to the authorities.
The end customer ends up paying 100% of the total VAT (304.20€). Everyone else nets out to 0.
You're correct with your calculations, but it's not honest to say that the customer pays the VAT and therefore it nets out for a business.
What's happening is that a business gets refunded by the government for any VAT they pay. Alice charges Bob VAT. Alice remits the money to the tax authorities who then refunds Bob the money they paid.
If after paying payroll taxes, the government decided to hand all the money back, that would be VAT. The only one who doesn't get refunded is the final customer.
Consider a business who only purchase products and sell them to consumers for a higher price:
Step 1: They buy inventory for a total of €1000. €250 of that is 25% VAT. They have paid a total of €250 in VAT.
Step 2: They sell inventory for a total of €1200. €300 of that is 25% VAT. They have charged a total of €300 in VAT.
Deducting what they paid from what they have charged, you get €300 - €250 = €50. They have to pay the government €50.
And this is for a business who only resells products with a margin. Normally a business tries to minimize their costs and maximize their revenue, meaning that the difference in VAT will be even bigger.
I urge you to examine these common myths with a clear mind. It doesn't matter if your family and uncles believe in them or if the people here on HN believe in them. What matters is when your business financials are wrong and you're loosing money unexpectedly because you have believed in something which isn't true.
They indeed pay no net VAT (it's not a cost for them in the sense of their profit and loss statement), but they do remit a bit of the VAT collected by the end consumer to their _local_ tax authority.
As an example, let's consider a VAT rate of 20%, and a Dutch company that buys from a French one and sells to a German one. Their costs per product are €80, and thus they pay €16 of VAT over that to their French suppliers. If they sell a product for €100 (i.e. they add €20 of value), then they collect €20 of VAT from their German buyers (which might in turn get it from the end consumers). There's a difference of €4 between what they received and paid in VAT, and that difference is collected by the Dutch tax authority. That €4 is not coincidentally the 20% VAT over the value added by the Dutch company.
Before the EU common market, you used to be able to do that VAT refund even for your own purchases as a private person on vacation - you can still, for example between the EU and Switzerland. It was even translating to tax-free vacation shopping because they weren't interested in collection taxes below a certain value.
Also it's a consumption tax, in the end the end consumer is the one paying it (through higher price). The businesses in the middle are mainly collecting the tax on behalf of the state.
A state might want to tax both of them at some level, because even unprofitable businesses should contribute. Or they might not.
It's just two forms of taxation. Sales tax/VAT is a fixed proportion of sales, and then you also pay tax on profit that's left.
You might as well ask why people pay income tax when they make money and then have to pay sales tax/VAT again when they spend it!
Of course, answering that is complicated, and there are a lot of factors. But the main one is basically that governments like to tax "everything", so that people/goods/services that might wind up evading one tax wind up paying another. Sales tax makes sure governments get revenue even when businesses make no profit, taxing profits makes sure governments get more revenue when businesses make more money.
For accounting purposes, VAT is a totally separate cycle of money, and for every important financial metric, VAT is ignored. [Removed] If you happen to spend more VAT than you collect, you’ll get the negative back from the state. Also, the net price is always known because it must be shown on every invoice.
VAT is most of the tax revenue by far. France’s budget is made of 50% VAT, 15% from corporate tax (IS), 10% from income tax (IR) and then the rest from various state revenue (like renting the palaces for movies).
VAT >> other revenues.
1. They need to tax every economic transaction possible to maintain demand for the Euro currency and keep it from loosing its value. This is the most important reason.
2. To get more money in taxes for the government. There's people who argue that lower tax rates increases economic activity and in the end would increase tax revenue also for the government. The government doesn't see things that way. "You pay me now, pay more!"
3. Taxes on profits are an incentive for business owners to reinvest any surplus into growing their business, meaning more jobs etc.
It's a misconception that is on the level of people believing that their progressive tax rates are applied back towards previous salaries or business owners who think you should increase prices for the customers you have to make up for the customers you lost.
From that one can make an additional insight. Most companies have less money during the early investment phase, which is where they get most benefit from removing vat from purchases.
