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> When producing a bulldozer in Germany, Liebherr pays 19% VAT on all components and services (steel, electronics, labor, etc.). When Liebherr exports the bulld
by mopsi 2y ago
> When producing a bulldozer in Germany, Liebherr pays 19% VAT on all components and services (steel, electronics, labor, etc.). When Liebherr exports the bulldozer to the U.S., Germany fully refunds the 19% VAT. This lowers Liebherr’s export price by 19%. Liebherr sells the bulldozer tax-free in the US. The only tax applied is the US. state/local sales tax (6-10%), which is much lower than 19%. Liebherr bulldozer is now more price-competitive in the US. than Caterpillar’s
Let's follow your example more closely.
Caterpillar manufactures a bulldozer in the US. The price tag for the bulldozer is 200k. When sold to domestic customers, a 7% sales tax is charged by domestic authorities, and the bulldozer ends up costing 200+14=214k for the American buyer. When exported, no sales tax is charged due to the export exemption. The bulldozer arrives in Germany, where German tax authorities charge 19% VAT, as they do on all sales. The bulldozer ends up costing 200+38=238k for the German buyer.
Liebherr in Germany manufactures a bulldozer too. The price tag for the bulldozer is 200k. When sold to domestic customers, 19% VAT is charged by domestic authorities, and the bulldozer ends up costing 200+38=238k for the German buyer. When exported, no VAT is charged due to export exemption. The bulldozer arrives in the US, where US tax authorities charge 7% sales tax, and the bulldozer ends up costing 200+14=214k for the American buyer.
In either case, the American buyer gets a 200k bulldozer for 214k, and the German buyer gets a 200k bulldozer for 238k, regardless of whether it was domestically produced or imported. The difference in the total cost to the buyer is due to differences in local tax rates and not unfair trade rules.
- firesteelrain 2y agoCaterpillar's bulldozer is $55,000 more expensive in Germany than Liebherr’s. Liebherr benefits from tax neutrality (VAT applies equally), while Caterpillar faces a 19% VAT on import. This confirms that VAT-based countries create a "home-field advantage" by making foreign imports more expensive through VAT, while domestic goods are not taxed differently.
- mopsi 2y agoPlease break down how a 200k Caterpillar becomes 55k more expensive for a German buyer compared to a 200k Liebherr manufactured in Germany. The US government does not charge consumption taxes on a Caterpillar exported to Germany, so both are priced at 200k before taxation in Germany. The German government charges its 19% consumption tax equally, regardless of where a bulldozer was made, so both end up costing 238k for the German buyer.
- firesteelrain 2y agoLiebherr’s bulldozer is priced at €500,000 (~$540,000 USD equivalent) in Germany. Total price paid by the U.S. consumer is $485,545 due to VAT refund. Caterpillar’s bulldozer is 22.5% more expensive in Germany than in the US. There is approximately a $109,455 price advantage for the German company in global competition
- mopsi 2y ago> Caterpillar’s bulldozer is 22.5% more expensive in Germany than in the US. Liebherr's bulldozer is also more expensive in Germany, because Germany taxes both sales at a higher rate than the US. Nobody gets an advantage from this. American buyer pays 7% tax and German buyer pays 19% when they purchase a bulldozer, regardless of where it came from. I made a small table to illustrate it: +-----------+------------+-----------+----------------+------------+ | Direction | Base Price | VAT (19%) | Sales Tax (7%) | Total | +-----------+------------+-----------+----------------+------------+ | US -> US | 200 000 | - | 14 000 | 214 000 | | G -> US | 200 000 | - | 14 000 | 214 000 | | G -> G | 200 000 | 38 000 | - | 238 000 | | US -> G | 200 000 | 38 000 | - | 238 000 | +-----------+------------+-----------+----------------+------------+ Tax rate differences lead to price variations across markets, but VAT does not create advantages within a single market.
- firesteelrain 2y agoIt does for European exporters. Sadly if this was Biden this wouldn’t even be an argument.