‘Customs Tax: Don’t Worry.’ E-Retailers Keep Selling Tax Evasion

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By Ben Stupples

E-marketplace sellers are still offering to help overseas buyers dodge border taxes due on imported goods, despite a global crackdown.

According to a Bloomberg Tax investigation, traders across Amazon.com Inc., Alibaba Group Holding Ltd., and eBay Inc. have continued advertising the possibility of marking a false value for goods so buyers can evade import taxes.

“Customs tax: don’t worry” about it, “we will declare lower value on bill and help customer avoid or reduce tax,” said one product listing posted on Amazon.

Likewise, on the same issue, an eBay trader proposed to “solve this problem.”

Meanwhile, a seller on AliExpress, Alibaba’s site for international buyers, offered to mark products “with lower value to help you avoid import tax.” But “it doesn’t mean the total price you paid or the market value of the goods,” the trader said.

Tax Loophole

In many countries, overseas goods are free from customs duty or import value-added tax if they are personal gifts for special events, like weddings or birthdays. To benefit from the relief, the goods must typically be worth less than $50.

On customs declaration documents, e-marketplace traders are exploiting this tax exemption by declaring small, high-priced goods as gifts or significantly marking down their value. In the European Union alone, deliberate mispricing of imported goods has cost member nations at least 1 billion euros ($1.2 billion).

“This is a leak in the boat that, if you don’t plug the hole, will eventually sink it,” said Richard Allen, spokesman for the advocacy group U.K. Retailers Against VAT Abuse Schemes. Rival sellers “are faced with the situation thinking they’ve got to get involved in the end, otherwise they can’t compete,” he told Bloomberg Tax.

EU Crackdown

The offers from e-marketplace traders to evade border taxes for prospective buyers come amid an international crackdown on the issue across the EU.

In December, finance ministers agreed to introduce a range of VAT changes for online retailers by 2021, including a pledge to combat tax evasion arising from e-marketplace sellers mislabeling high-value goods exported in small packages.

The activity can create unfair competition between businesses, the EU said in a December news release. The bloc has a 22-euro threshold for low-value imports. Overall, VAT fraud on e-marketplaces costs EU countries 5 billion euros a year.

Seller Guidelines

Like with the EU, e-marketplaces are already aware of how online traders can exploit loopholes in customs declaration documents to evade import taxes.

In its policy guidelines, eBay warns sellers to reject requests from prospective buyers to produce fake customs declarations or falsely mark items as a “gift.”

In separate statements, eBay, Alibaba, and Amazon all said they took action after Bloomberg Tax highlighted instances of this illegitimate activity on their sites.

“All Marketplace sellers must follow our selling guidelines and those who don’t will be subject to action including potential removal of their account,” said a spokesman for Seattle-based Amazon, the world’s largest online retailer. “The products in question are no longer available,” he added.

Echoing eBay’s policy guidelines, a spokeswoman for the San Jose, Calif.-based business said it forbids traders marking false values of goods. Sellers “attempting to circumvent the rules will be suspended from our marketplace,” she added.

Similarly, a spokeswoman for Alibaba, China’s largest online retailer, said the company prohibits the activity highlighted on its site for international buyers.

“After notification of this incident we took prompt action and removed the third-party product listing identified to be in violation of our listing policy,” the spokeswoman added, “and we continue to monitor the situation and improve our processes and guidance for our third-party sellers.”

National Action

In addition to the EU’s reforms to combat VAT fraud among online marketplaces, some member nations have already taken individual action on the matter.

In March, the U.K. government made e-marketplaces liable for the local VAT that foreign traders evade via their online platforms. The move came after foreign online traders set up U.K. shell companies to avoid similar legislation, introduced in September 2016, that made e-marketplaces liable for overseas sellers’ VAT.

Most of the overseas sellers creating tax problems for the U.K. on e-marketplaces are based in China, the country’s National Audit Office said in April 2017.

Since March 2018, moreover, Germany has enforced similar legislation to the U.K., making online marketplaces liable for both foreign and domestic VAT.

By 2021, other EU countries will have enforced the same measure as part of the 28-member trading bloc’s wider VAT system reforms for online retailers.

“Online marketplaces have a really positive role to play within the economy,” Mel Stride, the U.K. Treasury’s financial secretary, told Bloomberg Tax in an April interview. “But they do pose a particular problem when it comes to VAT,” he said.

To contact the reporter on this story: Ben Stupples in London at bstupples@bloombergtax.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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