Archive for U.S. VAT?

Update on Trump and the anti-VAT proposals

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U.S. House: Bipartisan anti-VAT proposal

There is a proposal pending in the U.S. House of Representatives that calls for a fee on imports from countries that do not refund import VAT to U.S. companies. I wrote about this craziness earlier, and within just a couple of days, this post became the most popular post ever on The VAT Blog:

Trump and a Democrat want a retaliatory tariff against VAT

And then someone picked it up on Twitter:

The response of Mr. DiMicco is not very original. The argument that exporters in VAT countries get a “rebate” is persistent – I hear it all the time. See my post for analysis.

Luckily there were more voices of reason:

Tomorrow is November 8 – happy voting all!

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Trump and a Democrat want a retaliatory tariff against VAT

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 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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.

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Yet another “VAT in the U.S.” attempt

Another proposal for U.S. tax reform has been launched – this time it comes down to abolition of corporate income tax, simplification of personal income tax and a VAT (a “credit-invoice based consumption tax”) at a rate of 7% to somewhat make up for the revenue loss.

The Tax Foundation provided a detailed analysis of the plan and concludes:

“Rep. Jim Renacci’s tax plan would reform the individual income tax and replace the corporate income tax with a credit-invoice value-added tax. If enacted, his plan would reduce federal revenues by $845 billion over the next decade. The Renacci plan would significantly reduce marginal tax rates on capital and labor income, which would result in a substantial increase of the size of the U.S. economy in the long run. This would increase the revenue that the tax plan would ultimately collect, making the plan slightly revenue positive. Rep. Renacci’s plan would increase after-tax incomes for taxpayers at all income levels.”

See more here:

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Wrapping up the Puerto Rico VAT debacle

I have seen many botched implementations of VAT, or clueless last-minute VAT rate changes, but the non-VAT implementation in Puerto Rico underperforms the lowest of expectations.

Companies, particularly retailers, have spent ten of millions of dollars on IT and consultants support over the past 12-18 months to prepare their ERP systems and tax determination processes. Only to see Puerto Rico negate their plans to implement a VAT at the very last minute.

Gosh, the last clarification provided by the PR Treasury – without any indication that VAT may not happen – dates from May 25 – 6 days before the non-event.

Anyway, below is a final update. Nothing new in here, other than implementation of the SURI tax filing system has not been cancelled. Yet.

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No VAT for Puerto Rico any time soon

The Puerto Rico Senate has overridden the veto of the Governor – there will be no introduction of VAT in Puerto Rico on June 1. The current Sales and Use Tax as well as the Business Tax will continue after June 1.

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VAT unlikely in Puerto Rico – now what?

Puerto Rico is on the brink of NOT introducing a VAT on June 1. The PR parliament has overwhelmingly voted in favor of a proposal to abolish the plans to introduce a VAT, and to stick to the existing Sales and Use Tax system.

However, the governor may veto this proposal.

Our friend Carlos Serrano ( writes:

“At this time, certainty on the tax consequences of commercial transactions for June 1, 2016 and thereafter is unattainable. The bill, as approved, will hopefully make its way quickly to La Fortaleza to either become law or be vetoed and in the eventuality of the latter, the outcome will continue to be uncertain until a potentially unprecedented vote at both the House and Senate. If anything can be assured, it is that there will not be a dull moment in the long running saga of Puerto Rico’s attempt at a comprehensive tax reform.”

See Carlos’ entire message here:

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