The latest Chinese eBay scam; a Chinese Seller operating 36 eBay accounts, has 25 VAT numbers and prices that are too good to be true.
We noticed this best selling Desktop Mobile Phone Stand on eBay for £3.99 including delivery. This product would be impossible to sell for £3.99 if the correct VAT, postal rate, fulfilment charges, import duty & import delivery was charged. A second class stamp alone would cost £2.71 to send it because it is “packet” size. So we did some digging and here is what is going on:
We thought we’d share 356 eBay accounts that have been removed from eBay.co.uk in the last 18 months. Most have only had their UK selling privileges removed & no longer sell stock that is located in the UK.
Some of the sellers are now trading in other EU countries or have stopped selling all together
This list will be updated again soon – we still have more data to work through..
Non-EU Overseas Online Retailers can setup a new Amazon account under a completely separate company name. Once a new account has been setup, the seller can attach the account to all their old products listed on Amazon.
Every seller account is given a unique identifier number that is used to identify the seller on the Amazon website and view their storefront, company details and trading history. Every product listed on Amazon is given a unique code called an “ASIN” short for “Amazon Standard Identification Number”. These ASIN’s are used to identity products on the Amazon website. When a product is added to Amazon the ASIN and product become a permanent part of Amazon’s website catalogue, along with all its sales history, reviews and ranking.
When a seller is removed from Amazon, only the seller account is removed. All their products are left on Amazon and can be found by searching for the ASIN. This is completely contrary to what HMRC has led the Public Accounts Committee to believe.
HMRC has not seized a single item of stock, frozen any funds or blocked any listing from VAT evading overseas retailers using Amazon UK warehouses. These are the only assets in reach of HMRC.
VAT Evading Overseas Retailers are simply shutting up shop and start trading under a new (VAT compliant) company the next day with the same stock, on the same highly ranked product listings without paying a penny of their evaded VAT. If a UK based seller did this they would end up in prison. This is not a level playing field or a fair legal system.
Non-EU Overseas Online Retailers who hold stock in the UK are totally out of reach from prosecution by HMRC under the current laws. They are safe in the knowledge they can simply disappear without paying any undeclared VAT and reappear under a new company without any prospect of HMRC prosecuting them.
HMRC has issued over 43,500 VAT numbers to Non-EU Overseas Online Retailers (mostly since 2014).
HMRC estimate Online VAT Fraud is £1.5 billion a year, 60% of which is by Non-EU Overseas Online Retailers.
HMRC has only collected £150 million in VAT from Non-EU Overseas Online Retailers; about £37 million per year.
£37 million represents 3.89% of what should be collected.
This equates to a total of 96.11% or £865 million that is still going uncollected.
The system clearing isn’t working. It is completely and utterly broken.
The UK must follow in the steps of France & Italy who require Non-EU companies to appoint a Fiscal Representative and Bank Guarantee.
Make all Non-EU Overseas Online Retailers appoint a Fiscal Representative and Bank Guarantee
Make all UK Registered Companies owned by Non-EU Residents appoint a Fiscal Representative and Bank Guarantee
At present Online Marketplaces such as eBay, only checks an Overseas Sellers VAT number is valid and matches the business name. eBay doesn’t check if the seller is the actual legal owner of the VAT number & business name.
Overseas Business Sellers to use and share company names & VAT numbers that do not belong to them.
Overseas Business Sellers to pretend to be UK sellers and use made up company names & address without having their business details verified at all. The seller also doesn’t have to provide a VAT number.
UK Business Sellers can also provide made up company names & addresses. This sort of seller usually sells counterfeit and dangerous goods.
Company names and VAT numbers can be changed daily by a seller on eBay.
Amazon fully verifies a seller business details under the EU Anti Money laundering legislation because Amazon handles all payments.
However eBay does not have to adhere to EU Anti Money laundering legislation because they don’t handle payments; PayPal does.