Any stock that you couldn't sell is not an investment. It is inventory and you can only deduct VAT because you will one day sell it and pay VAT on it.
The assumption is not that you can one day sell it and pay vat on it. If a company buys a car, there is no assumption that they will sell the same car for profit at a later time. The assumption is that the car exist for the company in order to generate profit over time as part of the business operations, which is the reason why you don't need to pay VAT when purchasing it.
As a side note, there exist plenty of companies with zero or close to zero revenue, but with plenty of expenditures for which they get to remove VAT on. Those could be fake companies that are created for this specific purpose, or companies that are in theory investing into becoming profitable. A common example is a person investing into a expensive hobby, say photography, who could in theory turn it professional but has a company in order to avoid paying vat on equipment. In order to make the tax office "happy" they maybe sell a couple of photos a year, but is no where profitable and will likely never be it.
Different countries in EU may have different laws regarding VAT. The above is primarily about Swedish TAX system, but its very likely the same apply to Germany.
However, regarding the discussion if it "evens out" for a business on VAT in and VAT out, investments shouldn't be considered, since they are investments and not product or part of revenue. Not only can a business deduct VAT from their investments, they can deduct the entire cost from taxes, divided over several years if they want.
> which is the reason why you don't need to pay VAT when purchasing it.
Technically you always have to pay the VAT, but then you reclaim it, as I'm sure you know. Internally that is. If it's imports then it's more complicated and differs between countries.
Say the VAT rate is 20%. Now if you buy something for $100, install it and charge $100 to your customer, you get back $20 from the tax authority and pay them $20, so if billing cycles align no money actually flows to or from the tax authority. But if you add value, say by buying $100 in parts, assemble them and sell the assembly for $150, you get back $20 for parts purchased but collect $30 for the sale, creating a net flow of $10 to the tax authority.
If everything happens under the same tax authority this nuance doesn't matter, in total there's always a $30 tax on a $150 part, no matter how complex the supply chain. But if more countries are involved the difference matters: if a company in Poland makes parts worth $100 and a company in Germany assembles them and sells them in the German market for $150, that's $20 in taxes for Poland and $10 for Germany. With a sales tax that's only collected when selling to a consumer it would have been $30 for Germany and $0 for Poland.
Example I manufacture and sell teak wood tables in Portugal. I buy the wood from Asia, which does not have a VAT and is outside the EU. When I import said wood, I get assessed a value to pay VAT on. This is a tariff. I buy the stain and finish from Germany, which is inside the EU and has a VAT, through a complex paperwork system, I also pay VAT when the finish gets imported to me, but eventually I can claim that VAT paid back and it “nets out”. So I get this back. How do I get it back? I can subtract VAT paid from the VAT collected when I sell the goods.
Yes, VAT is a tariff, by a different name.
(I'm not an accountant, but as far as I know, the same VAT deductions for businesses apply whether they buy from an EU country or from a non-EU country, which your example doesn't take into account.)
If i offer a service for 100 €. I have play VAT for i, typically i add these to the bill, but for the sake of simple numbers i dont.
As an example, i have following costs for offering the service: - Materials: 20€ - i can deduct these from the VAT. - Salaries: 60€ - i can NOT deduct these from the VAT. - Profit: 20€ - i can NOT deduct these from the VAT.
So earning my company 100€ will have me pay (in switzerland for example 7%) approximately 6€ VAT, the 1€ i did not have to pay, must be paid by the producer of the materials. Of course you can argue that the customer pays the 6€ and my company only pays the 1€, but it's never the less always a split bill.
So in your case the raw material producer would collect €1 of VAT from you, but this is entirely fictional, because you can immediately claim it back. Only when you sell the goods to an end consumer would VAT that cannot be claimed back be due.
But also there was something about taxing consumption that was bad somehow.. is it regressive? I don’t remember. Feels “flat”, but maybe not?
And yes, it's regressive relative to income. Poor people spend all their money on essentials, paying the vat on all their income. Rich people can save most of their money (e.g in stocks), and end up paying a much smaller percentage of their income in VAT.
