Tariffs are no taxes

On the night of 3 April 2025, the USA imposed ‘reciprocal tariffs’ on the import of goods from, among others , the EU to the USA. Accordingly, an additional tariff of 20% is to apply to all goods from the EU. This is justified by the assumption that the EU itself would levy import duties of 39%. However, the basis for calculating this 39% is completely intransparent and probably also simply wrong in order to achieve the highest possible percentage.

Against this background, it should be criticised when official EU bodies claim in public that ‘tariffs are taxes’. This is because by making a legally inaccurate statement, the EU is encouraging the missleading argumentation of the USA.

Tariffs are tariffs

Customs duties in the EU are decided exclusively by the EU itself. The EU has exclusive competence in matters relating to the customs union (Art. 3 para. 1 lit. a) TFEU). The EU-wide customs duties are implemented in the Common Customs Tariff of the EU, which in turn is based on the Combined Nomenclature (Art. 56 para. 2 lit. c) UCC). However, European primary law, both in the TEU and in the TFEU, lacks a precise definition of what tariffs resp. customs duties are. What characterises a customs duty in import situations in modern sense, however, is that it is a sovereign levy on goods that are collected as a result of crossing the border into a customs territory. There is no specific official benefit being granted in return. It is also characteristic that the import duty is not matched by a comparable levy on goods produced domestically, i.e. in the customs territory in question. The reason or political motivation for levying the tariffs can be disregarded (bottleneck duty, financial duty, countervailing duty, reciprocal duty, „fairness“ duty).

The criterion is therefore that an import duty is levied exclusively on foreign goods so that they can be imported into the domestic and protected market and compete with domestically produced goods. It could also be called a ‘market entry fee’. Customs duties therefore have a discriminatory effect per se. However, the imposition of special duties, such as anti-dumping or countervailing duties, can be justified by market-damaging practices in the country of origin. The imposition of such duties is not preceded by political populism or aggression, but by lengthy and rule-based procedures to determine whether the domestic market has been damaged.

Tariffs do not become taxes

Customs duties / Tariffs do not become taxes simply because, for example, the provisions for taxes in Germany are applied to customs duties by analogy (Section 3 para. 3 AO). Taxes are applied equally to all respective situations. This is not the case with customs duties. Customs duties are not applied equally to all goods that are offered on the domestic market. The analogous application of the provisions for taxes to customs duties (in Germany) is merely intended to apply the Fiscal Code as supplementary and concretising procedural law to the provisions of the UCC.

Furthermore, tax sovereignty in the EU remains with the Member States. Although there are possibilities for the EU to harmonise the direct and indirect taxes, this does not change the fact that the Member States retain tax sovereignty. This applies in particular to VAT and therefore also to import VAT.

Import VAT is no tariff

Import VAT is part of the value added tax. The import of goods into the EU constitutes a taxable transaction (Art. 2 para. 1 lit. d) VAT Directive). In Germany, the import of goods in the country is a taxable transaction in accordance with Section 1 para. No. 4 UStG. Import VAT is levied on the import of non-Union goods or goods from third countries into the German tax territory. These goods are thus harmonised under VAT law with domestically produced goods. This is because the supply of domestic goods or items is subject to VAT.

Import VAT therefore has no discriminatory effect compared to import duties or tariffs. It also does not increase the cost of importation into the customs or tax territory of the EU or Germany. This is because it is possible to deduct input tax for the import VAT paid by companies, so that the company is tax neutral under VAT law. Of course, a company – e.g. from the USA – must be aware of and utilise the option to deduct input tax.

This is the central misunderstanding or possibly deliberate misinterpretation of the USA when it includes import VAT in the calculation for determining its ‘reciprocal tariffs’.

The same applies to the harmonised and non-harmonised excise duties in the EU, which are also levied on both domestic and foreign goods. However, the objects of taxation may differ for non-harmonised excise duties within the EU (e.g. coffee tax).