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> A US company selling to the EU still has to factor in US corporate taxes in its pricing A EU company selling to the EU also has to factor in their local cor

by jsnell 2y ago

> A US company selling to the EU still has to factor in US corporate taxes in its pricing A EU company selling to the EU also has to factor in their local corporate taxes. There's no structural difference there. (There are EU countries where corporate taxes are higher than the US and ones where they're lower). > and does not get a VAT rebate. They only get no VAT rebate because they paid no VAT. There is no structural advantage or disadvantage here: neither the EU or US producer paid any net VAT. > Given those facts, Trump views VAT as a hidden tariff that puts the US at a disadvantage. Given that those "facts" are demonstrably untrue, would you agree that the "hidden tariff" narrative is actually untrue?

firesteelrain 2y ago
I believe you are misunderstanding the core trade issue by focusing too narrowly on VAT as a tax rather than the overall tax structure difference between the US and VAT-based economies. US companies must factor in corporate tax and foreign VAT when selling to VAT countries. A example is a German car manufacturer exporting to the US gets a full VAT refund and only has to price based on cost + profit. For VAT countries, the export price is lower because it does not need to factor in corporate taxes like the US companies do. Finally, to your last point. Trump is not completely wrong just people are oversimplifying. His use of calling a hidden tariff is not technically correct but it is a trade barrier. Trump’s current use of tariffs is not the best fix but he is still right on the trade imbalance. VAT is not a tariff, but its effect on trade functions like one when compared to the Us tax system.
- jsnell 2y ago
  > A example is a German car manufacturer exporting to the US gets a full VAT refund and only has to price based on cost + profit. > For VAT countries, the export price is lower because it does not need to factor in corporate taxes like the US companies do. This is just totally untrue. A German car company will pay German corporate taxes on their profits, no matter whether the cars that produced those profits were sold domestically, exported to other EU countries, or exported to the US.
  - firesteelrain 2y ago
    You are correct that in both cases corporate taxes are factored in and simply put there is no difference at the profit level. But a US car manufacturer does not get an equivalent tax relief when exporting, meaning the export price still carries corporate tax costs. When a company sells goods domestically in a VAT country (eg Germany), the final price includes VAT (eg 19%). But when they export, the VAT is refunded, lowering the effective price of the exported goods.
    - jsnell 2y ago
      Happy to see some progress here, I trust you will stop bringing up corporate taxes as a distorting element. Next up, what you need to understand is that there's no tax relief happening here either. When the end consumer is in the US, nobody pays any VAT on anything in the value chain. Not the US company, not the EU company. And conversely when selling to the EU, exactly the same amount of VAT is paid in the end, no matter how the value chain is distributed among different jurisdictions. Where's the unfair asymmetry here? VAT is a consumption tax. It's conceptually paid by the end consumer. It's not paid for goods exported to a non-VAT country because it's up to the destination country to decide how they want to tax consumption, not the source country.
      - firesteelrain 2y ago
        I have explained this across multiple threads for multiple people. To put it simply, VAT-based countries have a built-in trade advantage because their exported goods leave the country tax-free, while US goods do not get equivalent tax relief when exported. You are right that VAT is a consumption tax and is paid by the consumer in the destination country. However, given the choice, a consumer will typically choose the cheaper option which is often the option that does not carry embedded tax costs from the country of origin. Since VAT refunds remove tax from exports, goods from VAT-based economies often have a competitive price advantage in global markets.
        alexanderchr 2y ago

by jsnell 2y ago

firesteelrain 2y ago

I believe you are misunderstanding the core trade issue by focusing too narrowly on VAT as a tax rather than the overall tax structure difference between the US and VAT-based economies. US companies must factor in corporate tax and foreign VAT when selling to VAT countries. A example is a German car manufacturer exporting to the US gets a full VAT refund and only has to price based on cost + profit. For VAT countries, the export price is lower because it does not need to factor in corporate taxes like the US companies do. Finally, to your last point. Trump is not completely wrong just people are oversimplifying. His use of calling a hidden tariff is not technically correct but it is a trade barrier. Trump’s current use of tariffs is not the best fix but he is still right on the trade imbalance. VAT is not a tariff, but its effect on trade functions like one when compared to the Us tax system.

jsnell 2y ago
> A example is a German car manufacturer exporting to the US gets a full VAT refund and only has to price based on cost + profit. > For VAT countries, the export price is lower because it does not need to factor in corporate taxes like the US companies do. This is just totally untrue. A German car company will pay German corporate taxes on their profits, no matter whether the cars that produced those profits were sold domestically, exported to other EU countries, or exported to the US.
- firesteelrain 2y ago
  You are correct that in both cases corporate taxes are factored in and simply put there is no difference at the profit level. But a US car manufacturer does not get an equivalent tax relief when exporting, meaning the export price still carries corporate tax costs. When a company sells goods domestically in a VAT country (eg Germany), the final price includes VAT (eg 19%). But when they export, the VAT is refunded, lowering the effective price of the exported goods.
  - jsnell 2y ago
    Happy to see some progress here, I trust you will stop bringing up corporate taxes as a distorting element. Next up, what you need to understand is that there's no tax relief happening here either. When the end consumer is in the US, nobody pays any VAT on anything in the value chain. Not the US company, not the EU company. And conversely when selling to the EU, exactly the same amount of VAT is paid in the end, no matter how the value chain is distributed among different jurisdictions. Where's the unfair asymmetry here? VAT is a consumption tax. It's conceptually paid by the end consumer. It's not paid for goods exported to a non-VAT country because it's up to the destination country to decide how they want to tax consumption, not the source country.
    - firesteelrain 2y ago
      I have explained this across multiple threads for multiple people. To put it simply, VAT-based countries have a built-in trade advantage because their exported goods leave the country tax-free, while US goods do not get equivalent tax relief when exported. You are right that VAT is a consumption tax and is paid by the consumer in the destination country. However, given the choice, a consumer will typically choose the cheaper option which is often the option that does not carry embedded tax costs from the country of origin. Since VAT refunds remove tax from exports, goods from VAT-based economies often have a competitive price advantage in global markets.
      - alexanderchr 2y ago