EU reviews €500m low value consignment VAT loophole
The European Commission (EC) is progressing discussions with EU member states to withdraw the Low Value Consignment Stock Relief (LVCR) scheme. The VAT exemption for non-EU sellers of goods to EU consumers is estimated to cost the EU €500m per annum.
In 2014, the EC’s VAT Expert Group called for the abolition of LVCR on the basis that it discriminated against EU-based e-retailers. The EC estimated that member states lost €535m in 2013 on the concession. The number of low value consignments has grown by 236% between 1999 and 2013.
The Commission has announced that it will make legislative proposals in 2016 ‘removing the VAT exemption for the importation of small consignments from suppliers in third countries’.
E-commerce explosion puts pressure on tax break
The explosive growth of EU e-commerce has put a huge strain on national tax authorities attempting to police the LVCR regime. The problem is made up of potentially thousands of small e-retailers exploiting the tax break by under-declaring the value of their shipments.
Attempting to track and prosecute sellers from around the world would be impractical and uneconomic.
UK LVCR action on Channel Islands
The UK excluded goods from the LVCR scheme coming directly from the Channel Islands in 2014 – a loophole costing the UK £140m per annum according to HMRC, the UK tax authorities. These islands are outside of the scope of EU VAT, and distributors were creating complex supply chains to route goods through the islands to gain artificial relief from the UK’s 20% VAT rate.
LVCR – the EU rules
Goods being imported into the EU are liable to the customs duties and VAT rate of the member state of import. In 1983 the EU required the import of goods to be VAT and customs free if their value was €10 or below. Member states are free to increase their own national limited to up to €22 per package. The exemption was introduced to reduce the administrative burden on national tax and customs authorities of attempting to track and collect the charges.