Pulled up some more info...
Cars do seem to be an exceptional product class. Otherwise, you do only pay VAT a single time for an item purchased within the EU.
When a customer pays in person, a company charges the domestic VAT rate. This is obvious.
However, in the case of 'distance selling', where an order is placed by a customer in a different EU country to the seller via the internet or mail order, the situation is more complex.
If the seller's total transactions per annum *with the customer's country* fall below the VAT threshold of the customer's country, the customer is charged the seller's country's VAT rate. If the transaction volume exceeds the customer's country's VAT rate, the seller must become VAT-registered in the customer's country and charge the customer the customer's country's VAT rate.
Thus, for ecommerce, a continental company doing appreciable business with the UK will be unable to offer savings on VAT despite any seemingly advantageous differential in rates between the countries. However, if a customer in the UK hunts down a smaller overseas EU company or one that normally doesn't trade with the UK, there are real savings to be made.
I've only just understood this myself so I'm probably not explaining it very well, but I hope this information helps businesses other than my own. It seems important to know how your retail prices can be undercut by European competitors.
Finally, it seems to me that current legislation still leaves the door open for a company to profit from differential VAT rates. Here is the (completely hypothetical) scenario I'm envisaging. A company registers in a low-VAT rate EU country (for a particular product class) specifically to provide a forwarding service for customers in the UK who want to import otherwise highly taxed goods from *outside* the EU. The goods would be charged the more favourable VAT rate in the country of import. The company will only charge its customers for the forwarding service, as the contract for the goods is with another, foreign company. Yet the forwarding company is still able to advertise in the UK in conjunction with the foreign supplier, together promoting both the import service and the product in question.
Is this feasible? Too cheeky? Illegal?
Again: I am not thinking of doing this; I am wondering if a competitor could.
