I don't blame you, most American's can't understand VAT because it's a strange concept. It's _not_ like a sales tax. Sales tax is paid by consumer at the point of purchase and remitted to taxing authority (the state, in the US). VAT is paid by the consumer at the point of purchase as well but that's where the similarity ends. From that point on, the VAT merchant has paid on all their purchases is deducted from that VAT collected (on behalf of taxing authority). So VAT is shared by all the stages of the value chain _FOR DOMESTIC CONSUMPTION_. And this is where Trump gets pissed off. When the good is exported, the exporter get's to claw back all the VAT. So yes, he's right that when a US good goes to EU, the price gets jacked up 20%. And when EU good goes to the US, the price is reduced 20%.
VAT is great for taxing consumption, but it does double duty as tariff in international trade.
I'm not American, I'm British, and I do understand VAT.
The way that you explain it is not quite right.
VAT is a tax applied at each stage of a product’s journey from production to sale.
Businesses collect VAT on what they sell (output VAT) and pay VAT on what they buy (input VAT). They then subtract the input VAT from the output VAT and send the difference to the government (same as any tax). Since inputs cost less than the value of the output, businesses escape paying VAT and the consumer is left with the tax burden.
For example, a manufacturer charges VAT when selling goods to a retailer but can reclaim the VAT paid on raw materials. This process repeats at each step, with businesses at every step in the supply chain reclaiming what they’ve paid - until the product reaches the final consumer. Unlike businesses, consumers can’t reclaim VAT, so they end up covering the full tax amount. In the end, VAT ensures that tax is only applied to the value added at each stage, with the final cost resting on the consumer, so it is a de-facto sales tax on consumption.
It is seen as a progressive tax by Europeans since those with the most disposable income spend the most and are taxed the most. Those with the broadest shoulders bear most of the tax burden. There are exemptions, such as food and children's clothing - it was deemed politically incorrect to tax these items so there is zero VAT on them.
If you buy goods in the Europe to take overseas, perhaps back to the US, then you will be liable to pay import duty on those goods when they enter the US. So to avoid double taxation, you would be able to reclaim the VAT paid in Europe (which is fair).
So your assertion that when US goods go to Europe they get 'jacked up' 20% is simply untrue. If US goods are sold in Europe they are subject to the same 20% as any other goods sold in Europe, including those manufactured in Europe.
And your assertion that when European goods go to the US the price is reduced by 20% is also incorrect. You would only be eligible for duty free shopping in Europe up to a threshold if you were a non-European resident, but may be liable to import duty in the US.
So if you came to Europe and bought a bottle of Jack Daniel's whisky (US product) and a bottle of Johnny Walker whisky (European product), there would be a 20% VAT applied to both at the point of purchase, but as a US resident taking the bottles back to the US to consume at home, you could claim back all the VAT on both bottles when you take them out of the Europe, but would need to declare both on arriving back in the US, where you may be liable to import duties.
I don't blame you, most American's can't understand VAT because it's a strange concept. It's _not_ like a sales tax. Sales tax is paid by consumer at the point of purchase and remitted to taxing authority (the state, in the US). VAT is paid by the consumer at the point of purchase as well but that's where the similarity ends. From that point on, the VAT merchant has paid on all their purchases is deducted from that VAT collected (on behalf of taxing authority). So VAT is shared by all the stages of the value chain _FOR DOMESTIC CONSUMPTION_. And this is where Trump gets pissed off. When the good is exported, the exporter get's to claw back all the VAT. So yes, he's right that when a US good goes to EU, the price gets jacked up 20%. And when EU good goes to the US, the price is reduced 20%.
VAT is great for taxing consumption, but it does double duty as tariff in international trade.
I'm not American, I'm British, and I do understand VAT.
The way that you explain it is not quite right.
VAT is a tax applied at each stage of a product’s journey from production to sale.
Businesses collect VAT on what they sell (output VAT) and pay VAT on what they buy (input VAT). They then subtract the input VAT from the output VAT and send the difference to the government (same as any tax). Since inputs cost less than the value of the output, businesses escape paying VAT and the consumer is left with the tax burden.
For example, a manufacturer charges VAT when selling goods to a retailer but can reclaim the VAT paid on raw materials. This process repeats at each step, with businesses at every step in the supply chain reclaiming what they’ve paid - until the product reaches the final consumer. Unlike businesses, consumers can’t reclaim VAT, so they end up covering the full tax amount. In the end, VAT ensures that tax is only applied to the value added at each stage, with the final cost resting on the consumer, so it is a de-facto sales tax on consumption.
It is seen as a progressive tax by Europeans since those with the most disposable income spend the most and are taxed the most. Those with the broadest shoulders bear most of the tax burden. There are exemptions, such as food and children's clothing - it was deemed politically incorrect to tax these items so there is zero VAT on them.
If you buy goods in the Europe to take overseas, perhaps back to the US, then you will be liable to pay import duty on those goods when they enter the US. So to avoid double taxation, you would be able to reclaim the VAT paid in Europe (which is fair).
So your assertion that when US goods go to Europe they get 'jacked up' 20% is simply untrue. If US goods are sold in Europe they are subject to the same 20% as any other goods sold in Europe, including those manufactured in Europe.
And your assertion that when European goods go to the US the price is reduced by 20% is also incorrect. You would only be eligible for duty free shopping in Europe up to a threshold if you were a non-European resident, but may be liable to import duty in the US.
So if you came to Europe and bought a bottle of Jack Daniel's whisky (US product) and a bottle of Johnny Walker whisky (European product), there would be a 20% VAT applied to both at the point of purchase, but as a US resident taking the bottles back to the US to consume at home, you could claim back all the VAT on both bottles when you take them out of the Europe, but would need to declare both on arriving back in the US, where you may be liable to import duties.
I hope that clears the confusion.
Thank you.