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VAT is not irrelevant for companies, because the consumer pays the all-in price. If I have a product that I can manufacture for $90, and I know that I can sell

VAT is not irrelevant for companies, because the consumer pays the all-in price. If I have a product that I can manufacture for $90, and I know that I can sell retail for $100, VAT at 20% means I don't have a profitable business. Edit: why do you think business lobby groups are constantly asking the govt to reduce VAT? Have you ever heard of the demand curve?

pluma 10y ago
VAT is irrelevant, EXCEPT in B2C retail. But only from a private customer's point of view (which is of course relevant in pricing, especially at low profit margins). You're not selling the product for $100, you're selling it at $83.33 plus VAT. That means your customer will have to part with $100, though. If your customer is not willing to pay >= $108 for the product (i.e. $90 plus VAT), of course you're operating at a loss. You could argue this is just semantics but B2C retail is the only major example where VAT matters. And considering we're talking about Apple I'm not convinced Apple's profit margins have Tim Cooke worried about EU VAT.
- tdubhro1 10y ago
  The exact same issue arises in enterprise software sales, the customer is subject to many of the same issues of value perception and price justification as a regular consumer, and the demand curve exists as you would expect for any product. Sometimes it's easier because it's convention to quote the price without VAT, but many companies will structure budgets for departments that are not VAT-aware, so if I'm selling to Bill in operations, the total spend including VAT is taken out of his operations budget for the year (this makes some sense because the client doesn't always know whether they will be VAT neutral or not, and tracking the allocations by department is not something anyone I've met does. In the vast majority of cases, an enterprise software company will collect far more VAT than it pays out, so it's not zero sum.
  - pluma 10y ago
    Interesting. I've never heard of businesses considering VAT in purchase decisions but I guess your explanation makes sense. Thanks for elaborating.

pluma 10y ago

VAT is irrelevant, EXCEPT in B2C retail. But only from a private customer's point of view (which is of course relevant in pricing, especially at low profit margins). You're not selling the product for $100, you're selling it at $83.33 plus VAT. That means your customer will have to part with $100, though. If your customer is not willing to pay >= $108 for the product (i.e. $90 plus VAT), of course you're operating at a loss. You could argue this is just semantics but B2C retail is the only major example where VAT matters. And considering we're talking about Apple I'm not convinced Apple's profit margins have Tim Cooke worried about EU VAT.

tdubhro1 10y ago
The exact same issue arises in enterprise software sales, the customer is subject to many of the same issues of value perception and price justification as a regular consumer, and the demand curve exists as you would expect for any product. Sometimes it's easier because it's convention to quote the price without VAT, but many companies will structure budgets for departments that are not VAT-aware, so if I'm selling to Bill in operations, the total spend including VAT is taken out of his operations budget for the year (this makes some sense because the client doesn't always know whether they will be VAT neutral or not, and tracking the allocations by department is not something anyone I've met does. In the vast majority of cases, an enterprise software company will collect far more VAT than it pays out, so it's not zero sum.
- pluma 10y ago
  Interesting. I've never heard of businesses considering VAT in purchase decisions but I guess your explanation makes sense. Thanks for elaborating.