Much of the debate regarding tax havens and offshore accounts focuses on evasions of those in Europe or the United States. However, Chinese sellers have come under scrutiny recently, particularly those selling on Amazon and eBay and operating in Europe. A recent in-depth look published in the Verge indicates that many of the Chinese sellers on eBay and Amazon do not pay the value-added tax (VAT). This lets them charge less than competitors, undercutting companies that do follow the law and pay VAT.
Holding Marketplaces Accountable
The issues related to Chinese sellers not paying VAT are not the intention of eBay and Amazon, but they are a direct result of their policies. The EU Commission, Germany, and the UK recently decided to start holding these marketplace operators accountable for their unintentional role as accomplices in tax fraud. This is a significant issue, as the EU Commission estimates that this type of tax fraud accounts for about $5 billion annually throughout Europe.
Looking at Specific Figures
The plans for new enforcement do not come lightly and are based on statistics of Chinese sellers who are tax-free by avoiding corporate tax and VAT. Data shows that Amazon’s German Marketplace has around 15,000 Chinese traders registered, but a full one-third of these do not have their VAT identification number listed. Those behind the research also indicate that many of the VAT numbers that are listed are likely to be fake. Additionally, Mark Steier, the man behind the data, feels that more than 10,000 Chinese traders on eBay are avoiding paying VAT. The Ministry of Finance in Germany estimates that this accounts for a loss of several hundred million Euros in tax revenue annually.
Why Tax Avoidance Matters
There are two main issues with the way that Amazon and eBay unintentionally let Chinese sellers avoid taxes. The European countries where VAT is not paid suffer since they have lower budgets. This, in turn, means that the governments cannot provide as many resources to their citizens and residents.
Additionally, other retailers suffer since the Chinese sellers can undercut their prices, offering the same goods for less. Since Germany has a 19 percent VAT, this is a serious difference in price. If the sellers based in Germany or the other European countries were to skip paying VAT, they would face fines or time in jail.
Making Legislative Changes
In response to the increasing data regarding tax evasion by Chinese sellers, the UK and Germany are introducing walls. The HMRC in the UK has strongly encouraged online marketplaces to voluntarily sign an agreement that they commit to giving data regarding individual sellers, such as values and sales volumes. Both Amazon and eBay have signed, as have four other companies. In Germany, a bill passed Aug. 1 that requires online marketplaces to start cooperating with tax authorities in 2019, provided Parliament approves it. This includes holding the marketplaces accountable for losses if sellers do not pay taxes. However, some are concerned that these pieces of legislation will not matter as Alibaba, the Chinese e-commerce giant, enters Europe since European authorities have limited control over the marketplace.
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