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

Bad Game

  • 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

Changing Completely in 2021

  • 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

Amazon Making Money of bad sales

  • 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

Abused Private Marketplace

  • 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

Bad Business

  • 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

Digital Goods

  • 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

VAT MOSS is coming to Fix Things

  • 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

BREXIT impacts Parliament

  • Are we inside or outside the EU for VAT in Brexit?
  • If we’re inside then it’s VAT MOSS
  • If we’re outside then we’re VAT MOSS