Tesco Mulls Joining Amazon, EBay in U.K.'s New Tax Fraud Fight

Trust Bloomberg Tax for the international news and analysis to navigate the complex tax treaty networks and global business regulations.

By Ben Stupples

Tesco Plc is considering signing up to the U.K.’s latest efforts to combat tax fraud among online marketplaces, a move that would put pressure on businesses shunning the initiative.

Last month, the government called on e-marketplaces like Amazon.com Inc. and eBay Inc. to commit publicly to tackling value-added tax fraud among traders using their online platforms.

A spokesman for Tesco, which has its own online marketplace and is the U.K.’s largest food retailer, said in a May 9 email to Bloomberg Tax that it’s “reviewing” the government’s proposal. The spokesman didn’t respond to an additional request for comment on when Tesco will make its decision.

Cracking down on VAT fraud among e-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.

“Marketplaces risk reputational damage if they’re not on the list of companies that have signed up,” Sue Rathmell, VAT director at accounting firm MHA MacIntyre Hudson, told Bloomberg Tax by email May 10. The companies “could be accused of facilitating tax evasion if they don’t show support.”

List of Signatories

Specifically, the U.K. government has asked e-marketplaces to sign an agreement to educate users on value-added tax, 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 the U.K.’s fight against VAT fraud, which costs it as much as 1.5 billion pounds ($2 billion) a year.

While Tesco reviews the U.K.’s agreement, Amazon and eBay both told Bloomberg Tax last month they will sign it. The U.K. press office of rival e-marketplace Etsy Inc., meanwhile, didn’t responded to requests from Bloomberg Tax.

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.

Key to U.K. Finances

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.

Similarly, the U.K. is a key country for online marketplaces. Last year, it was Amazon’s fourth-largest and eBay’s third-largest individual geographical markets, according to their annual reports. Etsy, meanwhile, lists the U.K. in its own 2017 annual report as a “core” market.

Jon Thompson, chief executive of the U.K.’s tax authority, told lawmakers last month he expects Her Majesty’s Revenue and Customs to update its list of signatories for the agreement every year.

“HMRC is correct to share the responsibility of tackling VAT loss with businesses as they’re in the right position to monitor sellers so that the right tax can be collected,” Rathmell said.

With the agreement, “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,” she added. “Others may need to catch up and consult their lawyers to check their standing before passing on information to HMRC, weighing up their responsibilities versus liability.”

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

Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.

Request International Tax