Monday, April 18, 2011

EU signals end of the Channel Island fulfillment industry

We have previously blogged on how Jersey and Guernsey have allowed major retailers to abuse the low value consignment relief (LVCR) provided under Europe's value added tax regime. Now the campaigning group Retailers Against VAT Avoidance Scheme (RAVAS) has reported that the European Commission, the body that polices EU law, has made its position clear on the abuse of LVCR in the Channel Islands in a letter to RAVAS.

Referring to a recent meeting with UK Officials the Commission states that the UK Authorities “are aware of the problems that LVCR is creating and are firmly committed to putting an end to them” . The letter goes on to hint at the arrival of “further and more far reaching changes than those already implemented by the Budget Act”.

In the 2011 Budget George Osborne announced that LVCR would be reduced to £15 from all destinations into the UK but it is now clear that further restrictive measures are imminent. Whilst it is not certain what these will be, it is likely that a range of goods will be removed from LVCR altogether either by derogation from the relief entirely or under Article 22 of the LVCR directive 83/81 which allows member states to "exclude goods which have been imported on mail order from the exemption” . In theory this could be applied purely to the Channel Islands in order to combat the ongoing abuse and to prevent LVCR being used for tax avoidance, but it could also be applied to any other offshore location from which LVCR abuse is taking place.

The Commission close their letter by reiterating that they will consider formal infringement procedures against the UK if the measures introduced by the UK Authorities are not sufficient to deal with the abuse of LVCR.

It is now clear that the LVCR offshore fulfilment industry is an abuse of EU law and one that will soon be history. Millions of pounds in VAT currently lost to the UK taxpayer will now be saved and UK businesses struggling to compete with VAT free mail order prices on the home market, will at last be free to compete on a level playing field again.

RAVAS Spokesperson Richard Allen sums up the EU’s decision :

“ It’s very simple really. EU law states that member states must ensure that LVCR is not used for tax avoidance. The UK has clearly failed to do that. The idea that LVCR was designed to provide companies with a means of selling goods, that were intended for consumption in the UK, VAT free in the UK is and always has been, a myth."

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