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UK marketplace liability too far?

  • VAT
  • 02 April 2016 | Richard Asquith

UK marketplace liability too far?

In his 2016 budget on 16 March, the UK Chancellor, George Osborne,  imposed new VAT obligations on non-EU e-commerce sellers.  This included forcing them to appoint UK tax / fiscal representatives to ensure they were properly VAT registered, filing UK returns and remitting collected VAT.

The measures were introduced to tackle reports of hundreds of largely Chinese e-commerce merchants selling B2C in the UK without charging UK VAT at 20%. The estimates of the missing VAT were £1billion and above. Aside from lost revenues for the UK Treasury, this was damaging the fortunes of UK-based e-retailers who were correctly charging VAT.

VAT liabilities on e-commerce marketplaces

The Chancellor also proposed to make e-commerce marketplaces that hosted any fraudulent Chinese (or other non-EU businesses) directly liable for any missing VAT. This is on the basis that whilst the marketplaces are innocent third parties, they are promoting the fraudulent traders’ businesses, and could have identified VAT frauds.

ECJ liabilities on third party marketplaces

The legal support for this position on marketplaces’ VAT liability arises from a number of European Court of Justice (ECJ) rulings. The principle one is Kittel, a Belgian missing trader VAT fraud that went to the ECJ in 2006.

Kittel (and others) established that innocent third parties involved in sham VAT transactions may still be held liable if they should have reasonably known that a fraud was occurring. Tax authorities have provided examples of criteria for companies to employ to identify frauds, including suspiciously low price offers from unknown foreign suppliers.

In the case of marketplaces, the UK may now argue that marketplaces have the data and processes to reasonably screen for traders who are evading VAT.  This would therefore make the marketplace liable for VAT.

A VAT liability too far?

But is this extending the Kittel principle too far? It raises a number issues:

  • Firstly, whether a marketplace operator is a VAT party in the transaction on its website since it is only providing the meeting place (for a fee to the seller), and is not the seller, buyer or agent with legal title at any stage.
  • Secondly, and more profoundly, Kittle requires that there is no other reasonable explanation for a potential fraud. A 20% price reduction on a transaction (which would indicated any missing UK VAT) could convincingly be explained by the very low prices and margins that Chinese sellers typically operate under.
  • Thirdly, the marketplace is not responsible for checking or providing the sellers’ VAT invoices. Marketplaces also do not have sellers' cost data to use to monitor suspicious price differentials. Lacking these components would make it near impossible for the marketplaces to spot frauds as highlighted by Kittel.

So what next?

The marketplaces and freight forwarders operating in the UK are already co-operating in full with the UK’s HMRC. This includes providing full data on their sellers from China and elsewhere outside of the EU.  Whether the overstretched tax authorities have the resources to process the information is a doubt.

However, the question of them sharing a liability for any missing VAT is highly doubtful. The UK government probably anticipated this, and may have introduced the measure as simply good publicity to demonstrate it is acting on the problem.


VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which this year won International Tax Review's Tax Technology Firm of the Year. Richard qualified as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.