VAT is not paid by companies. It is paid by consumers and collected by companies. The US have the sales tax, which is similar.
It absolutely does not make sense to count VAT as a "tariff". I am sure they know it.
It absolutely does not make sense to count VAT as a "tariff". I am sure they know it.
The "thought experiment" you can make is the case of something not ending up being sold. In a VAT regime the manufacturer will have already paid the VAT on the inputs but since the customer hasn't paid the VAT on the finished product the manufacturer won't get their money back on the VAT they already paid (there might be other tax rebates or write offs, but that's a different matter)
In a sales tax regime the tax is only paid by the final consumer so if the manufacturer doesn't sell the product they are not out for any additional tax
Still doesn't change that neither of those are a tariff by any definition
Effectively VAT is only paid by consumers.
NB: in you example if the company has paid more VAT than it has collected in the period then it gets an actual refund.
Yes, absolutely, in 99% of cases that is true. But conceptually there is a difference.
> NB: in you example if the company has paid more VAT than it has collected in the period then it gets and actual refund.
Yes, which is what I said as well. But the refund in itself is an additional step on top of the tax system and the money does get paid by the company in the first place. There is indeed a difference in how the cash flow of a company looks like.
That's the entire point of VAT, to make tax evasion harder by making everyone pay at every step and figuring out later the refunds
This is not a criticism of VAT or anything else by the way, as I said, in 99% of cases the company will get the VAT fully refunded and not pay anything on net over the fiscal year
The manufacturer has paid VAT, and will get back the paid VAT from the tax authorities. It then adds value (value added tax). It has to charge VAT of the full amount. So, the company in the chain pays VAT over the profit of that product/service. For example (assume 20% VAT):
Company 1 creates something with 0 cost, and sells for 100. Needs to add VAT (20) and pay that to the tax authority. 20 has been collected.
Company 2 buys it for the 120, packages and labels it, then sells it for 180 but needs to add 36 VAT. The company will file a tax return of 20-36, so will effectively have to pay 16 to the tax authority. Another 16 has been collected.
Consumer buys it for 216 and doesn't get any VAT back.
Effectively, 20 + 16 = 36 VAT has been collected over time. The tax return can only be done by companies with a VAT registration. In some cases the VAT burden can be inverted in b2b transactions and within the EU. This is there so companies don't have to do cross-border tax returns.
Then, as the company is VAT-registered what it purchases is either VAT-free or VAT paid can be deducted from the amount of VAT collected from consumers (as you said).
Bottom line: companies do not pay VAT on their own purchases, they only pass on VAT collected from consumers.
Obviously companies do make actual payments to the tax authorities but the point is that these are not from their own funds, they only effectively act as tax collectors.
And when selling products, you'll send 100% of the VAT collected from consumers to the tax office.
VAT doesn't affect a company (besides the bookkeeping).