If I work on my car, and you work on your house, we are both financially ahead than if you had worked on my car, and I had worked on your house.
In my native Norway, if you are a professional and do work benefitting yourself, you are supposed to pay VAT on the value of the job you did, even if it was done after hours.
But yeah, pretty lame rule, and I doubt many actually follows it. I think it's primarily meant for people doing house flipping.
But many countries have different VAT brackets for different goods, e.g. in Italy at different times (I'm not sure of the current brackets) "staple" goods like bread or milk had 4% VAT, health and education had 5%, fish or meat had 10%, generic services have 22% and at some point "luxury" goods had 30%+ vat.
This offsets the regressiveness somewhat.
In school (economics, law) I had learned all about how great the VAT system is. But about 10 years ago I wanted to buy a simple ~$100 rack shelf to fit a PC Engines APU from an Italian manufacturer. I had to create an Italian tax ID, which was annoying. I recently had to use it again just to buy some tins of anchovies from Italy.[1] In both cases I received more paperwork regarding the VAT than I did the import paperwork. It seems slight but it's actually quite a lot of friction compared to just giving X dollars and receiving your product. Dealing with tax and import crap is exactly why import/export companies exist, creating needless intermediaries that siphon value.
In that light, the "inefficient" sales tax premiums we pay in the US can be interpreted as the cost of enjoying a more decentralized taxation system that makes compliance more convenient and transactions run smoother. There's less accounting and--more importantly (because US accounting can be complex, too)--less coordination required. It's the economics version of worse is better.
[1] And just to be clear, in both cases I was purchasing through a clearly retail-oriented store website. IOW, even as an effectively retail consumer you had to provide a tax ID--the equivalent of an employer ID or social security number in the US. I don't know if this is a hard requirement for retail generally in Europe, or just the easiest way for them to deal with VAT accounting on their end when only a small portion of their business is retail.
Now that our government controls the domestic price of fuel in the US, it's too bad Lula doesn't seem to be in a trolish mood...
If they are smart, they just won't follow on the promise... but they haven't being doing that kind of thing recently.
Anyway, we will probably not see any trolling, because increasing the tariffs from Brazil's side would be a minor economic setback, and there are elections next year.
https://en.wikipedia.org/wiki/Foundations_of_Geopolitics
In fact the complexity of vat in europe is a disadvantage when dealing with things like small transactions. We have resorted to using an American company as a merchant of record to manage the complex invoicing for us, even if they keep a percentage of the sales.
Other than the volume of paperwork involved, the actual technical aspects of VAT are far simpler than sales tax, as most countries only have a handful of VAT rates.
New Zealand has a much more sensible system: other than a few categories of services that are zero-rated (like land) for GST (what NZ calls VAT) everything is charged at a flat rate of 15%. It eliminates all the bullshit like decade long court proceedings about whether something is a cake or a biscuit, or silly social media campaigns about whether tampons are "luxury goods". It is all taxed at 15%.
That being said, the system is not more complex in the EU really, just more annoying.
Still, my understanding is that if you know the country and classify product like you know the rate. So it is less complex than sales taxes which might be local in other places.
So for EU to EU company it's actually very simple.
But in mean time many other countries made some version of "digital tax". So you want to have this handled by someone anyway.
PL5472244433
This is my European vat number, you can check it on VIES.
Vat is reverse charged from years, nobody pays it in B2B.
B2B sales have VAT applied, but before sending the VAT money it collected, the company deducts the VAT it was charged when it bought the goods. (each company ends up sending tax money that covers how much value it added)
(it's a bit more complicated when it's cross country since it involves refund rather than deducting, but that should be the same idea)
Going to add TLDR for people: Vat applies to all shit on the market, regardless of where the fuck you produced it.
---
The Value Added Tax (VAT) in Europe is designed to be a consumption tax that applies equally to both domestically produced goods and imports. This means that whether a product is made locally or imported from another country, the same VAT rate is applied when the product is sold to the end consumer. This approach is intended to create a level playing field, ensuring that local producers do not have an unfair advantage over importers, and vice versa.
