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By Ben Stupples
The U.K. government is in talks with Alibaba Group Holding Ltd. over its new effort to fight tax fraud among e-marketplaces, boosting the chance of China’s largest online retailer joining the initiative. Last month, the U.K. government called on online marketplaces like Amazon.com Inc. and eBay Inc. to commit publicly to tackling value-added tax fraud among traders using their online platforms.
Alibaba is “currently discussing arrangements” with the U.K.’s tax authority about the agreement, a spokeswoman told Bloomberg Tax in a May 18 statement. “We continue to work closely and constructively with them regarding the fight against value-added tax fraud under relevant laws. ”
Cracking down on value-added tax fraud among online marketplaces has become a priority for the U.K. due to foreign traders skirting the levy, a key source of government revenue, on their sales in the country. This evasion hurts U.K. traders’ competitiveness as they must charge the levy.
Specifically, Her Majesty’s Revenue and Customs has asked e-marketplaces to sign an agreement to educate users on VAT, provide data on traders, and react swiftly to non-compliance, according to an April 25 news release. Set to be published with a list of signatories, the agreement is a major step in HMRC’s fight on VAT evasion, which costs the U.K. as much as 1.5 billion pounds ($2 billion) a year.
U.S.-based Amazon and eBay have told Bloomberg Tax they will sign the agreement. Tesco Plc, which has its own online marketplace and is the U.K.’s largest food retailer, is reviewing the measure.
“Amazon and Ebay could be ahead of the game if they’ve been speaking with HMRC for a while and have all these considerations in place, which is why they’re ready to sign,” Sue Rathmell, VAT director at accounting firm MHA MacIntyre Hudson, told Bloomberg Tax May 10. E-marketplaces are in the “right position” to monitor traders and thus ensure HMRC collects the right taxes, she added.
Levied on the sale price of goods or services, VAT is a key source of the U.K.’s public finances, making up 21 percent of the 594.3 billion pounds collected by the government in the latest financial year.
Most of Alibaba’s revenue comes from China, but its foreign activity is growing. Overseas revenue for the company rose 6.5 percent between 2015 and 2018, according to Bloomberg data.
China, meanwhile, is a large part of HMRC’s focus on fighting tax fraud among e-marketplaces.
The U.K.’s tax authority concluded in 2015 it was “highly likely” that overseas sellers in China were partly to blame for VAT fraud among online marketplaces, according to a April 2017 report on the subject from the U.K.’s National Audit Office. In an updated estimate, HMRC said in March 2018 that overseas sellers made up around 60 percent of the VAT lost for the U.K. on e-marketplaces.
“Online marketplaces have a really positive role to play within the economy,” Mel Stride, the U.K. Treasury’s financial secretary, previously told Bloomberg Tax in an exclusive interview, published April 9. “But they do pose a particular problem when it comes to VAT.”
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