U.K. Lawmakers Call for ‘Compulsory’ Tax Pact With E-Marketplaces

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By Ben Stupples

U.K. lawmakers have cast doubt on the government’s latest efforts to crack down on tax fraud among e-marketplaces, calling for an optional agreement on the issue to be obligatory.

“Online marketplaces face no sanction for not signing,” the Public Accounts Committee said in a June 29 report on fighting value-added tax fraud. “We doubt it will be effective unless it is compulsory.”

Fighting VAT fraud among e-marketplaces like Amazon.com Inc. has become a priority for the U.K. government due to foreign traders skirting the levy on their sales to consumers based in the country. This evasion undercuts U.K. traders and online sellers as they must charge VAT on their sold goods.

The comments from the PAC, a 16-person committee of U.K. lawmakers appointed to examine the British government’s spending, come after similar criticism from its chair earlier this month.

“We need to make sure that agreement isn’t just an agreement but, if necessary, it’s forced upon these marketplaces,” Meg Hillier, the committee chair, said June 7 at the Fair Tax Mark Conference 2018 in London.

HMRC Pact Signatories

In April, the U.K.’s tax agency called on e-marketplaces to publicly commit to tackling VAT fraud among traders using their online platforms. In May, Her Majesty’s Revenue and Customs published its first list of signatories: U.S. giants Amazon and eBay, and U.K.-based Fruugo.com Ltd.

HMRC then on June 27 updated the list of signatories to the agreement, doubling the number to six. The Irish subsidiary of U.S. e-marketplace Etsy Inc., online clothing retailer ASOS Plc, and London-based online marketplace Wolf & Badger Ltd. have all signed up, according to the update.

“This agreement goes beyond legal obligations, with online marketplaces committing to helping their sellers understand their tax responsibilities and ensuring we have the information we need,” a spokeswoman for HMRC told Bloomberg Tax in a June 28 email. “We welcome the commitment from those who have signed the agreement and encourage others to do the same.”

Under the agreement, HMRC has asked e-marketplaces to agree to educate their users on VAT obligations, provide data on traders, and react swiftly to evidence of non-compliance. Any business that fails to uphold the agreement’s terms will be cut from it, according to an April 25 news release.

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 government’s tax receipts in the latest financial year. The U.K. introduced the tax, currently set at 20 percent, in the early 1970s as part of its membership of the European Union.

In a June 28 email to Bloomberg Tax, a spokeswoman for New York-based Etsy declined to comment. Both Wolf & Badger and ASOS didn’t respond to Bloomberg Tax’s requests for comment.

‘Too Many’ Fraudsters

In its report, the PAC said it was concerned that “too many” e-marketplace traders are evading tax.

It also called on HMRC to update the PAC by next March on progress for securing an extra 1 billion pounds ($1.3 billion) over the next five years from fighting VAT fraud among e-marketplaces.

As part of the update, the report added that HMRC should identify any further measures needed to help in this effort. The U.K.’s tax authority is already working with the Ministry of Justice to assess whether it needs further powers to seize goods at warehouses in the U.K., the report said.

“Online VAT fraud continues to deprive the public purse of huge sums of money that could be put to good use on behalf of UK taxpayers,” Hillier said in a June 29 news release. “If HMRC is to make good on its forecast of an additional 1 billion pounds in VAT revenue by 2023 then it must build on the progress made so far.”

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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