President Donald Trump says that the Value Added Tax (VAT) is very blamed for the commercial deficit of almost a billion dollars that the United States has with the rest of the world. The more than 170 countries that charge VAT, including the main business partners in Europe, insist that it has no impact.
So who to believe?
VAT received a high priority in the Trump memorandum of February 13 on commercial barriers that it wants to address, including it among the “unfair, discriminatory or extraterritorial taxes” imposed on companies, workers and consumers of the US.
“The most pernicious VAT is that it is a double blow,” said a white house officer to journalists, complaining about the border to the EU imports, while European producers obtain VAT reimbursements when they export to the United States.
“There is a reason why Germany sells us eight times more cars than we sell to them, and it is certainly not because of American crafts or quality or anything else,” the official continued.
While this VAT vision – which has been a target of many US administrations – is debated, trade experts see scenarios in which it could be argued that trade discourages.
The United States is part of a small minority from 19 countries, including Cuba, Malaysia, North Korea, Somalia, South Sudan and Yemen, which have what is known as taxes on sales of a single stage, which are imposed Only once and generally pay them the final consumers.
VAT, as the name implies, applies to added value at each stage of the supply chain, from the manufacturer to the retailer and then to the consumer.
This means that imports to the European Union and other places are charged, unlike the US, where the sales tax only applies to the final transaction in the chain. This could dissuade an importer of American goods, since it would face an VAT invoice when their products arrive.
However, Mairead Warren de Burca, managing director of Alvarez & Marsal Tax in London, points out that many European countries allow importers to postpone import VAT payments, while the United Kingdom, Ireland, Belgium and the Netherlands have systems without Import VAT payments, thus avoiding any impact on cash flow.
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Import VAT is generally recoverable or can be compensated with VAT charged in later stages of the supply chain, he said. Ultimately, VAT is collected in the final transaction, producing a result similar to the US sales tax.
Double blow?
The White House argument on the “double coup” also points to the exemption of VAT for exports of the European Union. The block says this is logical because it is a tax based on the place of consumption.
But Washington has never really accepted this argument and has tried since 1971 to create tax exemption systems for US exporters.
The European Union has challenged each of them, which culminated in a case of eight years before the World Trade Organization, which determined that these tax exemptions were illegal export subsidies. US laws that established such systems were subsequently repealed.
Zach Meyers, Research Director of the Regulation Center in Europe, says that there is a problem derived from the difference in consumer tax rates between the European Union – which go from 17% to 27% – and the US, where they go from 0% to 10.35% in Seattle.
“To put it in the best terms for the concern of the US, if you are taxing more consumption, then you can reduce taxes that apply to production, such as work or corporate gains,” he said.
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“That can help reduce fiscal load for export -oriented industries. EU does not enjoy that same benefit. ”
Trump has commissioned his officials to investigate the issue. Warren de Burca, from Alvarez & Marsal, acknowledged that VAT is not easy to understand.
“But there are some very intelligent people in the US,” he said. “I hope they accept advice and really examine these systems to identify that VAT is not an impediment to trade. Tariffs are, but not VAT. ”
Others see this as a deliberate tactic of Trump to justify higher tariff The great American technology.
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Trump says he wants to balance the difference in tariffs, such as 2.5% of the US import rights for cars compared to 10% of the European Union, and also include VAT and other costs for US companies.
A 10% reciprocal tariff to imports in the US could be difficult to accept for European producers. With the aggregate VAT, that could be raised to a total tariff of approximately 30%, which would be devastating.
Niclas Poitiers, researcher at the Bruegel Expert Group in Brussels, said the European Union could consider reducing its car import tariff, ”said the block head of the block on Wednesday – but reforming his fiscal system to eliminate VAT is simply impossible.
“I think this is more a white house negotiation tactic than a real interest in the subject itself,” said Poitiers. “I don’t think they are interested in global tax cooperation matters.”
With Reuters information
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