Fun fact. Collecting VAT based on the country where the customer resides is called border adjustment. In effect, all exports are tax-free, and all imports are t

Fun fact. Collecting VAT based on the country where the customer resides is called border adjustment. In effect, all exports are tax-free, and all imports are taxed at the same rate as domestically-made goods. It is arguably the most important part of a VAT, because it levels the playing field in regards to international trade. This is in contrast to the way things are done in the United States, where exports are taxed, but imports (ignoring specific tariffs) are not. The whole scheme might seem a bit silly and over-complicated for digital goods and services, but from the perspective of people dealing in physical goods it actually simplifies the paperwork dramatically because the slate is wiped clean every time a good crosses a border. Now, what is unnecessarily complicated about VAT in Europe is the presence of very many exemptions. So rather than just doing the same paperwork for every good you sell, you have to consult a database to figure out that you should pay a reduced rate for good X or no VAT at all for good Y. This was done in the name of fairness to the poor — it doesn't seem right to tax essentials like staple foods or hygiene products. But arguably, it would have been much simpler to grant the poor an income tax break sufficient to cover the VAT they are likely to pay for such goods.