Comment by firesteelrain | Hacker News Reader

Comment by firesteelrain | Hacker News Reader

Parent Full thread

The argument is not that BMW doesn't pay corporate tax. The issue is that BMW gets a VAT refund on exports, while Ford does not get equivalent tax relief.

Remember that the sales tax applies only at the point of sale, while VAT is applied at every stage of production but refunded for exports. This is what I have been saying all along.

Even though BMW still pays German corporate tax, the tax on exports is removed via VAT refunds.

The real solution is that the US needs export tax relief to offset corporate tax on exported goods. Trump’s tariffs do not fix this - it is just a temporary fix to the trade imbalance. A global corporate tax agreement does not solve this issue either as that is not the root of the issue.

Ireland is a great example because it is corporate friendly and has lower tax rates plus a VAT system. Dell (Ireland) can export tax free while Apple cannot. So Apple has to absorb the full corporate tax burden. Granted both are PC makers but sort of a different class or consumer target. But you get what I am saying.

You are misunderstanding. Both VAT and sales tax are only paid by the end consumer. The main difference is that VAT is progressively collected at each production step whereas sales tax is only collected during the final transaction to the end consumer.

If a good is exported, no VAT nor sales tax is due in the export country. But because some VAT has already been collected in the earlier production stages, that VAT needs to be returned to the exporter. No sales tax will have been collected at the time a good is exported, hence there is none to return.

In both cases, the end result is that no VAT or sales tax is paid in the export country. Hence the situation is completely the same.

Corporate taxes are orthogonal to this discussion. Both US and EU have them and they apply to corporate profits, independently on if they derive from exports or domestic sales. So no reason to complicate the discussion by bringing them up.

I feel like I keep repeating myself

You got some things right

VAT countries can export tax-free because VAT is refunded

Even though VAT itself is not a tariff, its refund system effectively subsidizes exports by removing domestic tax costs

You are missing the trade impact of VAT refunds though

It is a fact that US goods tend to be more expensive in VAT countries like the EU because they face an extra tax burden upon import that EU goods do not face when exported to the US. This extra burden is the VAT that the consumer now has to pay. Whereas when it’s exported to the US, the US consumer does not have to pay the VAT so the trade playing field is not equal.

That’s why Trump sees VAT as a “hidden tariff.” Even though VAT is not a tariff, it functions like one by favoring VAT-based exports

Yes, you are indeed repeating yourself. Unfortunately, that does not make what you are saying more right.

VAT countries export VAT free. Sales tax countries export sales tax free.

When you import something to a VAT country, the end consumer has to pay VAT. When you import something to a sales tax country, the end consumer has to pay sales tax.

Maybe we can make some progress if you could explain how these situations are not completely analogous, and what precisely is it that gives VAT countries an unfair advantage?

You mean the problem that sales tax is applied on inputs in the US sometimes? How do you know Ford is affected by this and hasn't structured their supply chains in a way to avoid this problem?

As mentioned in the article this is a domestic problem as well in inter-state commerce. I would also be worried that it distorts supply chains.

Tariffs are not a temporary fix for this either, since the USD will just appreciate and perhaps we'll put counter-tariffs on your tariffs. You'll need to fix this problem on your side.

I agree it’s a structural problem. A few different comments I have said this. Tariffs are one option and it’s the one Trump has chosen. Apparently it has triggered the EU. Trump can’t make Congress overhaul the tax system to include a VAT.

Reply on news.ycombinator.com