Each year, the United Kingdom loses a billion pounds sterling in value-added tax that is not collected due to fraud or errors by vendors using websites such as eBay and Amazon, says a report from the UK’s National Audit Office commissioned by the British government.
According to this report, published on Wednesday 10 April, the sellers in question are often based in China, explains Reuters, adding that eBay and Amazon have not taken any action to deal with the problem of vendors wriggling out of VAT rules although they have been alerted to the tax avoidance.
‘We will continue to work closely with (British tax authority) HMRC to ensure that all sellers on our platform comply with the law," eBay said in an emailed statement. Amazon promised to ‘rapidly’ exclude fraudsters.
Impact on talks at Council level
At European level, during the negotiations at the Council of the EU on VAT for e-commerce, the UK delegation highlighted another source of VAT fraud.
In its initial proposals, the European Commission assumed that the supply of goods mostly concerned the import of goods that are directly shipped to the end consumer (see EUROPE 11680).
The British analysis is based on the rapid growth of fulfilment houses, warehouses used to import goods into the EU before they are bought, explained the British delegation in a working document prepared for technical discussions, of which this newsletter has seen a copy. The delivery of goods ordered online is faster because the goods are already in the EU and the final delivery of the goods comes from within the EU.
The British delegation explains: ‘Goods destined for a fulfilment house are customs-cleared under various methods (e.g. bulk imports and other customs reliefs), making them difficult to distinguish from other imports. In practice, however, the goods will often be undervalued and/or mis-described. With little credible information or detail provided of the goods at the time of import it is virtually impossible at that point to accurately determine the VAT value of the domestic onward supply of goods to the consumer.’
Fulfilment houses are separate entities from the supplier and never actually own the goods in question. It is therefore not their job to collect or pay VAT and consequently, suppliers take advantage of this and often fail to meet their VAT obligations so the VAT revenue is lost.
‘However, in our view, it (the Commission’s proposal, Ed.) will not tackle the significant levels of poor compliance and abuse associated with many of those businesses using fulfilment houses and who do not wish to comply,’ adds the British delegation.
The United Kingdom therefore calls for the VAT negotiations to make use of the talks on e-commerce VAT to address this question.
Several sources say the British document surprised everyone as some countries didn’t even know of the existence of fulfilment houses, which seem to be used mainly by Britain and Germany. It is said that nobody knows at the moment how the problem of these fulfilment houses can be dealt with.
A meeting of national experts at Council level is scheduled for next week and some delegations may bring new proposals. (Original version in French by Élodie Lamer)