French businesses still pay VAT on stuff they buy from other companies.

Generally, most VAT systems work this way: Business collects VAT from customers for services or goods sold(output VAT), and must pay it to the government. But businesses may offset that liability with the VAT they paid acquiring goods or services that were used in their own revenue-generating activities (input VAT).

So, for example, ACME sells TNT for $10 and VAT is 10% or $1 (output VAT), so price to customer is $11 and ACME's VAT liability is $1. Say ACME paid $0.25 VAT to its suppliers for the chemicals in the TNT and the paper casing (input VAT). ACME's net tax liability is $0.75, and that is how much they would actually fork over to the government.

Note that if ACME's customer is Bugs' Mining Shop, i.e., a business, they still charge VAT on the transaction.

In a sales tax system, ACME would not have paid sales tax to its suppliers at all, and it would not have charged Bugs' Mining Shop a sales tax. Thus, sales tax is generally more economically efficient than a VAT from a business perspective.

Saying that companies don't pay VAT is not entirely accurate. Technically companies pay VAT but get it rebated when they need to send the government the VAT that they have collected.

> Because I guess if we had sales tax > companies wouldn't pay it either

Then it would more accurately be called a VAT, than a sales tax.

so only the companies which sell to citizens add value?

If it works the same as in Germany you only pay no VAT if you buy from a company in another EU country as a company.

Therefore the EU has both a sales tax and a VAT depending on if you look at individual countries or the EU as a whole.

That is how it works in The Netherlands as well.

What is also great: all products targeted at consumers must contain VAT price. If it isn't mentioned, it is assumed it includes VAT. They don't get away with "oh sorry, forgot to mention VAT" at checkout.

Contrast that to every time I buy something from USA its like "oh, you gotta pay your duties" bwam extra ~20+% on price, and all prices in online discussions which are US-centric (e.g. comparisons on products such as recently Airpods Max) do not include tax (whatever you want to call it).

Different VAT throughout EU can be annoying though. Price comparisons within EU, for example. Regularly, Amazon Germany seems cheap or cheaper than Amazon Netherlands. With Prime, shipping is free either way, so sounds good, right? Until you go to checkout, they figure you really do want to ship to The Netherlands (my default and only address whilst logged in, go figure) and bwam price adjusted without being mentioned. Though that might be an Amazon specific issue.

The way it is in US is deliberate - the premise is that you want people to be aware of how much tax they're paying, on the basis that they would be more politically active about taxes if they knew.

There are other countries with sales tax which don't have this cultural quirk, and where prices normally (whether by custom or by law) include the tax.

> What is also great: all products targeted at consumers must contain VAT price.

Took this far through the comments to get there. There’s a lot of competition for “the worst thing about America”, but it tops my personal list.

(Also @int_19h)

The mandatory tipping culture is another one. If it is mandatory, add it in the price. Tips should be earned. At least in Europe I know what to expect upfront.

The imperial system is another. Makes it unnecessary difficult to convert units.

Its difficult to change such illogical customs though. They're deeply ingrained in the culture, which is in many ways a dominant culture.

Mm, that’s interesting, because as annoyed as I am about sales tax, I find myself not at all annoyed about the 10% automatically added to my bill for service in the UK or 7% in Thailand.

No, you must pay VAT on intra-EU B2B transactions too. The accounting is more complicated because the buyer pays rather than the seller, but it is still there.

Yeah, the accounting is there, but not the actual transfer. I.e. you're not transferring the actual money to France, which the French finance ministry would then have to send back to the German one once it got it from the French company (in order for the German one to give it back to the company buying the product).

And the accounting is there because of tax fraud, I guess. And I also guess that the US has a similar accounting system where they have to report the amount purchased per tax bracket and the IDs of the companies they bought from.

You don't pay VAT on intra-EU B2B transactions; the buyer adds the VAT amount at their country's rate to both the amount to pay and the amount to claim back, cancelling it out.

The reverse charge is still VAT being paid, just differently.

How so if the net liability change is nil? No extra money comes out of your account, it's just a paper charge that cancels itself.

If I have misinterpreted it, I would very much like to know so I can inform my accountant. VAT is enough of a hairy mess as it is.

This, reverse charge.

VAT is a tax on the final consumer collected with the aid of the companies in the supply chain.

it applies, that's the whole point of the "added" part. you pay the government their full cut, but you get all the VAT you paid for back. so only the difference is taxed to you, as is to everyone else in the chain.

yeah you are right, I'm wrong