U.K. Report Slams Amazon, eBay, for Poor Response to VAT Fraud

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By Ali Qassim

Amazon.com Inc. and eBay Inc. must improve on their so-far “dismal” efforts to remove fraudulent online sellers outside the European Union that fail to pay VAT, according to a report issued by the U.K. government’s spending watchdog.

“Online marketplaces tell us they are committed to removing ‘bad actors’ yet that sentiment rings hollow when those same marketplaces continue to profit from the actions of rogue traders,” Meg Hillier, chair of the Public Accounts Committee, said in a statement with the release of the Oct. 18 report.

The U.K.s’ tax office—Her Majesty’s Revenue and Customs—also came under fire for its poor record against sellers violating VAT rules. “Online VAT fraud is hugely damaging yet, as online sales continue to grow, the response of HMRC and the marketplaces where fraudsters operate has been dismal,” she said.

The report follows a hearing by the 15-member PAC into how the U.K. can recover some of the VAT—set at 20 percent in the U.K.—unpaid every year by online sellers outside the EU. VAT tax fraud or error cost the country up to 1.5 billion pounds ($1.97 billion) in 2015-16, according to the U.K.’s National Audit Office.

The report also comes as U.S.-based Amazon and eBay are combating the EU’s VAT e-commerce plan, which calls for making large online platforms liable for collecting VAT on imported goods. While Amazon is accepting partial responsibility in collecting VAT via a withholding role, eBay is staunchly against any role for collecting VAT receipts.

Amazon, eBay Defend Record

Senior representatives from Amazon and eBay, questioned by the PAC, defended their records against online VAT fraudsters, arguing they “take this problem very seriously as it creates legal, financial and reputational risks to them,” the report said.

A spokesman from eBay told Bloomberg Tax in an Oct. 17 email that the auction platform seeks a “fair marketplace for all our buyers and sellers. That’s why we have been working together with HMRC—and going above and beyond their requirements—to continue to ensure that our site is the best possible place to do business.”

Amazon also stressed its efforts in combating online VAT fraud. “We work closely with HMRC on this matter sharing all requested data on non-EU sellers and promptly removing any seller they inform us is not VAT compliant,” a spokesman for Amazon told Bloomberg Tax.

In addition, Amazon offers extensive information, training, and tools to assist sellers in their VAT obligations, he said.

The report cited action that both online retailers have taken to remove sellers from their platforms. For instance, eBay has blocked 184 sellers after receiving 77 notices from the tax office. Amazon received more than 400 notices from HMRC to take down firms from its 46,000 list of non-EU sellers.

HMRC Playing ‘Cat and Mouse’

HMRC’s lack of enforcement action against online VAT fraudsters came under attack by the PAC, which said the tax office was “playing a game of cat and mouse” with companies based outside the U.K. It called on the authority to take high-profile enforcement action.

The parliamentarians also criticized HMRC for not naming and shaming noncompliant traders and for failing to prosecute a single seller. VATfraud, a campaign group made up of U.K. eBay and Amazon Business sellers that has lobbied HMRC against evading Chinese and non-EU sellers, agreed.

A spokesman for VATfraud told Bloomberg Tax “it will not be happy” until HMRC manages to seize “any of the VAT evading sellers from Amazon warehouses” or prosecutes an offending company.

Mike Cherry, the national chairman of the U.K.’s Federation of Small Businesses, was also vocal about the disadvantages for smaller online sellers that follow the rules. “No business, at home or abroad, should be gaining an unfair advantage through tax evasion,” he told Bloomberg Tax. “The last thing they need is to be undercut by online firms that are evading VAT.”

HMRC Touts Rise in VAT-Registered Sellers

Asked to comment on the PAC’s findings, a spokesman for HMRC told Bloomberg Tax that the U.K. “has led the way in holding online marketplaces jointly liable for VAT evaded overseas.”

“We introduced tough new rules last year allowing us to hold online marketplaces liable for unpaid VAT by overseas sellers and since then we have seen a ten-fold rise in the number of sellers registering for VAT,” he said.

The new reforms will secure an extra 875 million pounds in tax to help pay for vital public services, he said.

The spokesman also pointed out that HMRC isn’t a prosecuting authority but undertakes investigations and works with the U.K.‘s three independent prosecutors to achieve positive charging decisions.

Call for HMRC Action

The government plans to formally respond to the PAC’s recommendations at a later date, the HMRC spokesman said.

Calls for action include:

  •  by March 2018, produce an update of its estimate of the scale and impact of the online VAT fraud tax gap, incorporating new evidence and assessments of new risks where applicable;
  •  inject much more urgency to tackling the problem of online VAT fraud by making much stronger and more extensive use of its existing powers; and speeding up the introduction of new measures, such as the split payment method of collecting VAT;
  •  look at the option for HMRC to require online marketplaces to withhold VAT when a sale is made and then pass it directly to HMRC;
  •  put in place an agreement, by March 2018, applicable across the whole online marketplace, that sets out the collaborative working arrangements between HMRC and the online marketplaces;
  •  assess the effectiveness of its response to the problem of online VAT fraud and report to the Committee by March 2018; and
  •  assess the scale of the fulfilment house industry, and how it intends the process of registration for the scheme to work efficiently and effectively.

To contact the reporter responsible for this story: Ali Qassim at correspondents@bna.com in London

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

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