How does VAT apply to wholly owned subsidiaries?

Robert Ghilduta Software and Hardware Engineer

September 23rd, 2014

If an American company were to register and operate a wholly owned subsidiary in a Eurozone country, what sort of VAT import tax would be assessed when the subsidiary imports products from the American company? Is VAT calculated based on the MSRP of the product or is it based on the price at which the European subsidiary purchases the products?

Steve Karmeinsky CoFounder City Meets Tech / Lean Capital Ltd / Placeholder Ltd

September 24th, 2014

If you import into the UK, VAT is based on the buying price in the US (if you're in US) including any sales tax plus shipping charges plus any import tax (duty). Then VAT is (generally) 20% of that, however if the UK company is VAT registered, they can then claim the UK VAT back.

You could "internally" transfer assets to the UK company, but that probably comes under some other tax regime ...

Cecilia Domenighini Marketing

September 23rd, 2014

That's a great question. I can recall from my international business classes that the US taxes the profit that American corporations make throughout their foreign subsidiaries as soon as they bring the money back into the country. This helps to reduce tax-haven chicanery. Generally speaking, in EU there're lower taxes (due to the economy situation most of european countries are favoring FDI). 
However, potential tax liability might apply: there are countries outside EU the US does not have an income tax treaty with; Even when a treaty does exist, certain countries sill require tax filings to obtain treaty benefits. 
I'd recommend you to look at the EU law in general and at the regulations in the specific country (even though if in a community, laws are different from country to country).