czzr

https://en.wikipedia.org/wiki/Manufacturing_in_the_United_St...

For those who don't follow the link, here's an extract from the article explaining the core situation:

Imagine a car that costs $30,000 to produce before tax. Now compare four scenarios:

1) BMW sells the car in Germany (domestic sale): Germany’s VAT (let’s say 20% for simplicity) is added on the final sale. The German consumer pays 20% VAT, i.e., an extra $6,000, for a total price of $36,000. BMW forwards that $6,000 to the German government as VAT.

2) BMW exports the car to the U.S.: Since the car is exported, BMW does not charge German VAT. Any VAT BMW paid on parts or inputs is refunded by the German tax authority. The U.S. buyer pays the $30,000 price, and since the U.S. has no federal VAT, there’s no equivalent federal tax on that sale. (A state sales tax might apply at the point of sale, but we’ll come back to that.) The key point: the German government collects no VAT on an item consumed in the U.S.. This makes complete sense because that car’s being enjoyed by an American buyer, not a German resident.

3) GM sells the car in the U.S. (domestic sale): The U.S. has no VAT, so the American consumer pays $30,000 (ignoring any state sales tax). No federal consumption tax is collected. (In states with a sales tax, the consumer might pay, say, 7% extra to the state government, but again, the federal treatment is no tax.)

4) GM exports the car to Germany: When the car arrives in Germany, it faces the same 20% VAT as any car sold in Germany. So a German customer buying the American-made car pays $30,000 + $6,000 VAT = $36,000. That $6,000 goes to the German government. From GM’s perspective, it doesn’t owe U.S. tax on that export sale (since the U.S. doesn’t tax exports of goods), but its product will bear German VAT when consumed in Germany.

What outcome do we have here? In Germany, both the BMW and the GM car cost the same $36,000 after tax, and the German government collects VAT on both. In the U.S., both cars cost $30,000 before any state sales taxes, and the U.S. government collects no federal consumption tax on either. Each country taxes consumption within its borders—no matter where the product came from—and does not tax consumption outside its borders. This is precisely the goal of destination-based taxation: neutrality. Consumers in each country face the same tax on a given product, whether it’s domestically produced or imported. And neither country’s producers carry their home consumption tax as a “ball and chain” when they go compete in foreign markets.