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> 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 expo

by 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
      VAT returns ensure that exports leave the country VAT free, just like exports from the US leave the country free of sales tax. It is entirely analogous. How do you mean this gives VAT countries an advantage?
      - firesteelrain 2y ago
        This is an answer for your above comment because HN has a timer delay on responding. You have a common argument Because VAT was already collected during production, then VAT refunds remove that embedded tax cost. U.S. sales tax is only applied at final sale. There is no sales tax in production for EU Even though VAT refunds seem analogous to US sales tax exemptions, the key difference is that VAT refunds remove tax burdens from exports in a way that US sales tax exemptions do not
        Paradigma11 2y ago
        You seem to be implicitly assuming a closed system in which both economies have the same tax burden, economic productivity and efficiency. So, when EU exporters don't pay VAT on exports there must be a cost for the US producer somewhere that he cant write off. Which you haven't shown. You started with corporate tax rate but from my understanding those are pretty similar if being paid at all: "• Over the past three years, Tesla has reported $10.8 billion in U.S. income but paid only $48 million in federal taxes, bringing its effective tax rate to 0.4 percent—far below the 21 percent corporate tax rate." https://www.nationofchange.org/2025/01/31/tesla-paid-zero-federal-income-tax-in-2024-while-gop-pushes-more-corporate-tax-cuts/ https://www.nationofchange.org/2025/01/31/tesla-paid-zero-fe...
        firesteelrain 2y ago
        You are correct that the overall tax burden, economic productivity, and efficiency are not identical between the US and VAT-based economies like the EU. However, the VAT refund system is what I have been saying is what causes the imbalance along with differing tax structures. This is not a dig against the EU as some people might be thinking I am saying. I am merely explaining the thought process. Devil’s advocate. US is still disadvantaged despite subsidies for EV for like Tesla that were created to encourage clean energy. There is still a system wide US problem. This is despite Tesla receiving subsidies that are far below the 21% corporate tax rate. The tax is still there and then you have VAT that can’t be refunded because the US does not have a VAT system.

by jsnell 2y ago

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
    VAT returns ensure that exports leave the country VAT free, just like exports from the US leave the country free of sales tax. It is entirely analogous. How do you mean this gives VAT countries an advantage?
    - firesteelrain 2y ago
      This is an answer for your above comment because HN has a timer delay on responding. You have a common argument Because VAT was already collected during production, then VAT refunds remove that embedded tax cost. U.S. sales tax is only applied at final sale. There is no sales tax in production for EU Even though VAT refunds seem analogous to US sales tax exemptions, the key difference is that VAT refunds remove tax burdens from exports in a way that US sales tax exemptions do not
      - Paradigma11 2y ago
        You seem to be implicitly assuming a closed system in which both economies have the same tax burden, economic productivity and efficiency. So, when EU exporters don't pay VAT on exports there must be a cost for the US producer somewhere that he cant write off. Which you haven't shown. You started with corporate tax rate but from my understanding those are pretty similar if being paid at all: "• Over the past three years, Tesla has reported $10.8 billion in U.S. income but paid only $48 million in federal taxes, bringing its effective tax rate to 0.4 percent—far below the 21 percent corporate tax rate." https://www.nationofchange.org/2025/01/31/tesla-paid-zero-federal-income-tax-in-2024-while-gop-pushes-more-corporate-tax-cuts/ https://www.nationofchange.org/2025/01/31/tesla-paid-zero-fe...
        firesteelrain 2y ago
        You are correct that the overall tax burden, economic productivity, and efficiency are not identical between the US and VAT-based economies like the EU. However, the VAT refund system is what I have been saying is what causes the imbalance along with differing tax structures. This is not a dig against the EU as some people might be thinking I am saying. I am merely explaining the thought process. Devil’s advocate. US is still disadvantaged despite subsidies for EV for like Tesla that were created to encourage clean energy. There is still a system wide US problem. This is despite Tesla receiving subsidies that are far below the 21% corporate tax rate. The tax is still there and then you have VAT that can’t be refunded because the US does not have a VAT system.