U.K. Sees Five-Fold Rise in Tax Evasion Alerts to E-Marketplaces

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By Ben Stupples

The U.K. government has recently seen a five-fold rise in its efforts to fight tax fraud among online marketplaces like Amazon.com Inc. and eBay Inc., targeting foreign sellers who undercut domestic rivals.

The U.K.’s tax authority sent an average of 76.5 notices per month to online marketplaces from September 2016 to the end of January 2018, alerting them to an overseas seller possibly evading value-added tax.

In the next two months, the average monthly number rose dramatically to 374, according to data compiled by Bloomberg Tax.

Cracking down on value-added tax fraud among e-marketplaces has become a priority for the U.K. due to foreign traders dodging the levy, a key source of government revenue, on their sales to consumers based in the country. This evasion hurts the competitiveness of U.K. sellers, as they must charge the levy on their goods, and costs the government as much as 1.5 billion pounds ($2 billion) a year.

A spokesman for the U.K.'s tax authority confirmed in a May 16 email to Bloomberg Tax that it had sent “around 700 notices” to online marketplaces during February and March 2018.

HMRC Activity

The notices sent by Her Majesty’s Revenue and Customs relate to legislation, enacted in September 2016, to make e-marketplaces liable for the VAT that foreign traders evade via their online platforms. Most of the overseas sellers creating problems for HMRC are China-based, the U.K.’s National Audit Office said in April 2017.

Online marketplaces have pushed off “a very large number” of overseas sellers due to suspected VAT fraud, Mel Stride, the U.K. Treasury’s financial secretary, told Bloomberg Tax in an exclusive interview published April 9. “Online marketplaces have a really positive role to play within the economy. But they do pose a particular problem when it comes to VAT,” he added.

Number Spike

Bloomberg Tax compiled the data from two sets of correspondence involving HMRC and Stride.

In a March 27 letter to the Public Accounts Committee, HMRC’s chief executive, Jon Thompson, said the U.K.’s tax authority had sent around 1,300 notices to e-marketplaces by Jan. 31, 2018. Stride, who oversees the U.K.’s tax system, then said in a May 11 written answer to a lawmaker that HMRC had issued 2,048 of these notices to the likes of Amazon.com Inc. and eBay Inc. by the end of March.

In a May 17 email, an Amazon spokesman said sellers using the Seattle-based company’s online platform are “independent businesses” responsible for complying with their own VAT requirements.

“We do offer tools and information to assist sellers with their compliance, but we don’t have the authority to review their tax affairs,” he told Bloomberg Tax in a May 17 email. “Naturally we cooperate with HMRC as we are required to by law,” he added.

A spokeswoman for eBay declined to comment.

Further Powers

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.

Since September 2016, HMRC has received further powers to fight tax fraud on e-marketplaces.

In March, the U.K. introduced measures to make the companies liable for the VAT that local traders are evading. The measures were announced at its 2017 autumn budget presentation.

Last month, moreover, the government called on e-marketplaces to commit publicly to tackling VAT fraud among sellers. Amazon and eBay both intend to sign the agreement, while Alibaba Group Holding Ltd. and Tesco Plc have said they are reviewing HMRC’s proposal.

The government extended its powers in March as foreign traders dodged the 2016 laws by creating U.K. shell companies, Daniel Lyons, indirect tax partner at Deloitte, previously told Bloomberg Tax.

Under the same laws introduced in March 2018, online marketplaces will also be liable for VAT in cases where they should have taken action to prevent foreign traders from selling to British consumers. In addition, they must ensure that traders using their sites display a valid VAT number.

Online marketplaces “recognize that this is about fairness, this is about leveling the playing field,” Stride told Bloomberg Tax in the interview about the March 2018 legislation. The new laws will mark “a significant change to the way in which these marketplaces operate.”

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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