The Trump administration is confused about European VAT taxes. Here is how they work ...Middle East

That thinking is causing confusion because these are essentially consumption taxes.

Two scenarios to illustrate.

Ford manufactures a car in the USA and exports it to Germany.When the car arrives in Germany, German VAT (e.g., 19%) is applied at importation.A German consumer buys the car and pays the 19% VAT, just like they would for a German-made car. The VAT is kept by the selling company because it's already pre-paid the VAT.

German car sold in Germany:

BMW manufactures a car in Germany and sells it domestically.The consumer pays German VAT (19%) on the BMW and it goes to the government.

This is well-understood but for some reason the Trump administration sees it as a tariff, though it could all be posturing to set up a move to tax German car exports.

This article was written by Adam Button at www.forexlive.com.

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