Joe Billante, eBay Vice President, told the Public Accounts Committee on 13th of September 2017 that sellers can’t operate multiple accounts if they are selling the same products in same categories and that eBay have internal systems in place to ensure compliance.
Joe Billante statement to the Public Accounts Committee:
“It may look like they have 20 accounts because they put certain categories of certain goods into different accounts.”
“If the same seller wants to operate five accounts because it operates in five different categories, we are able to see that information internally as the seller signs up. We are able to link that together in our systems.”
eBay states it’s against eBay policy to operate duplicate accounts and listings: “Not allowed; Duplicate listings policy; Selling identical item listed separately by Multiple accounts belonging to same seller”
eBay Takes No Action against Duplicate Accounts & Listings
eBay does allow sellers to operate multiply duplicate accounts with duplicate product listed in each account. eBay takes no action against these “Bad Actors”, even when it is reported to them. This means “Bad Actors” can dominate eBay & Google Shopping search results with lots of listings of the same product, pushing out the compliant sellers who only list one product. This is putting compliant sellers who play by eBay’s rule book out of business.
Our campaign has now pressured the UK Government to introduce stricter legislation to prevent VAT Fraud on the internet. Introduced in the Finance Bill in November 2017 the legislation makes online retailers such as eBay and Amazon liable for VAT fraud that they know or should know is taking place and it also ensures that VAT numbers of Third Party Sellers are listed. However much more needs to be done (such as confiscating stock and removing fraudsters listings).
HMRC have for many years failed to pursue strong enforcement where the existence of fraud has been obvious.
With Brexit looming large the government needs to urgently put a plan into place and examine the effects that Brexit will have on Online Marketplaces, Overseas Retailers, Global Fulfilment, Distant Selling, Subsidised Chinese post, LVCR Abuse, VAT & the Split Payment model.
We propose that the government must:
Introduce VAT Split Payment model for ALL UK & NON UK online retailers.
Introduce a destination based VAT system for cross-border e-commerce, as proposed by the EU.
Stop subsidising Chinese post via UPU terminal dues.
Here is a copy of HMRC Notice to VAT evading sellers taken from Amazon forum :
New measures were introduced by HMRC for some businesses established overseas that are required to be registered for VAT in the UK. With these new measures, we may:
· direct a business to appoint a VAT representative in the UK
· require a business to provide a security to HMRC
· rule that an online marketplace provider and/or a UK VAT representative are jointly and severally liable, together with the business, for any UK VAT debts that become due.
Chinese Retailer are being offered hugely subsidised postal services known as “Terminal Dues” by the United Nation’s Universal Postal Union (UPU) allowing them to sell goods including postage from China to the UK for less than the stamp would cost a UK retailer to send the same item from the UK to the same customer.
United Nations UPU class China, the second biggest economy in the world, as a Category 3 Economy along side Gabon. This entitles Chinese online retailers huge international postal discounts. Packages can be sent to the UK for less than a penny. And it’s the UK mail service and the cost of our stamps that picks up the tab.
HMRC have just released a press statement “HMRC tackles online VAT fraud in time for Christmas. They have handed out 7,185 VAT numbers to Overseas Online retailers in the last year, that’s a tenfold increase in last year’s figures of 695 due to their crackdown of Online VAT Fraud.
However reading between the lines is seems to be desperate attempt by HMRC to get some positive PR and be seen doing something positive in tackling the online VAT fraud they have ignored for the past ten years. The press release simply proves Online VAT fraud is enormous with 7,185 previously unregistered overseas retailers deciding to register for VAT.
We tested the tool and there seems to be some flaws in it. It doesn’t work for NON EU companies (Chinese) with EU stock as it doesn’t ask where your business is located. It also says that you need to hit the VAT threshold before registering for VAT. There is no VAT threshold for NON EU companies. We find the tool completely confusing to use with a very badly designed results page. Hope KPMG are better accountants than web developers.
Perhaps they should think about renaming it from “VAT registration litmus test” to “VAT registration ambiguity test”!!