The reason VAT is not considered discriminatory against imports is that it is applied at the point of consumption rather than production. When goods are imported into the EU, they are subject to VAT at the same rate as similar goods produced within the EU. This ensures that the tax burden is the same for both local and imported products, promoting fair competition. Additionally, businesses can often reclaim the VAT they pay on purchases, including imports, which further neutralizes any potential disadvantage.
However, it's important to note that while VAT itself is not discriminatory, other factors such as customs duties and regulatory standards can still affect the competitiveness of imports versus local produce. These factors are typically addressed through separate trade policies and agreements rather than through the VAT system.
And thats why "where the fuck you produced it" matters.
Get yourself a good transatlantic deal to get rid if import taxes (and stick to it)
If they did remove VAT from items imported from the United States it would lead to the absurd situation where a US merchant could import an item from Germany without VAT and then sell it to consumers in Germany without VAT undercutting German retailers and denying the German government their consumption tax revenue
What US taxes are you talking about that the EU does not have?
The only thing you have shown so far is that things in the EU are more expensive than the US. Which is not really a big secret.
Trump is owned by Russia and China so turning America away from Europe weakens them. Like Zelenskyy says, Russia is likely going to attack NATO within the next couple years so breaking them away from America takes away a very powerful ally. Europe likes to twiddle their thumbs so he is betting that they won't get their shit together and odds are he is right. The EU moves slowly and is very nonsensical.
The real play that not even Trump sees coming is putting JD Vance behind the desk. Elon and the rest of the billionaire class are just using Trump to set the table for Vance. Once that happens we are all truly fucked.
To be honest, I don’t think there’s a single person in this entire pyramid of horrible who is a threat like Trump. It’s not because Trump is smarter or more evil than the rest of them, it’s because he’s absolutely shameless in a way you can only be if your brain is legitimately miswired. And as a result, he has managed to capture the loyalty of a third of America who will rabidly support him no matter what. Those people aren’t going to do that for Vance, or Musk, or DeSantis. Trump is unique in that regard.
They are telling you tariffs are coming and they have identified the scapegoat to communicate to their voter base.
That’s all you need to know. I’m honestly not sure why anyone is bothering discussing it since it’s a waste of time.
If you are debating it, it means you are already behind the curve of understanding of where it’s going.
Trying to help out where I can - this is all misdirection. I’m sure there are a lot of smart people on here fascinated by pattern recognition. It’s their time to shine.
the catch is, in place of economic ties we will get war.
https://en.wikipedia.org/wiki/Wandel_durch_Handel
It may not matter for the lies US spreads and sells, but that is different thing then perspective.
The fact is the tax does not discriminate based on origin of the goods. It’s a tax on consumption.
So from the US perspective it matters to the degree that using a false premise to impose import tariffs might harm US interests.
This isn't even remotely true
The former puts imports at a competitive disadvantage. The latter does not.
Which is a lie. They do not differ based on the origin and that is not the issue.
The issue is that American top politicians are used and enabled to brazenly lie and their voters spread it happily.
https://taxfoundation.org/data/all/state/2024-sales-taxes/
Illinois State Sales Tax – 6.25%
Cook County Sales Tax – 1.75%
Regional Transportation Authority (RTA) Tax – 1.25%
City of Chicago Sales Tax – 1.25%
Total Sales Tax in Chicago: 10.25%
In practice, this means that if you sell something with VAT to a company, the VAT component is irrelevant to that company. This is, of course, a simplified explanation, but fundamentally, that's how the system works.
In the event that VAT has been paid, the reimbursement goes via the tax authorities.
When all of this happens depends on the jurisdiction I guess. I had to do it quarterly. Some other people I know did it yearly. "Real" companies are probably again different, and different in different countries.
Just like Trump exclaiming that it's "unfair" that Europeans don't buy American cars - we don't have big enough streets and fuel is 4 x as expensive.
It makes sense for a German car manufacturer to pay taxes to Germany, since the German state provides it with services (roads, police, infrastructure.) It makes no sense for an American car manufacturer to pay taxes to Germany since it gets no services from Germany. (And no, earning the "privilege" of unloading the car from the boat isn't worth 20%.)
