Here in the U.S., VAT remains a strange and scary beast. There is now a proposal in Congress for a bill that imposes a fee on imports from a country where VAT is “border adjusted”. Yes, crazy!
The idea is that U.S. companies that import goods in VAT countries (i.e. almost every other country in the world) are being charged with import VAT. This import VAT is creditable / recoverable for domestic importers, but not for U.S. importers. Therefore, U.S companies that imports goods elsewhere are significantly worse off than domestic traders. This is protectionism and must be retaliated against.
And thus the House Representative Bill Pascrell, Jr. (see http://pascrell.house.gov/) is introducing legislation that would impose a “tax” on imports into the U.S. from countries with a VAT.
The proposal is nonsense, because no U.S. trader would substantially import goods in another country if he couldn’t get the VAT back. There are multiple alternatives to streamline this type of transaction in the company’s supply chain. For example:
- The U.S. company can sell to a local customer with the provision that the customer is the importer of record. This is the most common structure. The U.S. company would ideally transfer ownership of the goods to the customer before import, and the customer pays all the import taxes, fees etc. Typically the import VAT is recoverable for the customer.
- The U.S. company can appoint a local middleman, commissionaire or a distributor in-between the sales transaction. The middleman would be the importer of record.
- In some countries (like in the Netherlands) the U.S. company can even appoint a fiscal representative – a local rep that only reps for the import, and can reclaim the VAT on the U.S. company’s behalf.
- In the EU and in some other countries, the U.S. company can simply register for VAT. This would make sense if the U.S. company wants to retain control of the goods, for example when the goods are price-sensitive. If the U.S. company registers for VAT, he can potentially reclaim the import VAT.
Anyway, plenty of alternatives are available for a VAT and pain free import.
The interesting aspect of this nonsense is that the Congressman is a Democrat, but this “Border Tax Equity Act” is straight out of Republican presidential candidate Trump’s Economic Plan. Even better, there is a memo from a Trump adviser who says:
“[…] the VAT is imposed on all goods that are imported and consumed domestically so that a product exported by the US to a VAT country is subject to the VAT. This turns the VAT into an implicit tariff on US exporters over and above the US corporate income taxes they must pay. Thus, under the WTO system, American corporations suffer a “triple whammy”: foreign exports into the US market get VAT relief, US exports into foreign markets must pay the VAT, and US exporters get no relief on any US income taxes paid.”
(see the attached document “Scoring the Trump Economic Plan: Trade, Regulatory, & Energy Policy Impacts”, page 12/13).
I already spent enough time on this crap – enjoy yourself reading the documents below.