U.K. May Need More Powers To Raid Warehouses in Tax Fraud Fight

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By Ben Stupples

The U.K. government may need more power to search the premises of warehousing businesses like Amazon.com Inc. as part of its efforts to fight tax fraud, according to a senior official.

Overseas traders currently export their goods to the U.K. and use a local business to store and distribute the items to local consumers.

“With VAT fraud, there certainly are some questions about the power for us to enter into premises where the goods concerned are not owned by the operator of the premises,” Jon Thompson, chief executive of the U.K.’s tax authority, told lawmakers April 30. “There clearly are some legal issues.”

Thompson made the comments in a Public Accounts Committee evidence session, responding to a question on whether Her Majesty’s Revenue and Customs, the tax authority, had enough power to fight abusive tax planning.

His disclosure comes amid HMRC’s efforts to fight value-added tax fraud. In the past decade, the issue has become prominent among foreign online traders using e-marketplaces like Amazon, costing the U.K. as much as 1.5 billion pounds ($2 billion) a year.

In a bid to combat VAT fraud, HMRC launched a scheme this month that enforces more compliance checks among warehousing businesses on their overseas clients.

“This is another string to HMRC’s bow, focusing on the businesses controlling the actual goods,” said Sue Rathmell, VAT director at accounting firm MHA MacIntyre Hudson, told Bloomberg Tax April 24. The scheme, imposing a criminal conviction on businesses that don’t register for it, “will hit overseas companies that have U.K. stock and rely on a fulfillment house to do the distribution for them.”

Amazon Services

Amazon, the world’s largest e-commerce businesses, would be one of the companies in the scope of any U.K. measures to enter a warehouse where the building operator doesn’t own the goods concerned.

On its website, the Seattle-based business offers to store and distribute goods on behalf of traders. Rival businesses eBay uses a third party for its own version of this service.

An Amazon spokesman didn’t respond to Bloomberg Tax’s request for comment.

Important U.K. Tax

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 ($813 billion) collected by the government in the latest financial year.

A large part of the U.K.’s fight against VAT focuses on enforcing compliance on e-marketplaces.

In 2016, it made the likes of Amazon and eBay equally liable for the tax evaded by overseas traders.

The following November, the Treasury then said it would make marketplaces liable for VAT of local traders as well after overseas sellers set up U.K. shell companies to avoid the previous legislation.

However, in a reversal of this trend, HMRC on April 25 called on the likes of Amazon and eBay to sign up to a voluntary agreement to fight VAT fraud. Specifically, the tax authority has asked online marketplaces to agree to provide data to HMRC, react swiftly to any evidence of non-compliance, and educate internet traders on their VAT obligations in the U.K., according to a government news release.

HMRC plans to publish a list of the online marketplaces that have signed the agreement. So far, both Amazon and eBay have confirmed to Bloomberg Tax that they intend to sign it.

Thompson told the PAC that some online marketplaces had planned to sign the agreement alongside U.K. lawmakers last week. In addition, he expected HMRC to update its list annually.

“Historically, companies just had a duty to keep their shareholders happy,” said Robert Marchant, a VAT partner at accounting firm Crowe Clark Whitehill.

“But now corporate social responsibility is coming into the business sector so much more, and now we’ve got large multinational company being asked to help the authorities to do their bit and police the U.K.’s tax system,” he said April 25.

Paradise Papers

Alongside VAT fraud, Thompson cited HMRC’s efforts to obtain the Paradise Papers, a data leak of 13.4 million documents that exposed the tax planning of rich individuals and corporations.

The PAC had asked HMRC to obtain the data, and report on their findings, by the end of March.

In the evidence session, Thompson said that HMRC hadn’t managed to obtain the Paradise Papers. The International Consortium of Investigative Journalists, which holds the relevant data, has a strict policy against working with governments.

“We have nevertheless been able to scrape 300,000 pieces of data from what’s available across various media outlets about the world,” Thompson said. “And the conclusion from that is we either knew about the cases concerned, or they had no direct U.K. tax implications.”

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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