Online sellers are losing out to overseas competition on #Amazon

| September 20, 2019

This week, Belgian authorities cracked down on Chinese VAT fraudsters operating out of a Brussels airport. Using false invoices, the scammers were able to avoid paying VAT and then sell their products at a cut rate price online, undercutting their law-abiding competitors, writes Henry St. George

This follows the news that, in the UK, MPs this week announced an inquiry into online VAT fraud, amid concerns that British online sellers are losing out to overseas fraudsters.

Online marketplaces host thousands of foreign companies that avoid paying VAT to gain an advantage. This allows them to offer cheaper prices, breaking the law and undercutting competitors. Experts say that in recent years VAT fraud across Europe has become widespread, with many firms avoiding the tax to make their products stand out online.

US site Amazon has come under criticism recently for failing to tackle misinformation by third-party sellers with reports that the website has allowed sellers to hijack other genuine product reviews in an effort to trick customers into buying lesser or knockoff products. And, in the US it was revealed the company had allowed third-parties to sell thousands of mislabelled and unsafe products, defying consumer safety standards.

Website VATFRAUD.org, a campaign site set-up by a group of UK eBay and Amazon Business sellers seeking to draw attention to the issue, claims that there are thousands of VAT evaders online. Their website provides ample evidence of the ongoing practice, picking out a number of Chinese sellers practicing VAT fraud currently selling on the site.

One seller on Amazon, ShineVGift Industry Co Limited, displays a VAT number registered to a different company (258210124). Fujian Zongteng Co Ltd, a Chinese e-commerce company, has already had two connected companies in the UK, TMart UK and UK Elogistics, struck off the Companies House register, but continues to operate through a third company, Super Smart Services, also based in the UK whose financial statements suggest it is trading while insolvent. While AresparkDirect EU, also an Amazon seller, is actually a company based in Shenzhen, China, and refuses to display a UK VAT number.

Amazon realizes that it has a problem, in June 2017, it tried to remove thousands of Chinese sellers from its platform, as part of a deal with HRMC to validate transactions. But clearly, despite these efforts, many fraudsters remain.

As Ruth Corkin, of tax advisers Hillier Hopkins LLP, points out: “In 2017, online marketplaces were made jointly and severally liable for transactions taking place on their platforms in UK. This led to companies like Amazon and eBay deleting a huge number of non-compliant stores. Extending this responsibility to freight forwarding agents, who already check that shipments are properly documented, would put the experts in charge and would improve compliance.”

The problem came to a head recently when UK Parliamentarians raised their concerns with the government. It revealed that overseas sellers contributed to approximately 60% of the tax loss from VAT fraud and error on online marketplaces.

HMRC insists that they are trying to do something and have pointed out that in recent years they have issued VAT penalties to a total of 1,059 overseas sellers and issued penalties worth over £34 million.

Nevertheless, many feel more can be done.

Labour MP and Chairman of the All Party Group on Business Support and Engagement, Faisal Rashid MP, has announced he will lead an inquiry into online VAT fraud this Autumn, and intends to provide recommendations to HM Revenue and Customs over how it can better level the playing field for UK businesses.

Another new approach, advocated by Asquith, would be to “make payments providers, like the credit card companies or Paypal, responsible for calculating and charging VAT on behalf of sellers.” This would ensure the ability to defraud the system is taken out of the hands of individual online stores.

“HMRC could also work with other countries,” Asquith suggests, “to make it more straightforward to register for and report VAT across borders.”

Whatever the solution, firms are struggling, and with the government distracted and parliament in recess, the problem is unlikely to go away any time soon.

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