Overseas e-retailers face VAT crackdown

A screen showing Black Friday deals on Amazon.com
Source: Amazon.com
A screen showing Black Friday deals on Amazon.com

Tax officials have launched a crackdown on VAT evasion by overseas online retailers amid claims that Amazon and eBay have been "collaborating" with them to defraud the exchequer of large sums.

The Treasury said HM Revenue & Customs was gathering intelligence on this particular scam, adding that it was devoting 25 per cent of its customs and international trade effort to tackling import fraud.

British retailers say they are being undercut by foreign companies — particularly from China — which sell their products through e-retailers like eBay and Amazon but fail to charge VAT.

Neven Juretic, director of Maikai, which sells cases for phones and tablets, estimates that 70 per cent of the market for his products is held by Chinese sellers that were not paying sales tax to the exchequer.

"Three Christmases ago I noticed a lot of competitors selling at too-good-to-be-true prices," he said. "Most of my competitors were holding stock in the UK but not charging VAT."

Lord Lucas, a Conservative peer, told the House of Lords this week: "As HMRC knows, for some long while Amazon and eBay have been collaborating with hundreds of overseas retailers to defraud the taxman of millions of pounds every day."

Lord Ashton, a Treasury spokesman in the House of Lords, told peers: "HMRC has established a task force to undertake operational and intelligence-gathering to investigate this form of VAT evasion by overseas online retailers."

Replying to accusations that the tax authorities had been slow to react to the problem, he added: "A meeting with top online retailers at a very senior level took place only last month." Amazon and eBay were at the meeting.

Rita de la Feria, professor of law at Durham university, said e-commerce platforms that hosted traders that evaded their VAT responsibilities were potentially liable for the unpaid VAT if they did not attempt to root them out.

The Treasury played down suggestions that e-commerce platforms might be made liable for the non-payment of VAT by overseas companies.

Chris Heaton-Harris, a Tory MP who has raised the issue with HMRC, said: "This seems to be an obvious loophole that needs to be closed rapidly."

More from the Financial Times:

HMRC to build on 58%rise in convictions
Tax efficiency alone is not enough
Jersey account holders given tax warning

Tackling this form of evasion is complicated by the difficulties of prosecuting foreign companies, the exemption for small businesses and the relief for low-value goods being brought into the country.

Prof de la Feria said HMRC could use recent EU case law concerning third-party liability for fraud to put pressure on Amazon and eBay to investigate traders offering abnormally low prices.

The e-commerce platforms say they are working with HMRC but are unable to police the tax rules. They reject categorically the idea that they have "collaborated" in any way with overseas companies that did not pay VAT.

Amazon.co.uk said: "Marketplace sellers are independent businesses responsible for complying with their own VAT obligations. We do offer tools and information to assist sellers with their compliance, but we don't have the authority to review their tax affairs."

Ebay said it reminded all users to comply with their legal obligations and said it would co-operate with HMRC where there was evidence of underpayment of taxes.

"We have met with HMRC to discuss how best we can work together with them and other marketplaces [e-commerce platforms] to address this issue," eBay said.

This month HMRC published draft legislation that would allow it to gather bulk data from platforms like Amazon and eBay include names and addresses of seller, tax identification numbers and value of transactions, in a move it expects to raise £860m by 2021.