If the EU has an interest in making this fair, they can remit the sales tax they collected to the US government. Or they can just accept that this is a discriminatory tax and may incite another discriminatory tax on the US side.
So, stop lying.
And before you comment, I do understand that the EU allows VAT tax collected in one member country on a product to reduce the amount of VAT tax collected in another member country. There's no such arrangement in place for the US, which is what makes it discriminatory.
Please respond to my actual argument rather than insulting me.
Now why the corporations inside USA have failed to lobby mechanism that allows them to get refunds on sales taxes when they export stuff is reasonable question to ask.
No. The US doesn't do this for interstate commerce. For example, California doesn't reduce its sales tax on an item just because Illinois already charged some other tax on that item.
> Now why the corporations inside USA have failed to lobby mechanism that allows them to get refunds on sales taxes when they export stuff is reasonable question to ask.
It's not the job of US corporations to fix discriminatory tax and tariff schemes cooked up in Europe.
On the other hand, in Washington, some people are starting to take notice. If the Europeans want to slap a 20% price increase on US goods, we also know how to do that for European goods.
EU manufacturers pay taxes in EU.
As another commenter said, this is the same as tariffs. If someone said that tariffs disadvantage foreign producers, you wouldn't smirk and say "idiot! tariffs are paid by the buyer, not the seller!" Instead of trying to demonstrate how very smart you are, you should engage with the arguments that I'm presenting.
Higher than what?
When a company buys from another company, no net VAT is collected - it’s only collected when a consumer enters the picture.
The US already has some of these. Eg YouTubers all have to pay taxes to the US government even if they are not US citizens, have never been to the US, and interact with Google Island Ltd.
My understanding is that the basis of this tax is that it's "money earned from American viewers" or something along those lines.
Imagine if every country in the world did something like this.
Sales Tax, Value Added Tax, Goods and Services Tax, are all taxes on consumption. They are paid by the consumer at the location of the consumption. They aren't a tax on production or producers.
The German corporate tax rate is 29.9% vs 21% for the US (from googling). If Germany is anything like my nearby country there are also additional taxes which the US may or may not have (probably not).
Why doesn't the US just raise their own sales tax on both imports and domestic products?
Is the US going to crusade to change every single country to use your shitty taxation system instead of a VAT?
(the answer is no, VAT is just the only excuse they could find for tariffs on the EU, like how "fentanyl" was the only excuse they could find on Canada no matter how BS it was)
>>>VATs are border-adjusted, meaning they rebate tax on exports and impose tax on imports. Despite the appearance of subsidizing exports and punishing imports, however, a border-adjusted VAT is trade neutral. A border adjusted tax leads to currency appreciation for the imposing country, which would make it cheaper to import goods, more expensive to export goods, and thus would cancel out the apparent benefits of the tax on imports and the rebate on exports.
The rest of the article is just about how US sales tax sucks. So VATs are not like a tariff because they put pressure on currencies to adjust in value? Huh? Can someone explain what taxfoundation is talking about?
If I make two ford fiestas, one in the US and one in Germany and they are otherwise identical--identical labor costs, identical shipping costs, etc etc--do I have to sell each ford fiesta in germany at a different cost to the consumer (so including all taxes levied on the consumer) for me to make the same profit on each fiesta? If so, then I dont see what is dishonest about likening the VAT to a tariff.
When you ship car to Germany, you have to charge this VAT from consumer too. But now as you did not previously pay any you charge full amount and get nothing back.
In each step inside Germany the intermediate buyer was charged more than outside where there were no VAT.
It seems like most people in this thread are just using it as an opportunity to shit on Trump but I have yet to see an explanation for why this argument is dishonest. The effect of the VAT seems pretty tariffy.
They don't pay anything. They collect the tax paid by consumer which is N percent of the price. If N - 1 was already collected by previous parts of the chain, they only have to collect 1.
And well with imports value add happens at the border, where magically a car for example appears. So value addition of whole car's value is done. From zero to cars value in added value.
