The U.K.'s tax-collection agency needed to do a better job of tackling value-added tax fraud in online marketplaces, according to a report published Oct. 18 by a parliamentary committee that scrutinizes public finances.
Her Majesty's Revenue and Customs, or HMRC, the U.K.'s government department responsible for the collection of taxes, needed to inject more urgency into addressing the problem of online VAT fraud by making stronger and more extensive use of its existing powers, speeding up the introduction of new measures, and exploring alternative methods, including making marketplace platforms liable for duty evasion, according to the findings of an investigation by the Public Accounts Committee.
HMRC estimated that it lost between £1 billion and £1.5 billion in fiscal 2016, the report says. The U.K. levies VAT at a rate of 20%.
Online sellers based outside the European Union do not charge VAT when they should, allowing them to undercut law-abiding U.K. businesses by up to 20%, forcing some to lay off workers or to go out of business, the report says.
In many cases, goods sold are dispatched from warehouses or fulfillment centers in the U.K. Overseas sellers often choose to export goods to the U.K. and store them in fulfillment centers where they can be kept before those goods are sold to U.K. customers through online marketplaces. The VAT rules require that all traders based outside the EU, selling goods online to customers in the U.K., should charge VAT if their goods are already in the UK at the point of sale.
HMRC estimated the number of fulfillment centers in the U.K. at between 500 and 3,000.
The report was particularly critical of online retail giants Amazon.com Inc. and eBay Inc.
The two companies also noted that they planned, over the next six months, to increase their technological capacity and that they saw data-sharing as an effective way to tackle the problem. "This is not, however, a new issue — so it is bewildering to us that these big companies have taken such little action to date," according to the report.
It added that HMRC indicated that there was not "complete transparency" between it and online marketplaces and that it did not yet have access to all the data it needed from online marketplaces to identify noncompliant traders.
Amazon and eBay said they stopped all noncompliant sellers from using their sites as soon as they were notified by HMRC and that they were proactive in tackling rogue traders using their platforms, according to the report.
"We want a fair marketplace for all our buyers and sellers," an eBay spokesperson said in a statement emailed to S&P Global Market Intelligence. "That's why we have been working together with HMRC — and going above and beyond their requirements — to continue to ensure that our site is the best possible place to do business."
In an email to S&P Global Market Intelligence, a spokesperson for Amazon said: "We are reviewing the committee's recommendations and support efforts to ensure businesses and individuals selling across all marketplaces are VAT compliant. We offer extensive information, training and tools to assist sellers in their VAT obligations, and we work closely with HMRC on this matter, sharing all requested data on non-EU sellers and promptly removing any seller they inform us is not VAT compliant."