Amazon and eBay have been accused of putting UK companies out of business by turning a blind eye to widespread tax fraud by foreign companies and organised criminals using their platforms.
Experts told the Commons Public Accounts Committee on Wednesday that companies, which are based in countries including China and the US, openly admit to not paying any VAT, which allows them to undercut British competitors by up to 20 per cent.
Committee chair, Meg Hillier, said many firms were laying of staff and “going to the wall” as a result.
Richard Allen of campaign group, Retailers Against VAT Fraud, said it was “easy” to find companies avoiding tax on Amazon’s marketplace, which hosts thousands of third-party sellers.
“I did a test order before this meeting. I ordered an item from a company on Amazon that we know isn’t charging VAT. [The seller] admitted it, he said.
“It was gift-wrapped, so this was a gift-wrapped fraudulent transaction. It turned up the next day and the money went to China.”
He said the item was not in fact sent from overseas but arrived from a warehouse in Scotland.
Mr Allen said VAT fraud of this kind was a problem in every sector where goods are of relatively low value. “It’s expanding, because there is money to be made,” he said.
“I’ve lost count of the number of businesses who have called me saying that they are being affected,” he said.
Labour committee member, Caroline Flint, grilled Steve Dishman, a vice-president at Amazon and Joe Billante, an eBay vice-president, over why they allowed fraud to take place.
“Whatever your relationship to the seller, the byproduct of Amazon and eBay and other online marketplaces is that you are profiting from the evading of tax by these overseas sellers. That is a fact, isn’t it?” Ms Flint asked.
Mr Billante replied: “We don’t want any of these sellers on our platform. If we are notified, we take action.”
He said 98 per cent of sellers display a valid VAT number and that eBay did not have access to tax records so could not know whether sellers were defrauding the taxpayer by failing to pay their fair share.
Mr Dishman conceded that there was a problem, adding, “we need all sellers to compete equally. That is what we are focused on,” he said.
Mr Allen said that there had been “no action whatsoever” from HMRC on the issue, partly because the organisation may not have enough resources to deal with it.
HMRC has seen thousands of jobs slashed under the Conservative and Coalition Governments.
Rita de la Feria, professor of tax law at the University of Leeds, told the committee that, while this type of fraud was not a uniquely British problem, the UK’s borders were “some of the worst-policed in Europe”. She said she sympathised with tax authorities who are facing cuts and resource constraints.
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Because each transaction is for a small amount of money, HMRC does not investigate because it is not effective to do so even though the overall problem is a large one, Profedsor de la Feria said.
New EU laws mean that companies such as eBay and Amazon are liable for tax that goes uncollected on sales via their platforms if they knew or should have known that fraud has been committed.
Professor de la Feria said there was a “serious problem of enforcement” of the law.