Anyway, taxation on car varies from EU country to EU country. In Denmark you pay a ridiculous amount of money to get a car registrered. To prevent every Danish person from buying a car in Germany we tax imported cars equal to Danish cars. Then on top of that you have various enviromental taxes, which our local car dealers are obviously geared toward, but if you were to import some non-eco friendly car your taxes on it would be silly high. (I say ridiculous and silly but I agree with it). The flip side of this is that some vehicles (like Teslas) have been getting very large tax reductions because they are green. Here is the kicker though, these are for private imports. If a Ford dealership wants to sell American cars, they can do so on equal terms to European car companies. You can argue Trump is at least a little correct on cars, but the reason Danes do not buy American cars is because American cars aren't build for our roads. Somewhat ironically a lot of the countries which have the highest taxes on imports of cars are also the countries which don't produce cars. America can tax the EU sky high on cars and it wouldn't impact Denmark because we produce exactly 0 cars. It would impact Germany, which has much lower import taxes than us and is also where a company like Tesla produces the European cars which are sold in Denmark. Something which would likely be a target for EU retaliation.
The worst part is probably that it'll mainly impact smaller businesses. Our biggest exporter of anything to the US is Novo Nordisk but companies like them have production inside the US and will not be impacted by the tariffs. Mean while some specialist tiny store will likely lose a lot of money. I have a pair of Iron Ranger boots as an example. I guess Red Wing might not be a tiny company, but they don't have EU production so I would find a non-american alternative to these if we enter a trade war and there is another 15-20% added on top of the VAT to balance things out. Not that I'll need a new pair of boots for a while, but you get the point.
The reality is that if we enter a trade war, we will both lose. The Trump administration is gambling that they can pull production back to the US, and maybe they'll succeed better than Australia did back in the day. The US is certainly a big enough economy that it might be capable of doing it. It's far more likely that it'll surrender the global economic leadership to China though. It's tricky of course, because China would already have that if they decided to meet EU regulation on safety standards. The danger to the US is if BRICS manages to pull half of the world away from the dollar. If that happens there will be nothing to carry the massive US deficit, and the US is the first and only nation in the history of the world that has been capable of remaning dominant while also having a deficit. Which is solely thanks to the dollar being the world currency.
Anyway... We'll see what happens.
No, probably. It depends on the price of the materials you use. It's a value added tax. It taxes the value that you created.
Lets say you buy €5000 worth of steel and then make it into a car that you sell for €10,000. With a 20% VAT rate the government gets €2000 and you get €8000.
However, that steel you bought also included 20% VAT in its price (€1000). You get this money back from the government. The steel actually cost €4000 for you.
In total your profit would be €4000. Effectively, the 20% VAT applies to the €5000 of value that you created.
---
If you built that Ford Fiesta outside of the EU then the "value add" is the entire price of the vehicle. But you don't have to pay VAT for the raw materials you buy, so theoretically it should end up being the same amount of profit.
Ok so the chain for producing the car in the US is:
1 buy $5000 worth of steel in the US, inclusive of sales tax (lets suppose sales tax and VAT are the same pct)
2 build a car that I sell for $10k in germany, inclusive of VAT
3 give $2k to the government for the VAT
4 I make $10k - $5k - $2k = $3k
In the EU
1 I buy $5000 worth of steel in the EU inclusive of VAT
2 I build a car and sell it for $10k in germany
3 I give $2k to the government for the VAT, but I get back $1k for the VAT I paid on the steel
4 So I make $10k - $5k -$2k + $1k = $4k
$3k and $4k are different amounts. So this seems like, if not a tariff, fairly tariffy. What am I missing?
Scenario one From 5000 1k goes to USA. And from 10k 2k goes to EU. USA 1k and EU 2k.
Scenario 2 From 5000 1k goes to EU, and from 10k 2k goes to eu. But you get 1k back. EU 2k.
Now if you were to export the EU car to USA. You would get 1k back for EU from step 1, And then pay 2k in sales tax to USA. Netting the same.
VAT is tax on my consumption. It is in essence extra tax on anything and everything I buy. Thus it is really not taking any money from the seller, but me a EU citizen.
