Germany changes the VAT rates
Mehrwertsteuer affects RC prices
From this morning the German Government decreased the tax squeeze on product sells as a temporary measure for tackling the economic impact of COVID-19. The Mehrwertsteuer (aka Value Added Tax) is reduced from 19 to 16 and from 7 to 5 per cents and the first one can affect the RC product prices.
German RC retailers - as all businesses - sell their products with 16% VAT since the morning which is a 3% difference. The lower, 7 down to 5 per cents rate not applied in RC industry. The temporary measure is planned to be kept in place until 31st December this year and its purpose is motivating the consumption in Germany.
Not that much, but every cents count. However, the measure generates a problem in the RC industry as well. Typically the RC product prices are the same in the EU everywhere within the Eurozone and this is not just a tradition, sometimes this is regulated by dealer contracts to equalise the injustice caused by the EU free trading rules and the different VAT regulations.
The VAT is different in each EU country, therefore a product can be cheaper in one than in another one, whilst the margin of the dealer is the same in both countries. All customers can order anything from anywhere in the EU with no customs, and the VAT applied in the country of the seller will be applied. As long as the postage doesn't make the cheaper product more expensive than the expensive one, the customer is interested to shop in the cheaper country, and this complicated situation generates a competitive disadvantage to the shops operating in countries with higher VAT rates. This is why the retail prices are equalised in most cases.
This is not a problem in the United States because all prices are advertised without taxes, the competitive disadvantage of a more expensive state is not shown that obviously as in the European Union, but the European rules declare that all advertised prices must include all taxes, customer will pay what's shown. The only exclusion is the postage.
The intention of German Government is clear, they want businesses to reduce the prices stimulating the internal consumption. And the German RC retailers are trapped now, they got in crossfire. On one hand they have to respect the dealer agreements on the other hand they must follow the regulation changes.
Technically it is easier to reduce the VAT rate in most webshop engines, which makes all products cheaper. It is not clear so far, how the product prices will change in Germany if they will. The change will be vary shop by shop.
For example The Copper-Doc has announced in the morning, all his shops will apply the new Mehrwertsteuer, and the products will be slightly cheaper. But other shops checked by us in Germany haven't changed their gross retail prices so far.
The effect of the Mehrwertsteuer changes are questioned by many businesses and on this level the differences are not significant, the products can be cheaper by 2.5 per cents approximately. But someone wants to save couple of Euros, it worth to check the retailers available.