I had to go back and find my original post.
Yes, you are correct. When I worked that out based on a current 19% German VAT, I came up with a cost disadvantage of $6,993. I thought that seemed too high based on a car costing $20,000, but didn't spend the time to study it out. The cost disadvantage would only (theoretically speaking) be half of that, or $3,193.
The American car would have to sell for $3,193 more in Europe.
Roughly 16% higher.
My assumptions are that each car has the same cost of production and neither car has added a profit margin.
What I did was to take each car at 20,000 (as in my original post) and substract the VAT from both cars based on the assumption that the German car minus the VAT is the actual cost of production. To equalize them I gave the American car the same cost of production. But since the American car has to pay the VAT upon entry, it has to sell more by at least the VAT, or $3,193, whereas the German car was rebated the VAT.
The sales tax on the sale of the German car is paid by the US consumer, so it doesn't come out of the pocket of the German car manufacturer. The German VAT, however, does come out of the pocket of the American car manufacturer. This changes the trade dynamics somewhat , too, in terms of our industries struggling to stay competitive.
The American manufacturer also still has to pay corporate tax on that car. I don't know what goes on in Germany. Is the VAT the total of taxation? Or does the manufacturer pay some form of income tax on the profit margin over and above the VAT? These are things I don't know that also might affect things overall. |
