I have been banging on about the Channel Island’s VAT abuse for years.
Labour decided to do nothing about it when in power even though it costs the country at least £100 million a year — and I suspect somewhat more.
Now the ConDems seem to be turning a blind eye — as I noted earlier.
And yet the UK government has a duty in law to close down this abuse and the right to do so. The reasoning is his:
Article 189 of the EC Treaty makes a Directive binding on states as to the result to be achieved from an [LVCR] exemption but leaves the form and method to their choice. The Sixth VAT Directive permits exemptions from VAT on importation but requires states to ensure that their method of implementation “prevents any possible evasion, avoidance or abuse” (Sixth VAT Directive (77/388/EEC) Article 14 paragraph 1) It also gives states the option of not granting exemption “where this would be liable to have a serious effect on conditions of competition” (Article 14 Paragraph (d)) This is in line with a fundamental intent of EC law “to promote throughout the Community‚Ķdevelopment of economic activities (EC Treaty Article 2) The Council Directive allows states to exclude goods from such exemptions which have been imported on mail order” (VAT Directive 83/181 EEC Article 22)
I am aware that HMRC have confirmed in writing that:
“if relieving mail order consignments under the relevant provisions of the Sixth VAT Directive and Directive 83/181/EEC affects the conditions of competition within the home market the UK is under a community obligation not to grant the relief.”
So the only question is whether competition in the home market has been affected by Channel Island's VAT abuse. As a recent article in trade magazine Cue entertainment reported:
The rise in VAT in the emergency budget last month has further tipped the balance in favour of the larger entertainment retailers able to take advantage of Low Value Consignment Relief through their Channel Islands operations. Adrian Morrison reports.
The independent music retail sector has been hit hard in recently years. Almost 60% of stores operational in 2000 had closed down by 2009. The sector’s demise was concurrent with the rise of operations such as Jersey-based Play.Com, HMV Guernsey Ltd and others including off-shore supermarket operations.
A recent survey by consumer watchdog Which? found that only 11% of CD buyers purchased from independent record shops. Tellingly, the vast majority of these stores cannot take advantage of LVCR. The other 89% use online retailers, followed by high street chain stores and then supermarkets, which frequently can.
A spokesperson for a high street retailer, which also takes advantage of VAT relief from off-shore operations, said: “If there was a change to the hierarchy and VAT had to be paid, it would not be an issue for us because it would hit people equally and, in fact, would bring online prices closer to our store prices. A level playing field would actually help multi-channel players.” Indicative of the sensitivities surrounding this issue, he didn’t want to be named.
Of curse he didn’t. But I will talk real numbers that show that the trade is having a serious effect on competition — which si the grounds for it being closed. This data comes from ERA - The Entertainment Retailers Association:
INTERNET SALES VOLUMES
2005
Total Internet sales of CDs - 20 million units with a total value of £200 million
Total Internet sales of DVDs - 28 million units with a total value £335 million.
2009
Total Internet sales of CDs - 34 million units with a total value £280 million (increase on 2005 of 40%)
Total Internet sales of DVDs - 70 million units with a total value £700 million (increase on 2005 of 209%)
TOTAL MUSIC MARKET VALUES (BOTH INTERNET AND TRADITIONAL SHOPS)
2005
Total CD Sales £1,856m
Total DVD Sales £2,214m
2009
Total CD sales £1,314m (decline of 29% on 2005)
Total DVD sales £2,111m (decline of 5% on 2005)
TOTAL NUMBER OF RETAIL OUTLETS ON UK MAINLAND
2005
Music Retailers 5,621
DVD Retailers 6,040
2009
Music Retailers 4,644 (19% decline on 2005)
DVD Retailers 5,181 (14% decline on 2005)
TOTAL NUMBER OF INDEPENDENT RETAIL OUTLETS ON UK MAINLAND
2005
Music Retailers 734
DVD Retailers 251
2009
Music Retailers 269 (63% decline on 2005)
DVD Retailers 175 (30% decline on 2005)
That’s a tale of tax abuse inspired decline in an industry facing unfair competition that the government has a duty to stop.
That abuse has to end now.
And it’s a government obligation to do so.
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Does your analysis factor in the exponential growth in the download market (iTunes et al)?
Hollando, not sure why that is relevant ? It’s a different sector of the market and one that relate mainly to mainstream pop music, most of which has been sold in supermarkets for years. 85% of music is sold in a hard format and lots of people buy music that isn’t on X Factor such as Opera, Cult Back Catalogue, Jazz and so on. This is an issue to do with physical retail. Both The Channel Islands Authorities and UK Authorities have been bleating on about downloads for years as if that somehow justifies mass tax avoidance. HMV, Play, Amazon etc. wouldn’t go to the effort of locating offshore if it wasn’t worth it financially and with a 209% increase in DVD mail order since 2005 , boy is it worth it! .
@ Both Richards
Yes. Absolutely agree. And wouldn’t it be an ideal subject on which the coalition could prove that it is in earnest in its wider drive for fiscal probity. Our debts are huge, growing and unsustainable – so why would they shun such an easy win? I am not holding my breath because I just know that their are overriding vested interests involved. But good luck on this.
The only thing on our side is that EU law overrides UK law. If the EU agree there is a breach of the Sixth VAT Directive the UK in theory has to comply. This tests not only the UK Government but the EU. Since the EU saddled us with VAT they have a duty to uphold the rules they created. The rules are well written and clear, the UK is clearly in breach. Its a no brainer…in theory. Lets hope in practice it is as clear.
Richard Allen, i’m not sure which “Channel Island Authorities” have been bleating on about downloads but that’s news to me (as a resident of Guernsey).
We don’t want those businesses here. They contribute very little to the local economy, whilst inevitably making it hard in the future for geniune local businesses who wish to export.
As had been said many times before, the problem is the HMRC just can’t be bothered to act.
@Greg
You’ll note that I gave equal treatment to the UK and Channel Island Authorities. I didn’t single out any particular nation. The fact is that Guernsey was actively looking for LVCR business in the music industry. I know as I’ve seen the evidence. And ALL politicians were bleating on about downloads, both in the UK and The Channel Islands spurred on mainly by the BBC who had to justify their huge website. I am aware that Guernsey residents don’t want these businesses on the Island and I sympathise but the The Guernsey Government actively encouraged the growth of this industry as a policy helped along by our own useless shower. I agree…its a mess.
@Greg
And are the Guernsey Authorities completely blameless for the Hut Group which has had a 150% increase in turn over year on year and sells anything and everything it can find to shove through the LVCR scheme ? They are currently the most successful company exploiting LVCR. Are the Guernsey Authorities that out of touch that this business continues to expand against their wishes ? Who sits in the Customs posts in Guernsey when the good arrive ? Who regulates the operation ? Pull the other one….
Yes Richard Allen.
Unfortunately Greg knows nothing about pretty much anything. I’m surprised he even bothers to read this blog.
Hey Greg, stick to commenting on trivia chez nous, eh. Cor la!
Hi,
not only sale of CD’s/DVD’s is affected.
we sell low value – below 18£ car parts online, and whole internet is just floded with cheap wiper blades, light bulbs and other parts that comes from Channel Islands.
Recently we bought pictures from LOCAL newspaper – they were of course posted from CHANNEL ISLANDS.
It’s just not fair for mainland businesses to face competition with 20%!!! tax advantage.
this is just tax system abuse!!!
thanks