It’s not really a tax on their profits. Consumers have to pay it on top of the net sales price, and they know that it won’t add to the company‘s bottom line. The money goes to the state every month (or quarter sometimes), deducted by the VAT the business itself already paid for services/products.

For accounting purposes, VAT is a totally separate cycle of money, and for every important financial metric, VAT is ignored. [Removed] If you happen to spend more VAT than you collect, you’ll get the negative back from the state. Also, the net price is always known because it must be shown on every invoice.

On a product of 120€ with 70€ wages, they pay 20€ VAT on the 100€-before-tax, and they pay 25% IS (corporate tax) on the 30€ margin, so 7.5€ (this example is for France). If they distribute the remaining 22.5€ as dividends, the recipients pay up to 30% IR, so 7€.

VAT is most of the tax revenue by far. France’s budget is made of 50% VAT, 15% from corporate tax (IS), 10% from income tax (IR) and then the rest from various state revenue (like renting the palaces for movies).

VAT >> other revenues.

I don't know the initial incentives, but VAT is much harder to evade (businesses have to keep track/declare things if they want to reclaim the VAT they paid).

Also it's a consumption tax, in the end the end consumer is the one paying it (through higher price). The businesses in the middle are mainly collecting the tax on behalf of the state.

Look at it as VAT taxing your turnover rather than your profit and you might start to see why they are different things.

A state might want to tax both of them at some level, because even unprofitable businesses should contribute. Or they might not.

I mean, what's the rationale in the US for a business being taxed on their profits, and also having to pass along the sales tax they've collected?

It's just two forms of taxation. Sales tax/VAT is a fixed proportion of sales, and then you also pay tax on profit that's left.

You might as well ask why people pay income tax when they make money and then have to pay sales tax/VAT again when they spend it!

Of course, answering that is complicated, and there are a lot of factors. But the main one is basically that governments like to tax "everything", so that people/goods/services that might wind up evading one tax wind up paying another. Sales tax makes sure governments get revenue even when businesses make no profit, taxing profits makes sure governments get more revenue when businesses make more money.

There's several rationales:

1. They need to tax every economic transaction possible to maintain demand for the Euro currency and keep it from loosing its value. This is the most important reason.

2. To get more money in taxes for the government. There's people who argue that lower tax rates increases economic activity and in the end would increase tax revenue also for the government. The government doesn't see things that way. "You pay me now, pay more!"

3. Taxes on profits are an incentive for business owners to reinvest any surplus into growing their business, meaning more jobs etc.