Prices across regions with different tax

Question

Where I am from all prices advertise must be the price you pay. What you see is what you pay. This means that taxes, fees and anything else must be included in the advertised price. This is regardless of the price is advertised in a physical store, online or in a commercial somewhere.

I have seen (especially) Americans argue that the business owner should only care about their own price and not what tax the consumer must pay on top of the "base price" and therefore should be able to advertise the price without tax. To me this seems odd because no matter what the business owner is the one who must calculate the tax and also pay it to the relevant authorities afterwards. From a consumer protection perspective it also makes sense that the advertised price is the one you must pay.

However, I can see one point where the prices without tax make sense. If a company want to market a product across several states in the US where the sales tax might differ it would be difficult to show the final price since the company does not necessarily know where the person resides / what tax is applied.

Therefore, is there anywhere in the world where a region with same currency, but different sale taxes require that the advertised price is the price the customer pays? And if so, how is it handled when companies uses the same advertisement across the entire region?

Answer 1

The Eurozone is an example of this. Ordinary VAT varies from 18% (Malta) to 25.5% (Finland). The more difficult issue is that treatment of certain items, like food and medicine, vary. France, for example has 4 reduced rates including zero that apply to these goods.

Basically, you have two options generally. One is to advertise different prices in different countries. In the Eurozone, this usually works because languages differ, so the advertisement can't be the same anyway.

The second option is for the manufacturer to absorb any difference in taxes, selling the good for different pre-tax prices in different regions. One could say that the manufacturer is pocketing the difference in lower-tax areas. This is a major reason why tax-exclusive prices are advertised in the US and Canada, often by law.

Related, Japan is inconsistent with how it's relatively young (1989) consumption tax is handled. Sometimes prices displayed in stores are tax-inclusive, other times both prices are displayed with the tax-exclusive price being more prominent. Prior to 2021, they could even show tax-exclusive prices only.

Answer 2

Addition to @user71659's answer about the Eurozone/EU:

• Harmonized VAT law is one of the main points of EU. Harmonized meaning that the rules are similar and fit between the coutries, so even though different countries can have different VAT percentages (within limits), it is feasible to do also B2C sales across borders.

• Invoices must list gross price = price including VAT, applicable percentages of VAT, net price = price without VAT and amount of VAT.
  Advertisements (or price tags) must give price including VAT.

  But there is nothing to keep the seller from also listing price without VAT. Companies like Metro who aim at B2B retail do this. Other than that, before-tax prices and total tax burden are sometimes listed for advertisement purposes e.g. when gas stations want to point out that most of the sales price is tax. In that case, they usually list other applicable taxes as well (mineral oil tax, ...) and point out that VAT is due also on the amount of other taxes on the good.

  I'm not aware of any noticeable political drive to require display of net prices.

• B2C sales across EU borders have to use the correct VAT percentage, and the VAT needs to be paid to the correct country. Rule of thumb: the country where the good or service is delivered (see @ave's T-Shirt). And they also have to quote the correct sales price including VAT.

  (There is an exemption for small sellers with total B2C sales into other EU countries being < 10000 €/year, they can use their domestic VAT.)

  Nowadays, B2C sellers can use the one-stop-shop mechanism to do this without needing to register for (and declare) VAT in all countries where they have sales.

• There is also EU geo-blocking regulation, which in certain (common) situations implies that the inside EU cross border sale must take place at same net price with buyer-country specific VAT added.
  Roughly speaking:

  • The seller can have different (online) shops for different countries, and also different (net) prices there.

  • Regardless of this, customers can buy in the "foreign" shop, and then the seller must use that shop's net price and the correct VAT for the customer.

  • Example: Assume a seller runs two online shops, a Dutch and a German. Prices in the German shop differ from prices in the Dutch shop (this may even be mandatory e.g. there is book price regulation in Germany). A Dutch customer must be allowed to buy in the German online shop, and then they pay the German net price + Dutch VAT if the good is delivered to the Netherlands - regardless of what the pricing in the Dutch online shop is.

    (It is still for the seller to specify "domestic shipping only", the Dutch customer can then buy in the German shop for German net price and pick their stuff up at a German address, but since the delivery goes to Germany, German VAT applies - it is not a cross border sale)

• Marketplaces: e.g. ebay handles it as follows: the seller enters their local sales price including VAT and applicable VAT percentage. For cross border sales, ebay will calculate net price and applicable VAT, and display the price including foreign VAT accordingly.

  Thus, buyers have the same net price, but pay VAT on top as needed for their location.

Answer 3

You are having a very narrow consideration just looking at the argument by the view of law. Lets put it this way:

A region with an uniform tax scheme, where there isn't any variation in all the territory, could have different prices in different sub-regions. The variation in those cases wouldn't be because the tax scheme, but the cost of logistics (from long distances, to difficulty to access), demand and supply, the income of the region, what prices the market of the area can bear, etc.

The law would be considered unreasonable if it requires firms to advertise the prices of their products in general advertisement that can't take into account regional variations in final prices. Depending on how the law specifies it, a firm would then choose to not advertise prices (eg. call them for a quote) or advertise them in a way that would generally be true (by setting a price floor).

On that same jurisdiction a law that requires that the price on the label printed by the retailer would be honored, would not be considered as unreasonable, because the firm doing the final sale to the consumer have all the information needed to apply all the different markups, taxes and charges. Online stores may require you to sign in with an account to see the final price and comply with the law, if there's a realistic difference between them, others would simply have different sites for each jurisdiction. In such cases, the price of shipping is charged (and taxed) separately, so it doesn't come as a surprise for the end consumer.

The argument against labeling products with the final price is farcical, because the business still has to calculate it and the burden of maintaining it is minimal as those rarely change.