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By Ben Stupples
The U.K. Treasury is confident the country will continue to share indirect tax data with the European Union after Brexit, boosting global efforts to fight tax evasion among online marketplaces.
The issue is “in the mix of negotiations,” Mel Stride, the U.K. Treasury’s financial secretary, told Bloomberg Tax in an exclusive interview. “But I would expect us to make progress on that.”
Sharing data is key to the EU’s efforts to fight online traders outside the bloc evading VAT on goods they sell to consumers in the region through e-marketplaces like Amazon.com Inc. and eBay Inc. The activity hurts the competitiveness of the EU’s traditional retailers and online traders because they must charge the levy, and it costs member states as much as 5 billion euros ($6.2 billion) every year.
“Online marketplaces have a really positive role to play within the economy,” added Stride, who oversees the U.K.’s tax system. “But they do pose a particular problem when it comes to VAT.”
A spokesman for eBay declined to comment. Amazon’s press office didn’t respond to Bloomberg Tax’s request for comment.
To enforce value-added tax compliance, the EU has an online search engine that identifies businesses properly registered for the levy. Because the search engine uses EU member states’ databases, the U.K.'s tax industry has questioned whether the country will continue to provide the relevant information once it leaves the bloc.
Checking the validity of a VAT number is “currently easy” through the EU’s VAT Information Exchange System, Richard Wild, technical tax leader at the U.K.’s Chartered Institute of Taxation, said in November. But “once the U.K. leaves the EU, will the VIES system continue to be updated by HMRC in order to maintain its integrity?” he asked.
Stride, though, stressed that continuing to share tax data with the EU after Brexit is a priority.
“We’ve expressed a very clear objective of coming to an agreement with the EU on continuing to share information in the tax space,” he said. “That’s an important driver of compliance.”
The U.K.’s future collaboration with the EU on VAT is already included in official Brexit documents.
Britain and EU countries will keep sharing data relevant to fighting VAT fraud in the 21-month Brexit transition period, according to the draft agreement on the U.K.’s withdrawal. The document was updated March 15.
A European Commission source told Bloomberg Tax in a March 28 email that this exchange of VAT data is expected to continue beyond the end of transition period for transactions carried out in that phase.
This ensures “VAT obligations are respected” during the transition period, set to begin at the end of March 2019, the source said, who asked not to be identified. “Arrangements on tax cooperation beyond this point will depend on the agreement on the future relationship,” they added.
Levied on the sale price of goods or services, VAT is a key source of EU countries’ public revenue.
The indirect levy made up 21 percent of the 569.3 billion pounds ($809 billion) collected by the U.K.’s tax authority in the financial year ended March 2017, according to government statistics.
VAT fraud among online marketplaces costs the British government as much as 1.5 billion pounds ($2.1 billion) a year, according to an April 2017 report from the U.K.’s National Audit Office.
The report flagged Chinese traders as the main source of VAT evasion on e-marketplaces and said the U.K. didn’t have a cohesive plan in 2013 for the “emerging” tax threat from internet traders.
Since then, though, the U.K. has become a leading country in fighting VAT fraud on e-marketplaces.
In September 2016, the government enacted laws to make e-marketplaces liable for the VAT that foreign online traders evade via their online platforms. The EU approved similar laws the following December as part of its reform of VAT for e-commerce, which fully takes effect after 2021.
In March 2018, moreover, the U.K. introduced measures to make online marketplaces liable for the VAT that online traders based in the U.K. are evading. The measures were first announced at its 2017 autumn budget presentation.
The government extended its powers because foreign traders had avoided the 2016 measures by creating U.K. shell companies, Daniel Lyons, indirect tax partner at Deloitte, previously told Bloomberg Tax.
E-marketplaces “recognize that this is about fairness, this is about leveling the playing field,” Stride said. In the wake of the September 2016 legislation, “a very large number of traders have actually been pushed off those sites where they’re not doing the right thing,” he added.
Under the same laws introduced in March, 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 websites display a valid VAT number.
Online marketplaces “generate greater choice for consumers, they keep prices down, and of course they are a wonderful outlet for a lot of businesses in the U.K. to actually trade,” Stride said. Yet the new legislation will be “a significant change to the way in which these marketplaces operate.”
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