Vat Fraud by Sellers on Amazon

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Richard Allen is with us talking about VAT fraud

Richard ran an on-line mail order business
In 2003 people started suffering from problems with VAT when the Channel Islands started exploiting a VAT loophole
Parliament and Panorama are tackling this thorny issue of VAT fraud
Some people are advising Chinese sellers how to find loopholes in the VAT system to exploit it
Sales Tax in the US has its own issues
Richard has had contact with the European Commission right at the top

What is VAT?

It’s not like Sales Tax varying from state to state
Have a single market and VAT applies to every European country
It’s an invisible TAX here and people who don’t know what it is don’t realise they are paying it
Fiscal neutrality means that nobody must pay VAT
There are criminal penalties
When goods come into the EU the VAT is collected at the border by a customs officer
The system is broken the EU has declared
2m items come into the UK at Heathrow and the customs officers surely can’t get around them all

Some Chinese factories encourage and will offer to give a lower value invoice to overcome the VAT
But this is a bad game…if you can’t make money on the product you’re selling and resort to these tactics then you don’t have a business
Import VAT – consumer pays the VAT AND the handling charge
So if you have a small item that’s £10 plus £2 VAT, handling charge is £8
So you’re paying £8 plus £2 VAT – virtually the price of the item
Customs only spot check
But the person mis-declaring the items are not in the EU usually and can’t be given a penalty
The whole thing doesn’t work

Scrapping the whole idea of VAT being collected at the border on mail order sales to overcome vat fraud
Using VAT MOSS similar to digital services
Sellers wherever they are will have to be registered for VAT due to this vat fraud problem
So an American seller will have to collect it at the checkout
Legislation coming in to force Amazon and eBay to force sellers to collect VAT at checkout
New Sellers coming onto Amazon now HAVE to have a VAT number to register
Amazon and eBay have been able to keep the data hidden from the tax authorities

China is going to be a massive market for selling on Amazon
Amazon is relying on China as a big market and can’t kick them off
Massive sales come from 3rd party sellers from different countries and as soon as they give up the data they will lose a huge number of sales
But this is Amazon making money off of fraudulent sales – wouldn’t be allowed on the High Street

Amazon is a private marketplace
Closest comparison is a car boot sale
Lots of people selling things in the car boot sales but without the owner being involved
He doesn’t make any money off each sale, doesn’t impose returns arrangements on the people selling
Amazon is a huge private marketplace completely under the control of one company Amazon
This ownership can be abused as they can turn off a Sellers account
No legislation protecting Sellers from this kind of thing
Richard likes the On-line Merchants Guild – a union for sellers?
It’s not in the interest of Sellers to be in a market where people can take advantage of a tax loophole

The buck stops with you as the Seller
If you’re selling a product from a Chinese factory that is old twt and can be sold by a vat evader then you might want to sell something else
Chinese Factories are know to drop prices AND evade VAT
So identify the ‘moat’ as a barrier to entry to stop competition
Perfect business is that you’re selling your own brand / product – there’s only one Pink Floyd

These are a bit different
All the major record labels started supplying Play.com and if you were charging VAT then you were out of the game

In 2015 RAVAS contacted VATFraud.org
They were listing a large volume of Sellers that were not VAT registered and were selling on Amazon
There was stock sitting in UK warehouses that had come in via VAT evasion routes and was being sold VAT free
Panorama went to a Chinese manufacturer who would import it through a shipper that’s happy to avoid it and the shipped it into Amazon
They then took this story to HMRC in the UK

All of this vat fraud will become irrelevant in 2021
You as a seller wherever you are in the world will have to charge the VAT rate for the buyer’s country in your checkout
Two Options either
- 1. Register with a Member State for VAT and pay it there
- 2. Sign up to VAT MOSS (Mini One Stop Shop) and basically charge the VAT to where your customer is based
  - Assume you are US based but your customer is in France then
  - You charge the VAT rate for France in your sale price at checkout when you sell and administered by Amazon or eBay etc to give the VAT MOSS
  - You will be paying the VAT at point of sale on the price sold