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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

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.
    - Paradigma11 2y ago
      Average corporate tax in the EU is 21.5%: https://taxfoundation.org/data/all/eu/corporate-income-tax-rates-europe/ https://taxfoundation.org/data/all/eu/corporate-income-tax-r... What are those taxes that you are talking about?
- alexanderchr 2y ago
  > 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. I’m sorry, I fail to see the difference. In one case the tax is added during production and then returned when the good is exported, and in the other case it is never added at all. In both cases you end up with zero net VAT/sales tax paid. Where exactly does the difference lie?
  - firesteelrain 2y ago
    Great question! The key difference lies not in whether VAT or sales tax is applied to exports, but in how VAT-based economies structure taxation throughout production versus how the US does. The imbalance exists not because VAT is unfair. It exists because the US system does not have a VAT that can be “discounted” and therefore US exporters end up paying more and baking the cost into their products. Consumer ends up paying more on the other EU end. In VAT systems, businesses prepay taxes at every stage, then receive a full refund on export, removing embedded costs. I think I said that? There is no equivalent mechanism on the US side.
    - alexanderchr 2y ago
      Exactly, and in the US no sales tax is prepaid? So there is nothing to return upon export. You seem to be saying that having a tax that is refunded gives a different result than not having the tax at all, which sounds like nonsense to me.
      - firesteelrain 2y ago
        Bottom line is US businesses cannot discount or deduct state and local sales taxes on purchases made from their suppliers in the same way that VAT operates. Correct that sales tax is not paid on export.
        alexanderchr 2y ago
        But US companies can get sales tax exemptions, no? And these exemptions serve the same purpose as VAT refunds.

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.
  - Paradigma11 2y ago
    Average corporate tax in the EU is 21.5%: https://taxfoundation.org/data/all/eu/corporate-income-tax-rates-europe/ https://taxfoundation.org/data/all/eu/corporate-income-tax-r... What are those taxes that you are talking about?
alexanderchr 2y ago
> 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. I’m sorry, I fail to see the difference. In one case the tax is added during production and then returned when the good is exported, and in the other case it is never added at all. In both cases you end up with zero net VAT/sales tax paid. Where exactly does the difference lie?
- firesteelrain 2y ago
  Great question! The key difference lies not in whether VAT or sales tax is applied to exports, but in how VAT-based economies structure taxation throughout production versus how the US does. The imbalance exists not because VAT is unfair. It exists because the US system does not have a VAT that can be “discounted” and therefore US exporters end up paying more and baking the cost into their products. Consumer ends up paying more on the other EU end. In VAT systems, businesses prepay taxes at every stage, then receive a full refund on export, removing embedded costs. I think I said that? There is no equivalent mechanism on the US side.
  - alexanderchr 2y ago
    Exactly, and in the US no sales tax is prepaid? So there is nothing to return upon export. You seem to be saying that having a tax that is refunded gives a different result than not having the tax at all, which sounds like nonsense to me.
    - firesteelrain 2y ago
      Bottom line is US businesses cannot discount or deduct state and local sales taxes on purchases made from their suppliers in the same way that VAT operates. Correct that sales tax is not paid on export.
      - alexanderchr 2y ago
        But US companies can get sales tax exemptions, no? And these exemptions serve the same purpose as VAT refunds.