Tesco Deals Blow to U.K.'s E-Marketplace Pact to Fight Tax Fraud (1)

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By Ben Stupples

Tesco Plc has dealt a blow to the U.K. government’s efforts to collaborate with e-marketplaces to fight tax fraud, announcing it will close its loss-making version of Amazon.com Inc. and eBay Inc.

In April, the U.K. government called on e-marketplaces to commit publicly to tackling value-added tax fraud among traders using their online platforms. Specifically, the government has asked online marketplaces to sign an agreement to educate their users on VAT obligations, provide data on traders, and react swiftly to evidence of non-compliance, according to a news release.

In a May 23 email, a Tesco spokesman confirmed that the business, Britain’s largest food retailer, won’t sign the agreement due to its closure of Tesco Direct in July. He had previously said the company was “reviewing” the proposal from Her Majesty’s Revenue and Customs, the U.K. tax authority.

“This decision has been a very difficult one to make,” Tesco’s CEO Charles Wilson said about the closure in a May 22 statement. But “it is an essential step towards establishing a more sustainable non-food offer and growing our business for the future,” he added.

Undercutting U.K. Traders

Targeting VAT fraud among online marketplaces has become a priority for HMRC, largely due to foreign traders skirting the levy on their sales in the country. This evasion undercuts U.K. traders and online sellers as they must charge VAT on their sold goods.

Through Tesco Direct, the company’s e-marketplace, shoppers can buy goods from a selected group of external businesses. With U.K. retail activity increasing online, Tesco’s wider e-commerce business is a key part of its operations. Online grocery sales grew 5.2 percent in Tesco’s latest financial year, 3.3 percent more than its large-store business, according to the company’s 2018 annual report.

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 ($793.5 billion) collected by the government in the latest financial year. VAT fraud among e-marketplaces, meanwhile, costs the U.K. as much as 1.5 billion pounds a year.

Both Amazon and eBay, two of the world’s largest e-marketplace businesses, intend to sign HMRC’s agreement.

A spokeswoman for Alibaba Group Holding Ltd. told Bloomberg Tax on May 18 that China’s largest online retailer is “ discussing arrangements” about the agreement with the U.K.’s tax authority.

A spokeswoman for HMRC declined to comment.

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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