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By Ali Qassim
Online retail giants Amazon.com Inc. and eBay Inc. are defending themselves before U.K. politicians against claims they aren’t doing enough to remove sellers outside the EU found guilty of value-added tax fraud or error which costs the country as much as 1.5 billion pounds ($1.9 billion) a year.
“We’d like all bad actors off our platform and we have a commercial interest in doing so,” Steve Dishman, Amazon’s European vice president for taxes, told the parliament’s spending watchdog during a Sept. 13 evidence session. “We want a level playing field.”
Joe Billante, vice president and chief financial officer for eBay in Europe, the Middle East and Africa, told the 15-member Public Accounts Committee that the company “took action” by removing any firms it found guilty of breaching VAT payments, in cooperation with the U.K.’s tax office, Her Majesty’s Revenue and Customs. “We don’t stop at the bare minimum of the law, we go above and beyond the law,” he said.
The senior representatives of the U.S.-based multinationals were questioned as part of an ongoing inquiry by the committee into how the U.K. can recover some of the VAT—set at 20 percent in the U.K.—that online sellers outside the European Union fail to pay each year. Despite storing products in the U.K. and dispatching them to buyers, fraudulent sellers fail to declare the accurate value of their goods, and so avoid the payment of VAT. Some also make use of false VAT registration numbers or do not register for VAT at all.
The lost revenue accounts for up to 12 percent of the total VAT lost in the U.K. for 2015-16, according to a report published earlier this year by the U.K.’s National Audit Office.
In one blunt assessment of the multinational companies’ record against sellers violating VAT rules, Caroline Flint, a Labour Party member of the committee, asked: “Isn’t it the case that through your relationship with these overseas sellers you are inadvertently profiting from the fact that some of these sellers are not paying their VAT?”
And by not doing enough to remove VAT fraudsters from their platforms, Flint also questioned whether the U.K.’s two leading online marketplaces were in effect making profits from businesses “that have not paid their tax,” creating unfair competition for the many U.K.-based sellers that play “by the rules”?
Elaborating on how eBay has gone beyond any legal requirements to combat fraudulent online sellers, Billante said that of the 1,077 sellers it has removed from its platform, the majority—almost 900—were as a result of internal investigations.
The remaining, and far smaller, number of individual sellers eBay has blocked have come from orders made by HMRC, which since September 2016 has had the authority to make online marketplaces jointly liable for the VAT of overseas businesses failing to comply with U.K. VAT rules.
To tackle fraud, eBay also requires all foreign sellers to display a VAT number “even though HMRC says this is not a legal requirement,” and only 2 percent of sellers have yet to register, Billante said. As a “third party platform” however, he stressed the site “can’t know who is complying or not because we don’t have access to tax payers’ records.”
The number of online overseas businesses applying to register for VAT has grown dramatically from 700 in 2015 to 8,700 in 2016, according to HMRC.
In contrast, Amazon has not introduced mandatory VAT registration of all its online sellers, Dishman told the Committee. That’s because having a VAT registration number “does not guarantee” that the seller in question “is compliant” or that it is not “fraudulent,” he said.
Half of Amazon’s 46,000 non-EU sellers in the U.K. are not currently VAT registered. “I don’t necessarily think it’s that critical”, he said, pointing out that non-EU sellers represented less than a fifth of its total 280,000 sellers, most of which were U.K.-based.
Instead, Amazon’s compliance efforts have been on education through webinars to explain the importance of VAT payments and on developing a technology tool which will make it easier for sellers to fill in VAT forms “in two or three clicks.”
But like eBay, the retail giant has also responded to HMRC orders, which it acts on within 24 hours. “We have received over 400 notices to take down sellers so the process is working well,” he said.
As a longer-term solution, Amazon hasn’t ruled out a change to traditional VAT collection known as “split payments,” which both the U.K. and the EU are considering introducing in the future.
Currently under consultation in the U.K., HMRC describes split payment as a process in which either the platform or a financial intermediary extracts VAT from the customer in real time and deposits the VAT directly with the tax authority, a process also referred to internationally as “tax withholding.”
Dishman said Amazon would support the changes “as long as it covered all marketplaces” including other online platforms, and Billante said the proposals were “certainly worth exploring.”
Speaking at the same session, Jim Harra, HMRC’s director general for customer strategy and tax design, said split payments could help the tax office reduce VAT fraud. But he pointed out that although the EU is currently assessing the approach, split payments are currently not allowed under EU rules.
That means that the U.K. would have to either introduce split payments after it leaves the EU in March 2019 or ask for a derogation from the bloc to usher the measures in any earlier, he said.
HMRC’s chief executive, Jon Thompson, confirmed that following a period of consultation on the proposals earlier this year, “it’s up to the ministers at the Treasury to decide whether to bring them forward to the house.”
Even without split payments, Harra forecasts that with the new powers HMRC has gained since 2016, it could generate additional revenue from online VAT of around 875 million pounds in the period up to 2021.
The new powers include a new measure included in the Finance Bill 2017 to take effect on April 1, 2018, which will require fulfillment houses that handle imported goods on behalf of non-EU sellers, including Amazon warehouses, to register with HMRC.
But Rita de la Feria, professor of tax law at the University of Leeds, told the committee more legislation was not necessarily the solution to online VAT fraud.
“I honestly don’t think the problem is the law but the way it is being enforced,” she said. “Even before, there were tools to enforce the tax in a different way but this was not done, it was not the policy to do so.”
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