Search form

Last updated: 3 min 58 sec ago

You are here

Business & Economy

UK lost up to £1bn from VAT evasion by foreign online retailers

Britain is losing up to £1bn from VAT evasion by foreign online retailers. (Reuters)
LONDON: Britain is losing up to 1 billion pounds ($1.28 billion) a year in value added tax (VAT) because of fraud or error by sellers using online marketplaces eBay and Amazon, a report by the government auditor said.
The National Audit Office (NAO) said that the sellers involved are often based in China and that consumer regulator Trading Standards had found that US companies Amazon and eBay had failed to remove sellers that were flouting VAT rules, even after being informed of the sellers’ non-compliance.
“The size of the VAT losses due to online VAT fraud or error on transactions taking place on Amazon’s and eBay’s online platforms could be up to 1 billion pounds a year,” the NAO said, citing latest figures from the Trading Standards Institute.
All retailers selling to customers in Britain must collect VAT of 20 percent of the value of goods sold and pay this to the government. Most western countries operate similar VAT systems.
EBay said it is committed to making its platform, where sellers advertise their goods for sale, a fair place to buy and sell.
“We will continue to work closely with British tax authorities to ensure that all sellers on our platform comply with the law,” eBay said in an e-mailed statement.
Amazon, which has also been criticized by British lawmakers for using complex corporate structures to avoid paying tax on the profits it makes from UK customers, said it worked closely with tax authorities on the matter.
“We promptly remove any seller that they inform us is not VAT compliant,” the company said in a statement.
New rules aimed at making operators of marketplaces liable for VAT not paid by a seller identified to the operator as non-compliant would help to tackle the problem, the NAO said.
The auditor said that eBay and Amazon supported this measure but that Amazon had opposed another rule due to come into force next year, under which such businesses must perform due diligence checks on their overseas customers.
Amazon felt this was “disproportionate and ineffective”, the NAO said.
In addition to offering a marketplace to sellers, Amazon has a business that acts as a dispatcher for goods sold by third-party sellers.
EBay has forecast second-quarter profit that fell short of analysts’ estimates, as it spends heavily on revamping and marketing its e-commerce platform amid stiff competition from much larger rival
EBay has been making changes to its platform to lure more shoppers as well as better compete with Amazon. That has meant a shift away from online auctions toward fixed-price sales and product landing pages, which are easier to navigate than the dozens of listings sellers would generate for a single good.
Sales and marketing costs climbed 4.5 percent to $562 million in the first quarter ended March 31, while product development expenses jumped 16.3 percent to $278 million.
The company’s profit in the second quarter would be affected by “increased investment to drive improved user experiences and to market our brand,” Scott Schenkel, eBay’s finance chief, said.
EBay said it expects second-quarter adjusted profit of 43 to 45 cents per share. Analysts on average were expecting a profit of 47 cents per share, according to Thomson Reuters I/B/E/S.
The company, however, stuck to its earlier forecast for full-year adjusted profit of $1.98 to $2.03 per share, expecting more growth in the second half of 2017.
The first quarter “showed some early indication that their efforts are beginning to bear fruit,” said Wedbush Securities analyst Aaron Turner, citing more active buyers coming to the site.
“We are still waiting to see” the outcome, he added.
EBay said gross merchandise volume — the total value of all goods sold on its websites — rose 2.4 percent to $20.95 billion in the first quarter. But the result fell short of analysts’ average estimate of $21.06 billion, according to research firm FactSet StreetAccount.
The company’s net income rose to $1.04 billion, or 94 cents per share in the quarter, from $482 million, or 41 cents per share, a year earlier.
Excluding one-time items, the company earned 49 cents per share, beating analysts’ average expectation of 48 cents per share.
Revenue rose 3.7 percent to $2.22 billion. Analysts on average had expected $2.21 billion.

MORE FROM Business & Economy