Brussels looks for lost VAT in the Channel

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The Guardian published a long article on the VAT abuse that Jersey and Guernsey continue to facilitate VAT abuse in the UK yesterday. It says:

The European commission is investigating complaints about the tax advantages enjoyed by some of the leading online CD and DVD retailers in the UK, including Play.com, HMV.com, Amazon.co.uk, Tesco.com and Asda.com.

These companies are among the biggest players in a ballooning home-delivery trade that is depriving Treasury coffers of hundreds of millions of pounds and has helped push many independent music stores out of business.

The tax dodge means online sales of most CDs and DVDs do not attract VAT – after accounting for the cost of delivery from the Channel Islands they are typically sold 10% cheaper than in most high street stores and supermarkets.

The post-Christmas closure of hundreds of Woolworths and Zavvi stores is expected to see e-retailing make further inroads into album and DVD sales this year. The quiet gains in tax-loophole home-delivery orders will far outstrip any improvement in much-hyped download sales.

As it notes:

One of the fastest-growing e-retailers is TheHut.com, founded six years ago by Matt Moulding, a former executive in John Caudwell’s mobile phone empire. TheHut.com provides VAT-free CD and DVD home delivery services from its Guernsey warehouse on behalf of Tesco.com, Asda.co.uk and the Co-op online. It will shortly start a similar contract with WHSmith.co.uk and is in talks with Argos.co.uk, one of Britain’s largest online retailers.

Many of these well-known high street names have pledged to cut their carbon footprint, but the VAT loophole trade adds a needless 1,000-mile round trip to many goods – sourced in the UK, shipped overseas, only to be sent out to customer’s homes across Britain.

Full marks to Richard Allen with whom I have been in much discussion over the last couple of years for keeping this abusive trade in the press.

Full marks to for highlighting the complete hypocrisy of the Treasury on this issue. As the Guardian notes:

In early 2005, Treasury estimates went some way to acknowledging the scale of the problem. They suggested likely losses to the taxpayer from VAT relief were running at £80m a year and warned the shortfall could rise to £200m in a couple of years. More recently, Treasury officials have privately claimed that figure has not been reached, though campaigners insist £200m looks a very conservative estimate.

I’ll confirm that last point. And yet note this:

Though they have received repeated complaints from struggling high street retailers, the Treasury and Revenue & Customs have argued the cost of closing LVCR would outweigh any savings. They have also suggested blocking the relief could harm the Channel Islands economies. Officially the trade remains “under close review”.

How absurd can they get?

Do we ignore cocaine trading because it helps the Columbian economy?

Do we support other states who help decimate out High Streets of shops?

Do we have any obligation to help the Channel Islands when they have deliberately set out to steal our tax revenues?

Apparently the Treasury thinks we have.

It gets worse:

Despite strong evidence to the contrary, the British government has told Brussels the scale of VAT loophole trading has been exaggerated. A European commission document seen by the Guardian details how the UK authorities claim Jersey has “utilised business licensing laws” to push out online retailers not indigenous to the island. “Jersey has required 17 such businesses that were already established to leave,” UK authorities told Brussels officials.

The commission document says: “The effect of these actions, according to the UK authorities, is that there are no known suppliers remaining on the Channel Islands that operated in the ‘circular’ way described in the complaint. There are only two retailers remaining on the islands that make significant sales of CDs/DVDs to the UK, one being an indigenous Jersey-based company, and the UK authorities understand these to operate as normal logistics hubs fulfilling orders from substantial stocks held in warehouses there.”

But the Guardian has found some of the biggest names in retailing, including some that had previously retreated from Jersey, are legitimately using agent companies with operations on the island to gain the benefits of LVCR. Tesco, Asda and Amazon each use agent companies with operations in the Channel Islands able to transact with customers in a way that qualifies for LVCR.

One regular supplier to Jersey retailers, who asked not to be named, said: “It is ridiculous to suggest warehouses on the island are buying or holding stock levels appropriate for the island’s local market. Of course the trade is circular.”

Given its remoteness, Jersey would be highly uncompetitive as a “normal logistics hub” without being able to offer LVCR. Play.com and TheHut.com both ship those goods that attract VAT from centrally based warehouses on the British mainland. Only CDs, DVDs and some computer games are shipped from Jersey by Play.com and from Guernsey by TheHut.com.

Cogently and correctly argued.

I have seen other evidence recently of the Revenue blatantly misrepresenting the reality of the Channel Islands to the EU to support their abusive tax structures. It seems that they are undoubtedly doing so here.

So let’s ask some real questions:

1) Why is the Treasury dedicated to perpetuating offshore tax abuse?

2) Why does the Treasury persistently misinform the EU on issues relating to the Channel Islands?

3) Why is the Treasury willing to turn a blind eye to tax abuse costing 25% of the total benefit fraud they pursue so vigorously in this country?

I’d appreciate answers.