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How could 3-D printing upend tax strategies?

The technology is expected to quickly revolutionize the way that products are produced. That would scramble the indirect-tax landscape.

We are on the brink of a new industrial revolution, brought about by the advances in technology that are allowing goods to be manufactured and delivered to customers in new ways. The prediction that 3-D printing could radically alter supply chains and move manufacturing closer to end customers raises many interesting business and taxation topics. But how will 3-D printing impact indirect taxes?

What is 3-D printing?

Simply put, a 3-D printer creates a three-dimensional product by adding layer after layer of material until the object is complete. Currently, products are printed mainly using raw materials such as plastics or metals, but even bio-printing and food-printing are developing. In fact, the potential of 3-D printing seems virtually endless.

Although 3-D printing has been around for some time, the technology has only now reached the stage where it is affordable enough to reach a broader market. It is widely anticipated that 3-D printing will quickly revolutionize the way that products are produced because it is as cheap to make one item as to make thousands. This effect is predicted to counteract globalization by moving manufacturing closer to end customers.

VAT and customs duties

VAT and customs duties are indirect taxes, generally assessed on a transaction-by-transaction basis. Customs duties are typically levied on the importation of physical goods into a territory. VAT/GST and other similar consumption taxes apply to both goods and services and typically apply to domestic as well as cross-border flows.

As 3-D printers become more affordable and widely available, more consumers are expected to buy the raw materials and print their own products using the design instructions that can be purchased from retailers, downloaded from peer-to-peer networks or even created by the consumer. How should indirect taxes apply to the supplies of raw materials on the one hand and to the design instructions on the other?

Distinction between goods and services

Generally speaking, the traditional definition of a good for VAT and customs purposes depends on whether the object of the transaction is tangible. Generally, if an item does not qualify as a good, it is treated as a service for indirect tax purposes. Simply put, tangible items (such as chairs, computer monitors and apparel) typically qualify as goods, whereas intangible supplies (such as legal advice, data processing and downloaded music) should be viewed as services.

Applying this traditional view to 3-D printing, we would be forced to say that only the delivery of physical items (such as customized goods or raw materials used for printing) should be viewed as goods for tax purposes, whereas the design element needed to create the printed object is something inevitably intangible and should be qualified as a service. Since goods and services are taxed differently, this distinction could have far-reaching consequences for the collection of indirect taxes.

From a customs perspective, the distinction between goods and services is even more critical, because customs duties apply to the importation of goods into a country or territory, but not to services. Usually, the sales price in the country of importation is the starting point to determine the customs value. So, upon importation of a plastic toy, the customs value is likely to include not only the raw material elements of the products but also most other elements that drive the price of the product (e.g., design elements, brand value).

If the end customer were to import only the plastic raw material and obtain the design separately to print their toy at home, then the customs calculation would come to a very different result.

Considering all this, what can companies expect from this shifting tax landscape?

Risks and opportunities

Customs duty savings: it would be reasonable to anticipate that corporations could reduce their customs duty costs by moving production closer to the end customer, while retaining ownership of the valuable intellectual property rights (i.e., the design element) in a central entity. In such a scenario, it could be argued that customs duties should be due only on the raw materials imported by the manufacturing entity, whereas the design element of the finished product should be kept out of the customs duty assessment base.

If this position can be upheld successfully with the customs authorities, the overall customs duties paid by the group could be reduced. Furthermore, by keeping the central entity that owns the design rights out of the supply chain of the physical goods, this type of structure could also lead to decreased VAT complexity in comparison with supply chains where the central entity is involved in the supply of physical goods and, as a result, is often required to register for VAT or even set up a branch in jurisdictions where it is not resident.

VAT reporting: as with any supply chain change or new business model, indirect tax reporting requirements must be considered and monitored to ensure compliance. Thus, businesses looking into the opportunities offered by the development of 3-D printing should consider that any changes to their supply chains will require an assessment of the impact on indirect taxes.

Businesses that are shifting their focus from selling business-to-business (B2B) to selling to final consumers (B2C), for example, should keep in mind the differences in the VAT treatment and obligations that apply to supplies made to B2C customers compared to B2B customers.

If, for instance, businesses currently producing consumer goods for retailers were to shift part of their business to creating designs for their products that can be downloaded directly by end customers, completely new supply chain structures could be created, and the compliance obligations of the suppliers would be vastly different from those in current structures.

New taxes: reductions in revenues from direct taxes have led to increasing VAT rates throughout Europe and to the adoption of a range of excise taxes around the world. It would not be surprising if one indirect consequence of the rise of 3-D printing could be the increase of other taxes – for example, more countries might introduce a “business tax,” as applied in China in the past, or a “social security tax” due on services, such as the one applied by Italy.5


One thing is clear: 3-D printing will revolutionize manufacturing and supply chains as we know them. Given the rapid developments, we may not even be able to imagine half of the potential of 3-D printing, and we are not currently able to foresee all the potential consequences for indirect taxes.

What we can be certain of is that legislators and the tax courts will struggle to keep up with these developments. The practice of how to apply taxes such as VAT and customs duties will have to be invented every day, with every new development.

This article was first published in EY´s Indirect Tax Briefing: global developments, issue 12


Marc Schlaeger

+45 51 582 822


Kaisa Miller

+41 58 286 3954


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