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By Ben Stupples
The U.K.’s new laws to combat tax evasion among traders using e-marketplaces like Amazon.com and eBay Inc. will fundamentally alter how the companies operate, according to a Treasury minister.
Targeting value-added tax fraud among overseas e-marketplace traders, the legislation will be “a significant change to the way in which these marketplaces operate,” Mel Stride, the U.K. Treasury’s financial secretary, told Bloomberg Tax in an exclusive interview. “Online marketplaces have a really positive role to play within the economy. But they do pose a particular problem when it comes to VAT.”
VAT fraud on e-marketplaces has become a priority for the U.K. amid the rise of foreign traders evading the levy on goods they sell to consumers based in the country through businesses like Amazon. The activity hurts the competitiveness of the U.K.’s traditional retailers and online traders because they must charge the levy, and it costs the country as much as 1.5 billion pounds ($2.1 billion) a year.
The U.K.’s new laws, introduced March 15, make e-marketplaces liable for the VAT of online traders in the U.K. The move comes after foreign online traders set up U.K. shell companies to avoid similar legislation, introduced September 2016, that made e-marketplaces liable for overseas sellers’ VAT.
Under the same set of new legislation, 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, the businesses must ensure that traders using their websites display a valid VAT number.
E-marketplaces “recognize that this is about fairness, this is about leveling the playing field,” said Stride, who oversees the U.K.’s tax system. 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.
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.
In an April 2017 report on overseas sellers and VAT, the U.K.’s National Audit Office identified Chinese traders as the main source of tax evasion on e-marketplaces. It added that the U.K. didn’t have a cohesive plan in 2013 for the “emerging” threat that internet traders posed to its tax system.
A spokesman for eBay declined to comment. Amazon’s press office didn’t respond to Bloomberg Tax’s request for comment.
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