Basically money for USA here should come from income taxes paid by workers and the corporate taxes paid on profits. And then well capital gain taxes paid for profits paid out.
In the second case, a EU government has $2k, the steel producer has $4k, and the EU-based car producer has $4k.
In the first case, a EU government has $2k, the steel producer has $4k, the US-based car producer has $3k, and the US government has $1k.
It was the US government that took the money from the US-based company! That's not at all like a tariff imposed by the EU. If you don't like the US taxing US companies, the entity that can fix it is the US government. Not the EU.
You seem to be saying that it is self-evidently fair that the EU end up with 2k in taxes in both cases, where in the case where it was imported there was far less happening in the EU. Why do they deserve 2k in tax revenue when the steel was rolled in the US ?
Again: the difference is coming purely from the US government choosing to tax a US company. Just why is that a problem that should be solved by the EU?
I'll gladly flip that argument on its head: the US is imposing an export tariff, since everything sold from the US to Europe includes US sales tax in the process, while in the inverse, any EU company charges 0% VAT to the US.
So if anything, the sales-tax system should be critized, not the VAT.
The EU import VAT has the purpose of treating EU producers and foreign producers equally, by subjecting both to the same tax rate. But you can’t blame the EU for steel being effectively more expensive in the US (if that is actually the case), similar to how you can’t blame the EU for labor costs being higher (or lower) in the US.
Sales tax is only charged on retail sales to consumers, there is no sales tax on raw materials for production. So if material costs are the same, and sales tax and VAT rates are the same, the steel will be less in the USA, because there will be no sales tax. In your example, the steel would only be $4k in the US.
You are calling the US tax sales tax but acting like it was applied like a VAT.
*This is true if the price of steel is the same in Europe and the US. It might not be, and a country or a region might have a competitive advantage. For instance a country might add tariffs on steel imports and increase the costs of manufacturing.
No. In both cases, the German consumer is paying the VAT on top of whatever net price you set, and that VAT goes to the German state.
That seems pretty significant no? Why do we need German cars anyway?
Edit: This is a bit tongue in cheek, but I imagine there's a limited demand for american vehicles in Europe just due to the market fundamentals. Raising tariffs on European vehicles disproportionately harms american consumers. Tesla has a significant production capacity in Europe, probably because it was in demand in Europe.
Keep in mind, a German built vehicle pays VAT on all the imported materials and components too. I imagine that is a significant share.
When most other countries apply VAT, I think the correct counter for the US is to do the same.
Then they look here at the EU and it turns that it has very low tariffs for the US, and the trade still has a large deficit. That goes against everything they say, so what excuse are they going to use against Europe?
They are not going to admit that their logic doesn't follow problem is elsewhere. And they know perfectly well that because the Vat tax is not a tariff, and because EU governments depend on the revenue they get from it, it is impossible for them to get rid of it. They really want these tariffs just because that's what they believe, that tariffs are 100% good, the reasoning doesn't matter
"USA has a trade deficit because everyone is taking advantage of us" is stupid!
The average state sales tax is probably less than half the average European VAT, so even when you double tax, state taxes are likely still more competitive.
> If a European resident orders from a US retailer, they do not pay US sales tax, just like a US consumer can obtain a VAT rebate on purchases of European products. Neither is a subsidy. These are simply consumption taxes falling on the consumer.
I wonder how often the US consumer actually gets a VAT rebate on their imported purchases, or how many US consumers are even aware of this.
It's quite unlikely they would have been charged VAT in the first place if buying online. The seller would have noted that the destination was not within the common market, and shown prices without VAT included.
This mostly matters when you're physically in the EU when making the purchase but will leave the EU before using the item. In that case you can get a VAT refund when leaving the country. This tends to be well advertised both at the airport and at the stores that tourists are most likely to shop at.
The cost of compliance is also prohibitively high, even if you find an agent who will deal with various EU members' tax authorities, some (hello, France and Germany!) require suppliers to register and report/pay directly. It is a Byzantine system that's designed to stop growth, exclude small businesses, and entrap taxpayers.
As a European, I would love for it to go to hell and never come back.