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[Debconf-discuss] Europe's VAT system [was: DebConf10 to take place in New York City, USA]

On Wed, Feb 25, 2009 at 01:14:14PM -0500, Jimmy Kaplowitz wrote:
> On Wed, Feb 25, 2009 at 06:35:25PM +0100, Philipp Kern wrote:

>> [*] I am still wondering, though, if one would need to pay VAT for
>> such things in the US, if that could be exempted and what the
>> process for that is.

> In the US, you'd generally pay sales tax, and that's much lower than
> European VAT. It also applies only to the final sale to the consumer
> and not at every stage in the production process, which helps make
> prices lower overall.

I feel there is a misunderstanding on the VAT system there: if you
have to charge your customers VAT, then you can deduct from your
payments (to the tax authority) the VAT already paid through your
suppliers; if at the end of tax period (month, quarter or year,
depending on your size) you have paid more VAT than you charged your
customers, you even get the difference back (but this usually means
you are operating at a loss, so the situation is either transitory or
you don't survive for long).

So the net effect on price is as if it applied only to the final sale
to the consumer (if we accept the effects of getting it back only a
the end of the tax period as negligible).

Let's take an example. You run a factory, you make and sell cars. When
you buy steel and plastic to make your cars of, your supplier charges
you VAT, let's say 200,- EUR of it per amount you need to make a
car. You sell the car 5000,- EUR exclusive VAT, so you charge
e.g. 1000,- EUR of VAT to your customer (you charge him 6000,- EUR
total). Of these 1000,- EUR you send only 800,- to the tax authority,
because you already paid 200,- EUR. Even more strongly, you bought a
machine to make the car; you paid 50,- EUR VAT on it (e.g. you paid
10000,- EUR VAT, but you made 200 cars that tax period), so you send
only 750,- EUR to the tax authority. The machine broke down and needed
a repair? You paid VAT on the repair fee of the repairman, let's say
20,- EUR, so send only 730,- EUR. Your on-payroll accountant got a new
computer? That VAT is deductible, too. In the end, for the *whole*
process of making your car, from digging the earth to find iron ore to
giving the keys to the final consumer, going through buying an
expensive car for your CEO/CTO, transport and machines / tools to make
the car, the state gets 1000,- EUR VAT. (Unless that car is bought by
a business that has to charge VAT to their customers, which can then
again get that VAT back, ...)


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