The Public Accounts Committee held a lively evidence session on tackling VAT fraud and error today. Most of the debate was about non-EU sellers on these online marketplaces avoiding paying VAT.
The witnesses were Jon Thompson, Chief Executive and Permanent Secretary, HMRC and Jim Harra, Director General, Customer Strategy and Tax Design, HMRC. Also attending was Steve Dishman, Amazon Vice President for Taxes, Europe, and Joe Billante, eBay Vice President and Chief Financial Officer for EMEA.
(Notes reflect debate as heard by author and transcription errors cannot be ruled out)
A Customary welcome
Chair Meg Hillier opened by asking Thompson for an update on his eight challenges HMRC faces in relation to Brexit. Thompson said ‘significant progress’ has been made on customs and customs technology since he last appeared in front of the PAC. We need to balance three things in relation to customs: security, raising of revenue and free flow of trade – and this is built into our contingency planning, he said. HMRC have extensive discussions with the Treasury about Customs. The ‘highly streamlined option’ in the Brexit customs paper last month (the other option was a New Customs Partnership) would lead to a ‘basket of changes’ which HMRC is confident can be implemented in stages from 2019 to 2021. However, there is likely to be a need for more resources at HMRC to be ready for Brexit.
Claim that companies turn ‘blind eye’ to evasion
Nigel Mills said both eBay and Amazon have been turning a blind eye to VAT loss. Joe Billante said eBay takes VAT evasion seriously, not least for reputational risk. There is a team at eBay that works on VAT fraud and it has had ‘a lot of success’. The company has blocked many sellers on notification from HMRC (77 notices and 184 individual sellers blocked as a result) in addition to 893 accounts blocked as a result of its own ‘internal’ work. In total 1,077 sellers have been blocked in ‘recent years’.
eBay does not know who is compliant without HMRC’s help, but its policy does require sellers to provide a valid VAT number on their listing. Billante claimed 98 per cent of foreign sellers listings display a valid VAT number,
Amazon’s Dishman said a ‘level playing field’ is essential to its business. He said the majority of sellers want to be compliant and Amazon has an education programme (webinar, web pages, supply conferences in multiple languages) because it is also an issue for domestic sellers. Amazon has invested in developing a technology tool to simplify compliance, which is able to do VAT return across the EU for a seller in ‘three or four clicks’.
There are a ‘small bunch of actors who do not obey the rules, according to Amazon. We have shared data on all our non-EU sellers with HMRC and take down non-complaint sellers off Amazon, says Dishman. He said only HMRC can know if tax money is being paid over.
HMRC does not have all the powers they need to tackle this, such as a functioning fulfilment due diligence scheme and split payment, Harra said.
Twenty sellers on a single VAT number
Dishman told Labour’s Caroline Flint that 16 per cent of sellers on Amazon are non-EU (46,000), of that about half use fulfilment by Amazon warehouses. Amazon has VAT numbers from 67 per cent of revenue from non-EU Amazon sellers.
Dishman said Amazon will soon be able to see if a seller previously blocked because of VAT evasion tries to register again, using IP addresses for example.
Flint is aware that 20 different Chinese seller accounts on eBay use the same VAT number. EBay’s spokesman said people use the platform in different ways, which means it is not necessarily 20 different accounts, and he said that eBay does check listings to stop sellers using the same VAT number – but blocked sellers do regularly try to come back on eBay.
Billante said that, if told by Hiller that a seller has an invalid VAT number, they would be removed on the same day.
Flint was told by Harra that ’clawback’ depends on the type and amount of fraud. Thompson said HMRC can find 3,000 fulfilment houses without much trouble. The onus on fulfilment houses will be to register in April 2018 - they will have three months to do that - and then HMRC can identify them. Consumers will not be left to police fair play.
Flint said Amazon and eBay are actually making money by overseas sellers avoiding tax because they pay them a fee (and get their commission) whatever happened to the tax, a point, ‘recognised’ by Dishman.
A lightbulb moment
Gillian Keegan, Tory, showed a lightbulb in a box (above) purchased from Amazon from a foreign seller that has taken over a week to give her a VAT invoice and it is still outstanding. Will the Amazon’s technology really stop such apparent VAT abuse? Dishman said a legislative solution would be better than relying on technology. Billante said that the lightbulb could not be sold on eBay without a VAT number.
More mystery shopping…
Hillier showed a packet of cable ties that she ordered from a seller from Amazon but the seller could only supply a commercial invoice and not a VAT invoice. The company even offered Hillier a 20 per cent refund because they were unable to provide a VAT invoice. Dishman responded that Amazon has the technology to identify the seller if they shut down and reopen on the marketplace, a point he repeatedly made.
Harra said they cannot tell an informant of what happened to their complaint because of taxpayer confidentiality rules, which also restricts any public ‘naming and shaming’ of sellers.
Lib Dem Layla Moran was told by Dishman that Amazon shares data with HMRC on a monthly basis and a seller is taken down within 24 hours of VAT evasion information. However, the committee should not presume there is great transparency between companies such as Amazon and eBay and HMRC, Thompson said. Billante wants to share information with other tax jurisdictions outside the UK.
Bim Afolami, Tory, was told by Thompson that Estonia, which holds the current presidency of the EU has ‘pushed forward’ on split payment and this may be implemented by 2021.
Harra said HMRC has a ‘futures team’ which should identify future threats to the tax gap. HMRC does not know when HMRC will next estimate the tax gap lost as a result of online VAT evasion. Asked if he can get the tax gap on this problem down to 10 per cent that is closer to the general VAT one by 2021, Harra said further measures are needed to achieve this (such as split payment).
Labour’s Gareth Snell was told by eBay’s Billante that technology advancement will allow it to look at VAT evasion on its website ‘at scale’ within six months. Dishman said its VAT compliance technology, that enables sellers to do VAT returns on the website, will be a long term solution.
Harra told Tory Geoffrey Clifton-Brown that he estimates HMRC will reduce the tax gap from online sales fraud, with 2016 measures, by ‘about a third to a quarter’ by 2021.
You can view the session by clicking here.